Gold Drivers Report - Summary

June 8, 2005

After writing for more than two months I'm happy that the Gold Drivers Report 2005 has been finalized. I really enjoyed writing it and want to thank my readers for their continued support.

Readers who've missed some previous published chapters can catch up here with a brief summary of the entire report and if interested they can download the entire report in a PDF format from www.golddrivers.com

The Gold Drivers Report, what is it all about ?

The Gold Drivers Report provides a comprehensive overview of several critical drivers all pointing towards higher gold prices the years ahead. Readers will be stunned that not one critical driver goes against gold. Each critical driver is being discussed in detail in nine separate chapters. Here's a brief summary of all chapters :

Chapter I - Gold & Historical Norm

Many analysts do suggest these days that gold is at an historic high and therefore bound to fall. This chapter proves the opposite. It analyses the 30 year averages of gold and how it's related towards other commodities, the Dow, Inflation, Oil etc.. and concludes that gold is extremely cheap these days compared to its own historical norm.

Highlights:

Gold is trading nowhere near an historic high as some experts do suggest. Historical averages do suggest the following prices for gold as being historic highs in today's environment :

Projected Historic Highs for Gold according to :

DOW/GOLD ratio :                 +$2000

Gold Long term average :     +$1500

Gold/Oil ratio :                        +$1500

Gold/CRB :                               +$700

The entire piece can be read at :

www.golddrivers.com/gold&Historicalnorm.htm

Chapter II - Gold & US$

The report continues by examining the future trend of the US$ since the gold is the anti-dollar and trades like a currency. If the dollar goes, so will gold but in opposite direction. . This chapter shows that growing deficits really matters and makes a strong case for a continued bear-market for the dollar which will benefit gold tremendously.

Highlights :

  • Current Account deficits exceeding 5% of GDP raises many Alarm Bells
  • US economy is addicted to an inflow of $2 billion dollars every single working day. This is simply not sustainable since it requires almost 80% of world savings.
  • FED officials are pointing towards a lower dollar
  • Foreign Central Banks just started selling US dollars in order to diversify its currency reserves
  • A Dollar devaluation is very Gold friendly since Gold is still a monetary asset and trades like a currency. If the Dollar goes so will Gold but in opposite direction.

The entire piece can be read at :

www.golddrivers.com/gold&US$.htm

Chapter III - Gold & Inflation

This chapter has a strong focus on gold vs inflation. Higher inflation rates in the past always led to higher gold prices since gold is the ultimate hedge against inflation. This chapter makes a strong case for inflation picking up steam and shows that current reported inflation numbers shouldn't be taken too seriously. Furthermore this chapters focus on future fiscal liabilities exceeding $50 trillion which require budgetary resources that only inflation can provide.

Highlights :

  • Inflation is picking up steam, consumers do notice already for a long time.
  • Rising oil prices are a significant contributor to higher Inflation
  • CPI is lagging oil tremendously today. History says that such an extreme won't stay there for a long period of time. Since Higher oil prices are permanent, CPI will catch up.
  • PPI continuously higher than CPI for almost two years now doesn't bode well for the CPI. CPI will catch up.
  • Future fiscal liabilities exceeding $50 trillion requires a budgetary resource which only inflation can provide.
  • Government still insists that there is no Inflation, their statistics are getting comical.
  • Gold is the Ultimate Hedge against Inflation

The entire piece can be read at :

www.golddrivers.com/gold&Inflation.htm

Chapter IV - Gold & Supply

Chapter IV has a strong focus on a decline of gold supply coming years. Many geologists do support the view that the gold industry isn't able to respond immediately to higher gold-prices. Even if gold was $1000, it wil take up 4 to 7 years to open up a new mine. A declining gold supply is already well under way. Mine production 2004 dropped 5% vs 2003. A declining gold supply coming years only puts additional pressure on an already tight physical gold market.

Highlights :

  • Mine Supply 2004 down 5%
  • South African Gold Industry is in terminal decline.
  • High grade Mines are running out of ore.
  • If Gold were $1000 / oz , it still takes four to seven years to open a mine.
  • The Gold Industry isn't going to be able to respond to higher Gold prices. It's going to take a long time.
  • Rising Gold prices put an additional short term pressure on Mine Supply.
  • Producer Hedging is dead since Hedging King Barrick announced to do no more hedging for the next ten years.
  • Industry consultant R. Bullis fears that the very large Gold producers won't survive at current production rates over the next five … ten years

The entire piece can be read at :

www.golddrivers.com/gold&Supply.htm

Chapter V - Gold & Demand

Chapter V discusses the future demand trend for gold which seems to be an one way ticket to the up-side. The deregulation of the Chinese gold market was a huge event for the gold market. China has the potential to become the biggest consumer of gold in the years to come overtaking India at around 600-700 tonnes a year. An increase demand for gold only put additional pressure on an already tight physical gold market.

[Note : This chapter still have to be written]

Chapter VI - Gold & GATA

This chapter discusses GATA's claims that half of all central bank is gone and hanging around the necks of Indian woman. GATA says that there's not a snowball's chance in hell for this gold to return to the vaults of the central banks without a drastic increase in the price of gold. For the investor it really matters if the central banks only lend 5000 tonnes of gold as the official statistics do suggest or 15000 tonnes as GATA does suggest. If GATA is correct it could have tremendous consequences for the gold market the years ahead.

Highlights :

  • GATA estimates that half of all central bank gold (15.000 tonnes) is gone
  • These figures don't show up in GFMS reports
  • GFMS only reports the reported gold loans by CB's
  • CB's don't have to report the amount of gold being loaned/swapped therefore they won't show up in official gold loan statistics. Therefore the actual gold loans MUST be higher as officially reported.
  • Veneroso's gold loan numbers are consistent with gold loan book positions by one-quarter to one-third of all bullion bankers in the period 1998-1999
  • Gold suppression can't be proven but market behavior suggests gold is being suppressed.
  • NY selling pressure is clearly visible.
  • A free traded market won't show 94% of all COMEX sessions closing lower than overseas since 1993.
  • Blanchard & Co sued JPMorgan and Barrick Gold for suppressing gold and trial is scheduled this summer.

The entire piece can be read at :

www.golddrivers.com/gold&Manipulation.htm

Chapter VII - Gold & Monetary role

This chapter discusses gold and its monetary role. Gold still plays an important monetary role but not many investors do agree. Since 1971 no currency with any kind of Gold backing does exist so many analysts argue that Gold hasn't any monetary status anymore. Well, nothing could be further from the truth. In 1971 president Nixon closed the Gold window. Critics of Gold back then argued that Gold had lost its monetary use and therefore would collapse below 35 US$ / ounce. They assumed that the paper dollar gave value to Gold, not the other way around, they did not know that Gold was money. So what happened ? Instead of falling below $35 it took off skyrocketing all the way up to its all time high of $850 US$ / ounce. Why ? Because investors lost their confidence in the US$.

[Note : This chapter still have to be written]

Chapter VIII Gold & Oil

This chapter discusses gold related to oil and has a very strong focus on PEAK-OIL. PEAK-OIL will arrive within the next coming years and will send the price of oil sky-high. Rising oil prices lead to higher inflation levels. Higher inflation leads to higher gold prices. The Gold/Oil ratio today suggests a gold price of $866 nowadays. So what gives, gold catching up or oil going down ? This chapter concludes :

Highlights :

  • Oil discoveries have peeked already 40 years ago.
  • According to M King Hubbert Production peaks follow Discovery peaks after approximately 40 years.
  • US Oil production already peaked in 1970.
  • Non OPEC Oil production already peaked in the early 90's.
  • World Oil production will peak when OPEC peaks
  • OPEC peaks when Saudi Arabia peaks
  • Saudi Arabia peaks when Ghawar peaks
  • Ghawar is aging rapidly and its life expectancy isn't rosy. Matthew Simmons says that the end is in sight.
  • Prof. Kenneth Deffeyes predicts PEAK-OIL to happen in 2005
  • Bank of Montreal says that Gharwar is in already in decline.
  • World Oil peak production means the End of Cheap Oil
  • The End of Cheap Oil means continuing rising Oil prices which translates itself into Oil shocks.
  • French investment bank Ixis-CIB has warned crude oil prices could touch $380 a barrel by 2015.
  • Previous Oil shocks were an perfect call for recession/Inflation
  • Gold is the ultimate Hedge against Inflation
  • Rising Oil prices brings the historical Gold/Oil average way out of balance
  • Historical average of the Gold/Oil ratio suggest a price of Gold exceeding $800 nowadays.

The entire piece can be read at :

www.golddrivers.com/gold&oil.htm

Chapter IX Gold & Juniors

This chapter has a strong focus on the junior mining exploration sector since it could provide a tremendous leverage to gold the years ahead. Junior mining companies are so dirt cheap these days that people might wonder in a few years time 'how they could have been so stupid' to miss this opportunity of a life-time.

Frank Veneroso recently said :

The deep undervaluation of the juniors, for all their problems, provide us with a huge opportunity for gains in the upcoming bull market in gold which we foresee. END.

Mr. Gold himself (Jim Sinclair) put it a little more bluntly, he recently said :

Investors stand pat because gold is going to over $1000. Gold shares will whip the behind off the legal and illegal shorts. Like Sutton in the 90s, some shares will go from C$0.16 to $57 and like Durban Deep in the 70s some will go from USD$0.36 to $36. END.

Highlights :

  • Due to lack of Exploration during the 1997 - 2002 period (Exploration budgets were cut by 67%) major Gold producers are facing declining Gold reserves.
  • The Industry is not replacing the reserves it is mining every year
  • High grade Mines are running out of ore.
  • If Gold were $1000 / oz , it still takes four to seven years to open a mine.
  • The industry isn't going to be able to respond immediately to higher gold prices .
  • Reserves will be depleted in 10 years at current annual production rates
  • Mine Supply already down 5% in 2004.
  • The industry needs some major new finds desperately. According to Alex Davidson (VP Exploration Barrick Gold) such discoveries are rare.
  • Industry consultant R. Bullis fears that the very large Gold producers won't survive at current production rates over the next five … ten years
  • 75% of all discoveries are made by Juniors
  • Majors are forced to acquire juniors because of the need for more reserves
  • Newmont, Barrick, AngloGold and Goldfileds already showed some interest in Juniors.
  • Juniors making discoveries are phenomenally profitable.

The entire piece can be read at :

www.golddrivers.com/gold&Investment.htm

Well, that's it, the Gold Drivers Report in a nutshell, I hope you're curious to read the entire piece and that it's capable of inspiring joy just as it did to me when writing it. Readers interested can download the entire report in PDF format from www.golddrivers.com

Comments and feedback are welcome at :

 

Eric Hommelberg

The Gold Drivers Report

Email : ehommelberg@golddrivers.com

Web-site : www.golddrivers.com

June 8, 2005

A one-ounce gold nugget is rarer than a five-carat diamond.

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