Latest on Gold: Maintain "Hedge Positions"?

December 29, 1998

Women? You suffer before you get them, while you have them, and after you lose them. -- Sholem Aleichem

The Latin word metallum, meaning "what is got out of a mine," not only evolved into the English word "metal," but also the word "mettle" referring to a person's stamina and staying power.

Which brings us to gold, since the Mass Psychology of precious metals, and practically all commodities, is the mirror image of the exuberance found in the Internets, antipodal Mass-Psychological extremes. Yet, never forget that gold is still gold and, in a time of crisis the yellow metal would prove its mettle as the ultimate refuge for those who flee to safety. Gold stocks are on the bargain counter, just the same as when we recommended Internets at very low prices and few wanted them or cared.

Actually, the situation changed drastically last summer when the world experienced Mass Fear toward paper currencies. Even the almighty US dollar took a plunge in September (see chart, page 7, bottom), and we reiterate our multitudinous warnings since your editor's second book, The Invisible Crash, that the world's paper currencies are like a bunch of staggering drunks trying to hold each other up ripe to be toppled all at once.

For the moment, Americans almost unanimously believe that "there is no inflation," a preposterous lie. Your dictionary defines the word "inflation" as an increase in the money supply, which indeed is moving up at least 10% a year in the United States, and over 50% or more in countries such as Indonesia and Russia. It is not popular declaring that the king has no clothing, but our goal is to call the shots for our TDLrs whether they are popular positions or not.

Because US money supply is increasing, therefore prices will rise where there is no competition, such as for postage, rent, or perishable and local foods. But whatever could be punished by foreign competition or Internet "bots" will move down, such as steel, oil and computers, which gulls imprecise thinkers into - believing that there is "no inflation."

Those who have been following our work over the years know that the reason we were able to have been alone in the world in predicting that there would be an international currency crisis, and that it would begin in Asia, was our realization that the world's nations all have "fiat" currencies. Therefore what we have long called "The Coming Currency Crisis" is not over. Furthermore, now that the world insists that "there is no inflation," we once again march to our own drummer and insist not only that inflation is about to break out, but even a dreaded hyperinflation, as described in The Invisible Crash, probably starting in Indonesia and Russia, and will lead through the symptoms in the book toward the proverbial man-on-a-white-horse. We will flesh this thinking out in future TDLs, perhaps as soon as our 32-page 1999 Annual Forecast Issue, which we are told is the "best in the business."

Thus, while we have recommended Internets to our TDLrs, we have also suggested that a "core position" in the precious metals be tucked away at the back of all portfolios because, during the final currency crisis yet ahead of us, that metal will save portfolios. Indeed, during Asia's currency crisis gold and silver were virtually alone in having risen while all else collapsed, and it is always prudent to learn from the misfortunes of others. Putting an equal amount into each of the stocks in Supervised List #3 would undoubtedly include some big winners during a currency crisis, like fire insurance and again we recommend a "package" of an equal amount of capital into all ten hopefully, they will never soar.

While we have been bearish on the Canadian dollar for several years, we now believe that it could level off in a choppy Consolidation. Bank of Canada Governor Gorden Thiessen said at a news conference that the Canadian dollar was "undervalued" and predicted that it would strengthen, which he's been saying all the way down, but that will be a function of his interest-rate policy and how quickly he runs the printing presses. It was when Canadian authorities gleefully dumped the gold backing their dollar that we turned bearish on it, and we intend to remain so long-term until they go back into the open market and repurchase the yellow metal.

Excerpt #7 (below, next page) saddens us greatly as we did everything we could to have prevented Asia's currency calamity that is now playing itself out as if by the blueprint in The Invisible Crash. With Indonesia's hyperinflation beginning, rioters are not only resorting to deplorable anti-Chinese racism, but also initiating what we call "The Coming Great Religious Wars."* Time is running out, and that war will spread in coming years unless governments institute sound currencies backed by gold, the prospects for which are admittedly dim at the moment. But that is destined to change.

Turning to Visual Analysis, the Mass Pessimism toward golds last December was so profound that at the time we pointed out it might have been an important Bottom. In fact, golds got slightly lower briefly this August, but there might be a "W-Bottom Formation" in place, because a number of gold shares are continuing to move up even though the price of gold bullion itself lies listlessly near its lows. Typically, in gold bull markets, blue-chips lead the way higher, which is now happening, but even some of the low-priced speculative golds are beginning to break their Downtrendlines, and our 1999 Annual Forecast Issue will report on any upturn.

Over the centuries, the average price of one ounce of gold averaged that of a fashionable men's suit, so gold is clearly underpriced historically and therefore a wonderful present to give for Christmas. That's why, when it comes to department stores, Christmas is the greatest thing to happen to inventories since matches. As for gold gifts, even if women are sphinxes without secrets, when a woman really loves a man he can make her do anything she wants to do!

Gold is found in nature in quartz veins