Gold - Unstoppable!
By Thomas G. Cloud - October 1, 2002

For over a year, we have labeled gold as the investment of the current decade. As you will recall, tangible assets exploded in the 1970's and then these assets slowly fell during the 1980's and '90's. We have now seen a similar path in gold that is clear to many, but is one that is not so clear to many others. Many money managers and financial planners continue to look at the technical side of gold that is basically the past and not the future. Within this newsletter, I hope to show you that the fundamental side of gold is that of an all out Buy Signal and is in a bull market. Gold has exploded upward by 20% since September 11, 2001. This, however, is just the beginning. It is our belief that by the end of the year, gold will reach $340 to $350 per ounce and during year 2003 gold will rise to $400-$500 per ounce. The powerful forces that are building on the fundamental side simply are unstoppable. While some of these forces are seen in the news occasionally, several of the forces that could have a drastic impact on the price of gold are being ignored. Below I will look at some of the fundamentals that I personally believe will drive gold over the next twenty-four months and perhaps through the end of this decade.

THE FALL OF THE DOLLAR
Since September 2001, the dollar has fallen over 15% against the EURO. The dollar has also dropped against the British pound and most other indexes. As the U.S. economy moves into a deflationary recession, the U.S. will print money to try to provide liquidity to drive this economy. If you look over the bull markets in gold, the fall of the dollar is one that has always led to a higher gold price. Watch the dollar fall during the coming year and we may see a severe drop if Saudi Arabia and other oil producing companies demand payment in the new EURO. As the new EURO builds confidence, we may also see a lot of Japanese money moving out of the U.S. and moving to the EURO due to a better location. The location of Europe to the oil producing countries of the world is also a factor as more and more of these countries are talking about a possible switch to the EURO.

THE GOLD DINAR
Will Muslims actually be the group to change gold demand forever? Malaysia is pushing for a new gold backed currency called the Gold Dinar. Malaysia by the middle of 2003 is asking that its trade with Islamic countries be traded by a currency called the Gold Dinar that would be used to settle the balance of payments between Muslim countries. Morocco, Libya, and Bahrain are among the countries who have expressed interest in using the Gold Dinar. Very few people in the gold world are talking about this gold backed currency although it is gaining momentum weekly. Do not be surprised to see a gold backed currency which would lead to a large fundamental change in the purchasing of gold to back this particular currency in Muslim countries.

STOCK MARKET
One of the fundamental aspects of gold that is frequently ignored is the money that is moving out of the stock market and into gold. There has never been a time in the last thirty years where the phrase, "diversify or die" is more important. The stock market, in my opinion, has just begun the drop that will lead to another two to three thousand point drop as accounting scandals continue to wipe out investor equity. We have already seen several trillion dollars wiped out and now it seems the new scandal is the government's claim that U.S. corporations have under-funded their pension plans by over $110 billion according to the Pension Benefit Guaranty Corporation. This was revealed in July 2002. It has also been shown that GM owes its pension plan $12.7 billion. Both Delta and Delphi each owe $2.4 billion while the debt of Goodyear and Exxon to their plans is estimated to be in the hundreds of millions of dollars (but the exact figures are not known currently). A few others that owe over a billion are Pfizer, Proctor and Gamble, Chevron, Texaco, and Raytheon. Watch the fundamentals build in gold as investors choose to diversify and change parts of their portfolios into gold for safety and appreciation over the next decade. A small shift in American investor sentiment toward gold could lead to a huge shortfall in gold and a surging price.

ASIAN CENTRAL BANKS
In a recent report issued by the World Gold Council, they claim that the Asian Central banks are turning into the largest buyers of gold. Recently the Bank of China raised its gold holdings to 500 tons from 395 tons from a year ago. This one purchase brought their reserves up 26%. However, it still left the Bank of China with only 2% of its overall reserves in gold. Compare that to the United States' Federal Reserve that keeps 58% of its reserves in gold and the average European Central bank keeps 12% to 15%. Recently Newmont Mining, the world's largest gold producer stated, "If the Central Bank of China, Taiwan, and Japan raise their gold holdings to 15% of their reserves which would equal their European counterparts, they would have to buy twelve thousand tons of gold. That would be equal to over four years worth of mine production."

It is not hard to see that the shift from paper to hard assets is well underway - especially by Central banks. Over the past decade, Central banks have been lowering their gold reserves, but now they are headed in the opposite direction. This one fundamental could also drastically affect gold in a positive light over the next twelve to twenty-four months.

FINAL THOUGHTS
We have talked about several areas that I feel will change the fundamentals of gold for the next twenty-four months. I did not get into the banking problems and the rising non-performing loans that continue to hit major banks. But as I look at all investment areas, no area has stronger fundamentals and will soon develop strong technical indicators to show that gold is in a bull market. Currently, gold's spot price is around $322 per ounce. When $332 per ounce is taken out, I expect gold to surge to the $375 level. If you are interested in discussing a gold purchase for your portfolio or if you want to add to your current holdings, please call me at (800) 247-2812 so that we can discuss the various options that are available to you that would properly add diversification to your portfolio.