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0920 EST Wednesday March 29 2006

Good Morning: For a while we have posed the idea of a Deja Vu performance in precious metals reminiscent of 30 years ago, that while the Fed may not have initially seen the consequences of the 1970's inflation coming, they reacted to it meekly at first, but were hitting the panic buttons by the time the new decade was upon them and by that time short term rates had soared to some 21% and Long term rates were as high as 14% or so and Gold was hitting $875 and Silver $50, in one of the most spectacular blowoffs of all time that took the last years of the 1970's to unfold. While this did not entirely crater the economy, it did eventually wean inflation out of the system, however this time around, it may not be so easy, as we may only just be at the beginning or in the very first innings of a 30 year secular bull trend in Commodities and Resources and the fed highlighted this sector yesterday as the area that is heating up and could impact inflation down the road. As we have said many times, the inflation genie is out of the bottle and is virtually impossible to put back, because Inflation itself is an insidious beast, as can be Gold and Silver, by their abilities to come from behind and play massive catchup, as consequence of all of the misdeeds of congress and the administrations over the past 20 years or so and the fact that Gold and Silver are setting multi-decade new highs now, is telling of what may be developing behind the scenes. This time around, the Fed has the luxury of being able to see what happened in the past, when the same ingredients were baked into the pie, but does that mean that it is preventable? Absolutely not! And, as we have been saying, this time around the developing Global shortages in commodities are alarming to say the least and tying to wean inflation from the system over the next few 20 years could be a futile attempt, because sooner or later, the Fed will just have to get used to the New World of the 21st Century as they throw in the towel, 10 years into what may be that 30 year secular bull trend. In other words, if Gold reaches our target price of $1,785 per ounce by 2009 ~ 2010, they may consider it a 'win' to get Gold back to maybe below $1,000 or so as it gets ready to enter it's secondary phase of this emerging bull run that could take it to $3,700 by 2019. This is not your father's bull market in stocks over the next 20 years as per the last, in a time when financial instruments were the dreamworld to be invested in. While there will be periods of Equity Greatness, such as we've now enjoyed for 3 years, we may be periodically and increasingly interrupted by periods of Gold and Silver greatness such as appears to be unfolding before us right now. It is simply unrealistic to expect that Gold and Silver are going to be the same old tame markets they were over the past 20 years, versus the next. It's likely to be dramatically different...

Trade Well
From the Desk of Savant

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