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Is there a 21st Century Gold Mania Looming? Based on the way Gold has been acting recently, it certainly is beginning to look like Gold could be set for a very sharp upward move sometime soon. Almost everything over the past 50 years or so has gone up 50 fold and by some measures 100 fold over the past Century, but Gold and Silver by many measures are way behind the curve and have a lot of catching up to do. James Turk of GoldMoney computes Gold should be $2,200 per ounce or so based on the cumulative inflation over the past quarter-century alone, even allowing for a US Dollar about five times as valuable in 1980 as it is today. It seems hard to believe that Gold today at $630 per ounce is actually trading at its 1980 average price range: What we need to remind ourselves of is, we;re well into and could be in the waning days, weeks, months or maybe even years, of the greatest financial boom in history and past experience has shown that in the waning days of any boom, Gold and Silver begin to come alive and invariably as Financial Booms begin to overheat and economic statistics begin to dazzle, inflation also looms... And the longer the boom, the bigger the inflation, deficits and potential problems it brings in the Future... Booms have a way of ignoring the bad news that keeps piling up. Along with a massive structural deficit and an entitlements nightmare beyond imagine looming, last month, the US reported its worst trade deficit ever and this is in spite of a 30% decline in the US Dollar over 4 years. But, when the economic statistics have been so good for so long, a feeling of invincibility overcomes investors as they continue to see new record highs being set in an economy that seemingly, won't quit. Problems are there, but temporarily masked by this: A Dazzling Boom. Being among the first in the World to label this The Best Economy Ever as far back as January '04... As each new statistic is released, the evidence becomes more and more compelling and with multiple new market highs in leading indices capped off by the Dow Jones Industrial Average registering a dozen new all time high records last month, it just doesn't get much better. But it does: Not only have the economy and markets continued to deliver, another prediction we made about two years ago has also come true: That more Americans would be working than ever in history and to cap that off on Friday the Labor Department reported an extra 250,000 new jobs had been created and the unemployment rate dropped to 4.4% that not only has it approaching fifty-four year lows, but it puts the administration's overall economic and employment performance, best in 4 decades. This is also turning out to be one of the longest expansions ever and if the Fed is able to engineer a mid-decade slowdown, that is akin to the slowdown you have when you're not having a slowdown, a bigger boom may loom, as the Dow predicts strong pickup in economic activity in 2007. And, if the World economy, buoyed by a weaker US Dollar continues to support and even boost the US economic engine, as European growth also begins to accelerate this could turn out to be another near decade long expansion that might even be without precedent, given the exceptionally strong fundamentals that most corporations currently are enjoying. Gold & Silver Beneficiaries of A Global Boom The good new for Gold investors is that all of the above are contributing to what inevitably will lead to higher Gold and Silver prices and perhaps sharply higher prices in Gold and Silver and many other increasingly scarce resources, that most investors might have a hard time contemplating... Sure there have been some sky high numbers set forth by some crackpot Goldheads in recent times, especially when Gold touched $730 earlier this year, but less has been heard from them of late, until the past week or so, as Gold prices began to soar. And that is the point: Just as we have never wavered on Gold's outlook and destiny since 1999, we have never wavered from our view that Gold could reach $1785 by 2009 and recently, when we vigorously counseled all investors to take advantage of the pullbacks in Gold in September and October, we were either ignored or ridiculed... But now as many of the more skeptical analysts suddenly turned bullish last week, we turned super-bullish and once again gave investors an early heads up ahead of the crowd. And, now we are urging investors to get very serious about Gold's propensity to reach $1,050 possibly as soon as next year and thus, should do everything they can now, to get in ahead of the crowd, for possibly the biggest opportunity of this generation in Precious Metals as a real mania begins to develop, that we believe will be accentuated by the fear of a World running out of Gold... Something that we have been predicting for several years now, might occur in the next 11 years or so and Friday, in an interview with a Gold Analyst on CNBC, she reiterated her monumental shift to a bullish stance on Gold this week, declaring that the breakout over $610 or so, essentially leaves no resistance through $730 and even talked of hitting new all time highs as distinctly possible in due time, which would essentially mean a Gold price approaching $900 per ounce. But, what was of even greater note, and particularly intriguing, on the back of publishing World Gold production levels a few days ago, that we've republished below for your convenience, was a chart displaying World Gold supply showing actual with extrapolations through the 2010 and that year's figure shows a decline from the current years 2,500 tons, to a projected 1,700 tons for 2010 ~ 2011. Folks, if this turns out to be the case in just 4 years and if our own model shows us running out of Gold over the next 11 years, then there is no telling where Gold prices could be by the end of the next decade, other than our projection calls for $3,700 by 2019, that is no more dramatic, than forecasting a Dow of 10,000 back in 1986, when the Dow was in the high teens between 1,500 and 2,000. Twenty years later, Gold is tracing out a near identical pattern of gains as was seen in the Dow from 1980 ~ 1982, as being equal to Gold's double bottom in 1999 and 2001 and from there, the rate of ascent has been almost dollar for dollar with the Dow of 20 years ago, until May 2006. And if May thru June was Gold's 1987 and we are now once again firmly entrenched in an uptrend that has the potential to go parabolic, out of a massive pennant formation that is portending price levels of between $900 and $1,050: Then watch out above! Because the next move could be fast and furious... And especially so, based on another nugget of info that seeped its way into the mainstream media last week: Almost every Gold producer failed to meet production expectations, which is one reason why many gold majors got cut back, but looking at the bigger picture we tried to portray last week, the stage is set: For the Resources Boom of a generation. Let's look at a few key facts: China is growing at 11%. World growth is expected to be 6% next year and we are already at a point where the World is running so scarce of so many essential resources most especially Copper, Nickel and Lead and Steel, prices are rising once again. And now look at China's frenetic pace of construction leading up to the 2008 Olympics. The there's the one thousand skyscrapers scheduled for construction over the next four years in Shanghai alone, and then the additional mega-projects that are on schedule in Dubai, including the Word's tallest building, that will tower to over 2,600 feet or half a mile high and then factor in the same kind of continuing boom Worldwide, especially in rapidly growing economies such as Russia: And it begins to sink in that without essential resources, this boom could become unsustainable and we are already in uncharted territory in terms of this kind of synchronized Global expansion, that is absolutely without precedent. Next, look at the theme of the past week or two where the UAE has declared it's diversifying out of US Dollar denominated assets into Euros and more solid assets such as Gold, which is historically cheap versus Oil and therefore it is entirely logical for OPEC and other petroleum exporting nations to make what seems be the perfect switch, to counter a weakening US Dollar and maybe make what could be a perfect trade converting expensive Oil for still cheap Gold but perhaps so cheap for not much longer... And, That brings us to our next ground-breaking idea: As we have continually pounded the table on this theme for nigh on three years now, wherein the stockmarket making new highs in various indices is just a generational repeat of what was recurring routinely 50 and 100 year ago, where from 1903 the Dow rose almost 1,000% in 26 years and from the early 1950's, the Dow rose almost 50 fold to date, with significantly higher multiples and growth numbers in the 21st Century extrapolating out, stockmarket gains could be substantially higher in the years ahead... And, just as some house prices have risen as much as 50 fold in the same period, the one item that has yet to play catch up is Gold and if Gold is starting to accelerate higher, begs the question, could we be really be seeing the waning days of Gold below $600 forevermore? Whether we are talking Dow around 2,000 in 1986 ~ 1988 that rose 50% to 3,000 by 1990 or whether we fast forward to Dow 4,000 in early 1995, never to see these levels again as the bull market has continued to rage in earnest, against all odds... Consider Gold, quietly and methodically tracing out a Deja Vu of the Dow the best of which is yet to come as Gold and Silver begin to accelerate in Dow like ascent over the next decade and some yes all the way to an equally, seemingly impossible number to contemplate 20 years ago of Dow 12,000 to a number that equates to that at $3,700 Gold... But with a waypoint that may not be too far hence at $1,750 that is curiously arrived at in two very distinct ways... 1 That is double the previous all time high of $875 and corresponds with John Hathaway of the Toqueville Gold fund's prediction. 2 That $1750 has a nice ring to it number, is the 50 fold multiplier of Gold previous pre 70's high of $35 per ounce and would of course bring Gold to a more realistic valuation compared to the Dow, the Oil price and many other related items over many years and of course as famed analyst James Turk attests, the inflation adjusted cumulative valuation of Gold today should be at $2,200. And what else might be about to help Gold move higher and find its true value? Inflationary expectations of course, but there is also that old Wall St adage, that almost everyone has forgotten about. That is: Whenever unemployment falls below 5%, it tends to be considered as increasingly inflationary and the other surprise contributors for the week, were for the first time in 20 years or so, a zero productivity reading for the US Economy, combined with the highest wage jump in 24 years, may have had a lot to do with the fundamentals behind Gold's price increases over the past week. As the BBC reported the inflation outlook is not good.

US productivity grinds to a halt: Inflation a 'Growing Concern" US Labor productivity growth was at a standstill in the three months to the end of September, the latest indication the American economy is slowing. With analysts expecting productivity to grow 1.1% in the third quarter, the zero growth rate from the Labor Department came as a surprise. Unit labor costs were up 5.3% from the same period in 2005, the worst annual rise in 24 years, increasing inflation fears at the US Fed.

Gold use and Investment and the Power of the Unfolding Boom Ahead Last week, we explained how the stage has been set by creating the convenient new investment vehicles that will easily enable the investment public at large to invest in Gold and Silver in a methodical and continuing new way, where they'll be able to place the long time recommended 5% ~ 10% of their portfolios in Precious Metals, as that proverbial hedge against inflation or security issues that plague our World today that could absorb huge amounts of Gold and Silver over time, as increasing enthusiasm builds for the sector and it should also serve to power the bull market itself. Because, as indicated in the charts below, not only will this huge tidal wave of new investment cause thousands of tons of Gold to be locked away for investment, not only by the cash rich Oil nations, but also burgeoning trade surplus nations, such as China and Japan, will be looking to boost their Gold reserves and investors themselves, will be doing the same. The impact of this could be beyond most investors comprehension because by way of example: If back in 1980, Gold represented 29% of the Financial Markets, versus the near all time lows of 3% today, then what effect will the fact that the financial markets today are nearly 50 times larger than they were in back 1980. If you take into account the daily volume growth on Wall Street versus back then when the Dow traded $50 ~ $100 Million per day versus the Billions that are now traded today, not to mention the huge growth in Global market capitalization and trading, that also could begin directing an increasing percentage of ingestible funds towards the resource sector. Remember, we are potentially only one quarter of the way into what could be a 20 ~ 25 year bull market in Precious Metals, based on historical norms and given the past behavior of Gold and Silver that tends to accelerate dramatically higher as the bull market action expands and extends itself, it would be wise to keep in mind just how much more spectacularly higher Gold and Silver could eventually run, which is why we believe this will be the greatest bull market of all time and the investment opportunity of our generation. And, that's not all: Keep in mind how nations are getting very resource possessive these days... We've already seen it with Oil and as Gold and Silver get increasingly scarce, the same kind of hoarding mentality could soon develop, especially if Global Gold production falls to 1,700 tons per year by 2010.

China reserves reach $1 trillion

China's trillion dollar surplus explained China says its foreign exchange reserves have reached $1 trillion - a milestone in its economic development. The huge wealth is a result of China's trade surplus, with the imbalance especially marked with the US. The sum is the largest holding of foreign exchange reserves in the world and exceeds the annual amount of economic activity in most nations. China's reserves have been growing at a rate of about $18bn each month and passed the landmark on Monday. China's huge foreign exchange reserves have sparked concern among economists and policy-makers, who worry that the global imbalances could upset the world economy.

Now also there's that constant security threat such as the Nuclear proliferation menace that will likely compel investors into Gold, along with potential threats of ongoing hostilities around the World and the ever present danger of another War unfolding overnight. Note the alarmingly steep decline in the major Gold producing nations, that hitherto, were the backbone of World Gold production.
Source: World Gold Council
Impact of increasing demand for Gold as a result of runaway creation of Gold back funds that are sharply increasing investment.
Source: World Gold Council, www.exchangetradedgold.com, www.ishares.com, Bloomberg
Note: Assumes 1) No price impact and 2) Based on the 12 month average gold price to September 22, 2006 of $569.29/oz.
Source: World Gold Council. These above four charts really tell a story and give some idea of how a modern day Gold mania, could rapidly impact Gold prices.

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