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0920 EDT Monday April 10 2006

Good Morning: We first aired the idea of a Global Hyperinflationary Threat about one year ago and more recently, around the end of the first quarter. Just a few weeks ago, when Crude Oil was hovering either side of $60, we began to make the case for sharply higher prices to unfold in the Energy Complex, especially after noting the excessively large premium of the May 2006 contract over the expiring April 2006 contract. Then, just a few days later, Crude Oil began to rise surprisingly sharply, catching many investors by surprise. Almost exactly the same thing happened with Gold and Silver, as we predicted a strong close going into the end of March had the potential for a fairly powerful continuation into April which we recounted were reminiscent of similar strong rallies that occurred most notably in the spring of 1993 and to an extent in 1987. In particular we highlighted the delicate balance that exists between current supply and growing demand for Oil and how the slightest disruption could rock World markets and cause Oil prices to spike extremely sharply higher: And just days later our numbers were endorsed by none other than T Boone Pickens, perhaps one of the most experienced, knowledgeable and accurate forecasters of our time. Obviously, drawing up war plans to target one of the Middle East's largest exporters of Oil doesn't exactly help to ease what can only be described as an already very tense situation that this weekend seemed to reach near boiling point, with news of one kind of attack after another... But, behind all of that, is the growing anxiety over the longer term supply demand situation, which we put at around 85 Million Barrels per day as a World that is maxxed out in terms of production. So that consuming nations are literally hostage to a million to two or three barrels a day potential surplus, that could evaporate at any time, especially if 4 Million Barrels per day are sanctioned out of, or removed from the market, or if there was some kind of sympathetic embargo, brought into the mix. But, that is only half the story. As we in fact suggested, the Energy World may have miscalculated how rapidly the emerging nations use of oil is growing and not only does this truly look like: "The scariest chart in the World" because what it actually reflects, is how over the past 20 years the Industrial nations use of Oil has grown almost 30% from just over 32 Million Barrels per day to 42 Million bpd, but the Emerging nations use of Oil has not only grown from just over 26 Million Barrels per day to 42 Million bpd, their rates of consumption have been in a vertical upsurge over the past few years and the inflection point of 42 Million barrels per day, has already been surpassed... This double and now combined megatrend of demand, appears highly likely not only to continue strongly, but in all likelihood, could be closer than anyone may yet be prepared for, to surpassing that critically important supply - demand inflection point of 85 Million Barrels per day. In fact, it may soon explode beyond it, as many rich emerging nations demand for oil is expected to double within the next 10 years presenting the World with massive problems, as global output will simply not be sufficient, to meet this inevitable growth in consumption. Crude Oil prices have already risen seven fold and anything more, in of itself, will be hyperinflationary and such super-inflationary impacts have yet to be felt by economies of the World and thus, is most likely to increasingly occur in the years ahead. And, as we've been saying for a while now, expect Gold to play major catch-up along with those already dramatically appreciating Silver prices, to where they may leave the 1970's looking like a dress rehearsal for a super-boom in Precious Metals of unprecedented proportions as increasing numbers of analysts Worldwide are beginning to also foresee...

On top of that, many highly regarded commentators and analysts are deeply concerned about the massive estimate of $51 Trillion or so in US Debt. While the US Economy's size is just over $11 Trillion: Over the past 5 years, only $1.6 Trillion has been added to the economy, while more than $7.5 Trillion in credit market debt has been added, ballooning the debt to output ratio. Massive reflation currently under way to help alleviate the burden of this debt, is debasing the Dollar. It could create huge potential inflation in coming decades. Many others are questioning the validity of currently declared, relatively tame inflation numbers of 3% or so, when in reality they could be closer to 7% annually. Certainly the levels of monetary growth of the leading nations of up to 10% annually, should be reflected by much higher numbers as we have already seen in housing and more importantly: The Reuters CRB Inflation Index. This leading index of inflation does not lie. It is a true reflection of real World inflation and it has almost doubled since 2002, having risen exponentially steeply since then and is close to its all time highs right now and is significantly higher today, than when Gold hit all time highs of $875 back in 1980. So assuming that Gold has yet to play catch-up, by definition, this index projects Gold's price to somewhere between $1,100 and $1,200 per ounce soon and that really does not even begin to be close to James Turk's $2200 inflation adjusted price over the past 25 years as to where Gold should be at.

Other important points to keep in mind are that we are only 5 years into what could be a 20 ~ 40 year Bull Market in Resources and since Bull Markets tend to start out gradually and then accelerate much higher in time, especially in the case of Gold and Silver, which exploded exponentially during the late 1970's and early 1980, the last 6 months or so has only just seen the very earliest evidence of acceleration in these metals, that so far amounts to little more than a preview of what's to come. As we outlined last week, the similarities to the 1970's are palpable, except this time around we believe we will see a resources bull at least until the year 2020 and for many reasons we may be in for some kind of repeat of many of the hyperinflationary episodes that have periodically befallen other currencies over the past 100 years.

In short, Investors who are not heavily invested in Gold related assets will likely deeply regret not owning more in time and this is one of those times where it is near mandatory to be exposed to Gold at all times. Investors should have a solid long term hold strategy in place, as trying to time these markets or even stock price movements, could leave investors behind, especially should a war break out overnight or some other unforeseen event occur without warning. It's happened before. Quality emerging Gold mining issues with proven reserves especially those that can still be purchased at option-like prices should be regarded as very long term option non-expiring options on Gold.

"Gold & Silver Equities' impressive performance over the last few years will slowly mesmerize and galvanize investor attention to the point Gold Fever contagion will spread throughout the world -- As frantic investors seek to hedge against their declining currencies by investing in vehicles demonstrating real intrinsic value high quality and high liquidity… Such as is beginning to happen with Gold and Silver equities."

Trade Well
From the Desk of Savant

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