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0920 EST Wednesday February 08 2006



Good Morning: Gold and Silver suffered their first shakeout in quite a while yesterday, symptomatic of what we commented on in regards to Silver's attempts to overcome the $10.00 barrier, likening it to trying to get through Dow 10,000. Sometimes, it takes more than one attempt to break through and in the past, there have been times when the Dow has backed off some, before mounting another run up to the long jump get over a major milestone. Silver appears to be doing just that and so we now have to watch carefully for a renewed entry point at which to add to positions, which given the sharpness of the pullback, could rebound equally suddenly. There is still a lot of trouble brewing and we are still very close to the highest levels we have seen in Silver in a generation. We also ran up very fast and at this stage of market dynamics, sharp pullbacks are characteristic but so are unexpectedly sharp rebounds of equal or even greater magnitude especially when the trend has been as strong as Gold and Silver have exhibited. The biggest rebound already today in Copper is telling us that. There is a serious shortage of Copper that has driven prices to new all time highs of 233.90 just two days ago, we pulled back to 224 and are already back to 229. The developing shortage of precious metals that we have talked about for longer than most is getting worse, which is why just a few days ago, we were also making new multi-decade highs. This trend is not a short term phenomenon, it is the first innings of a multi-year trend that based on known shortages developing, will likely result in significantly higher prices in an already grossly undervalued sector. The 7 fold tendency for Gold to rise off its secular lows we have talked about, is a proven formula that not only works, in the 70's from its initial lows at the beginning of the decade resulted in 20 fold gains that today even at a 10 - 15 fold gain off the 1970's lows, do not compensate for the nearly 60 fold rise in oil that has occurred over the same period. As we've said before on the same scale it puts Gold and Silver at the equivalent of $10 ~ $15 per barrel. On the 7 fold scale, we are only a quarter of the way to our objective. That puts Gold's potential from today's levels at 3.25 ~ 4.0 times higher than today's levels that we see potentially occurring over the next three years or so. 3.25 would take us to our target price of $1,785. A four fold increase from here takes us to James Turk's inflation adjusted real price objective of $2,200, which factoring in the average inflation over the past 30 years ago makes a lot of sense. 26 years ago today Gold traded at $700 oz. Common sense tells you that a Dollar today buys a quarter or a fifth of what it did then in most instances. That would put Gold in 1980 Dollars today at between $150 ~ $175 oz. Is Gold undervalued or what? In an increasingly prosperous World there is no doubt and as we have also stated, just emulating the 20 year performance of the Dow Jones Industrials would put Gold at $3,700 by 2019. When Jim Rogers, author of Hot Commodities gave readers a huge early heads up and very strong indication of what has happened to Gold prices over the past 6 months, says we are only just beginning a 20 ~ 25 year secular bull trend, you better listen to him and act on what he is saying. Too many investors are focused on what happened over the last 25 years. The next 25 years will be very different...



Actually, today may be a turning point for Equities also. The reluctance for Equities to break down sharply thus far is encouraging to the point that if we were able to initiate a rebound from around these levels, it could gain some traction and potential turn the trading action and trend back to bullish. As we have said in the past, with Bonds beginning to act a lot like 1998 ~ 99, the potential for Equities to also emulate what they did back in those years cannot be ruled out especially with the tech resurgence that started to get under way recently.

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