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Why You Should Invest in the Gold Market
Gold has been in a bull market since 2002 and has a long way to run. If you remember back in 1980 when Gold was just finishing its last bull market you will see some similarities as well as some major differences.
1. Inflation was rampant then, and it is now if you follow the pre-Bush way of calculating Consumer Price Inflation. Inflation is an increase in the money supply.
When Bill Clinton was president the government changed the way they calculated the CPI. The new calculation makes inflation look tame compared to the previous calculations. As well the widely quoted Core number excludes, that’s right it does not count food and energy costs.
How can that be?
Aren’t they the things that are increasing the most?
Products such as dishes, bread makers, computers and TV’s are getting cheaper as newer technology emerges so is quality. If I buy a product made in china I expect to have to replace it in a year or so. I try and spend a bit more and buy a good quality product, but that’s getting harder to do by the day.
For a much more detailed look at the CPI's history click here.
They also use things like the cloudy hedonics measure. It’s really quite simple. As an example if a new truck cost $30,000 last year, and the same truck this year sells for the same $30,000, but has a new volume button on the radio which the government deems to be more pleasing to the touch to the tune of $100 worth of better product, then adjusted for hedonics the price would have gone down $100 because of this and it will in turn decrease the rate of inflation by that percentage. http://www.thefreedictionary.com/ defines it as:
he•don•ics (h -d n ks)
n. (used with a sing. verb)
1. The branch of psychology that studies pleasant and unpleasant sensations and states of mind.
2. Philosophy The branch of ethics that deals with the relation of pleasure to duty.
How can the government state stats based on psychology? That’s like telling the bank you had a leak in your roof last month and hedonically you felt less pleasure from your home last month so you will pay $100 less on your mortgage payment. Try it!
2. Back in 1980 America had a strong dollar; today America has a strong dollar policy. In reality the US dollar is in a bear market and has nowhere to go but down for years to come. In 1980 the USD was securely in place as the worlds reserve currency used to trade oil making it strong and forcing every country in the world to use it as their reserve currency. Today oil is being traded in different currencies with Iran opening an oil bourse to trade in Iranian Rials. Iran is also working on opening a bourse to trade in Euro’s and hopes to also trade oil in Russian Rubbles one day. The fact is the USD is losing its power as the world’s reserve currency. Countries are simply not using it as much. There are many stories from India, Vietnam and elsewhere that the USD is not even accepted at tourist attractions anymore. Every empire has fallen to date, what makes you think the US Empire will not fall one day?
Countries with large dollar reserves have set up SWF’s (sovereign wealth funds) to deal with their growing mountains of cash. Here is a good visual interepretation of that. They are simply buying fewer treasuries from the US government and looking elsewhere to preserve and grow their dollar hordes purchasing power. As you can see from that alluring map the really big SWF’s are in Asia, the Middle East and Russia, areas steeped in gold tradition. They aren’t yet selling their treasury holdings and hopefully they will just take the loss on them because if they begin to sell them, then the USD is in serious trouble, and quick.
Just this year the first baby boomers have begun to retire. Over the next 20 years 78 million more Americans will retire. As a result of non preparation by the US government every single household in America essentially owes $400,000 to the government to fund the retirement programs set in place, which have not been funded. This would take many books worth of writing to fully describe and detail. Suffice it to say that according to USA today, the US needs to put away $58 Trillion today to generate enough income to fund these programs. In 2007 the GDP of the US is just under $17 Trillion, America is in big trouble. For more on this I recommend watching some YouTube videos on David Walker. On the contrary the largest SWF Saudi Arabia has almost $11,000 per person in reserves, and these numbers are growing daily in their respective directions. If these were companies which one would you rather work for?
The smartest minds are getting out of America in a hurry; watch any Jim Rogers video on YouTube. He is straight up and one of my favourites, not only because he is a big picture thinker but a world traveler as well.
3. In 1980 Gold was in a bull market in only a few currencies around the world such as the British Pound and the Canadian Dollar. Today the reality is Gold is in a bull market in all major currencies. Gold has broken out to new all time highs and won’t be looking back for years to come. This time is different. Governments around the world are inflating their currencies annualized:
• China 18%
• India 22%
• Singapore 14%
• Britain 12%
• Canada 13%
• Australia 16%
• Saudi Arabia 22%
The US government stopped reporting M3, the broad measure of money supply increase because it cost too much to calculate. The calculation estimate of M3 now runs at 15%. No wonder they stopped reporting it. That means you must invest in an instrument that returns 15% just to break even. There are not many options returning >15% these days. Precious Metals are the answer, and the Junior and exploration stocks are the road to riches.
4. Lastly, simple economics 101; supply and demand. The supply of Gold runs around 2,145 tonnes a year. While total 2007 Gold demand was 3,547 tonnes up 150 tonnes from 2006. Simply, there an increasing deficit of over 1000 tonnes. Governments fill this deficit through the official Washington Agreement and through unofficial dishoarding Demand is rising sharply while supply is flat to down. I love a good conspiracy theory as much as anyone, but here I will try and be as fact based as possible. Gata (Gold Anti-Trust Action Committee) has accumulated so much evidence to date that it would take at least a month to sort through it. I have. They are one of the main reasons I entered this arena over four years ago. Their main, and never disputed, premise is that the governments of the world have been manipulating the price of Gold down or at least slowing its ascent by dishoarding their reserves. The central banks are running out of Gold. When they do the price will go to much a much higher level. And quickly. They state that $3000 to $5000/ oz. of Gold is in the cards. What will my Junior and Exploration stocks be worth then? I can only dream of the answer. That will be a great day where my years of study and hard work come together and I will finally feel as I have reached my goal. I direct you to a video and also to the GATA website. I encourage you to sign up for their alerts. It can be very big picture or very complex but generally has to do with catalysts leading to a higher Gold price.
Once the high point in Gold is attained then what? Another site I encourage you to read and study is http://www.jsmineset.com/. If I could read one page a day this would be it. No company recommendations, that’s what I am for, just solid reasons, events and as their logo says, “Tomorrow’s revelations - today”. I truly admire and study Mr. Sinclair every day and have had the honour to speak with him on occasion. There is simply no other being who exemplifies the Gold market, honesty and integrity as well as providing a free service for the good of the Gold community quite as well as him. There are many brilliant brains that I read regularly but for the most complete well rounded presentation I must crown him “The Champ”. If you can spare 10 to 15 minutes a day to enjoy his and other CIGA’s (comrades in golden arms) words you will be much richer for it. He states in a more complex way that once Gold peaks it will remain there and trade within a small range. Until that time the US dollar will remain in a bear market after which a long term bull market will begin. That will be the time to cash in your stocks for as many dollars as possible and join the new uptrend in the dollar.
The Junior and Exploration stocks will flourish in this environment. Don’t wait. This is the best and least risk entry point bull to date. Yes, in most cases even better than the very beginning. Junior and Exploration stocks are so sold out I cannot begin to describe. This is the easiest trade I have ever seen. There is simply No WAY you can’t make money in this environment. Please sign up for my FREE weekly newsletter and consider taking a look at my portfolio. Always do your own due diligence but I will steer you in the right direction.
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