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0920 EST Wednesday March 09 2006

Good Morning: While inflation has remained tame for many years, one of the reasons for that has been the continuing increase in US productivity that has improved almost unabated especially in recent years as mobility in computing and communications has almost totally dominated the workspace and enabled connectivity with same. In fact, there have been a number of disinflationary trends that have helped to contain Gold prices below $500 for the past 25 years, but these trends are coming to an end and there is simply no way they can be extended much longer. The inflationary genie is out of the bottle and cannot be put back. Case in point, computers have now gotten so low in price that it is hard, even for Dell to make a profit these days, as they are beginning to face component shortages and other factors such as wage inflation pressures. They can affect Dell as much as any other company. So Computer prices could start moving up for the first time in years, because of such unavoidable pressures as wage and component price increases. Even the disinflationary forces that have become more evident from outsourcing and overseas manufacturing are suffering the effects of wage and commodity prices increases overseas and added to that, is the fact that Gold and Silver prices are lagging almost all other prices increases over the past 25 years and it is not hard to see why we have had such a strong Gold and Silver market of late.

What has really been happening, is Gold in particular has been anticipating these wage inflationary pressures and a leveling off in Global productivity that became news over the past month has caused Gold to ease back from its recent highs. But as we have stated a great many times, this uptrend in Gold is a very powerful new trend that is unfolding and has many issues affecting it and helping to propel it, including sharply higher Energy prices that are being fueled by Geopolitical uncertainties as well as the fear of running out of Energy itself.

Added to that, Investors will likely increasingly begin to fear that the World is running out of Gold in years to come and by that time, there will probably be many additional inflationary forces manifesting themselves and being reflected by what may be sharply higher Gold prices. When the President and CEO of Goldcorp comes up with a number like $800 Gold by 2007, he is not blowing smoke and Goldcorp most probably knows more about the growing supply demand imbalance than most since that is their marketplace and they're a major producer.

Added to that, the fact that most major financial institutions, for the first time in years if not decades are coming up with similar forecasts for the price of Gold, then again, many smart people who may have previously been cautious are all seeing the same approximate future...

The big question is: Are they underestimating these numbers? If celebrated analysts such as Louise Yamada and others are tending to err on the high side with objectives as high as $1,000 per ounce, it might be wise to follow her lead, because she saw the price of Crude Oil hitting $67 per barrel, long before just about anyone else and it even exceeded her own expectations. Whilst we humbly followed her lead with our own $70 target, derived from our own now more widely known "Seven Fold Factor": The fact is: That remains to be applied to Gold.

And, as we have stated on many occasions, the smart thing to do in a Gold bull market is buy pullbacks. One only has to look at the Gold price chart from 1976 through 1980 to understand the logic of that, and while 2006 thru 2010, may not become an exact replica, it is most definitely worthwhile having some kind of template to follow going foreword so that we can have some perspective as to Gold's possibilities.

Trade Well
From the Desk of Savant

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