"THE PERFECT GOLDEN STORM"
Use its force to build your fortune.
An array of forces is converging to drive gold toward
and probably beyond its 1980 peak of $852 per ounce, creating
exceptional opportunities for investors. The table below shows
the interrelated forces that are merging into a perfect storm
propelling the price of gold; the article then goes on to describe
these forces in more detail.
Author's Note: This article was completed in April, 2004. Much
has happened since then, but the forces it describes continue
to drive the price of gold. In fact, in the months since April,
some of the events this article predicts have already occurred,
such as rising inflation, an increase in interest rates, and
further destabilization in Saudi Arabia and attacks on oil production
there.
| The forces converging into a perfect storm |
Effect of each of these forces on the price of gold |
Global
instability, including
- Terrorist acts and
threats in the US and Europe
- Ongoing violence in Iraq,
Afghanistan
- No solution to Israeli/Palestinian conflict
- Shaky
Middle East regimes
- Competing interests of US,
EU, Japan, Russia, China
Decline of the US Dollar
- Huge, growing federal debt
(Iraq/tax cuts)
- Huge, growing trade deficit
- Dependency
on foreign financing
Interest-rate bind
- "Jobless recovery"
- Fed
holding down rates to keep debt-fueled economy afloat
- Low
rates make cash a poor investment
- Increasingly higher
rates available in other countries
- Fed will have to
increase rates to finance federal debt
- Rate
increase likely to kill housing market and refinances,
main growth drivers
Investment climate
- Investors, burned once, are leery
of paper assets, real estate
- Owning gold legalized
for 1.2 billion people in China
- Jewelry and other industrial
demand strong
- Exchange-traded gold-backed
securities launched
Limited supply of gold
- Established mines producing
less gold
- 7-year exploration-to-production
cycle
- Profitable
deposits harder to find
- Mergers of mining
companies
- Central
Banks selling less gold
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Here's how you can buy
gold now In April 2001, at the beginning of the
current bull market in gold, an ounce of the precious metal sold
for $260. By December 31, 2003, gold had zigged and zagged its
way to $416 - up 60%. If you had invested in gold in 2001,
you'd be celebrating today, especially given the performance
of most paper investments. For the same April 2001 - Dec.
2003 period, despite their gains in 2003, the Dow was down 8%,
the S&P500 was down 16%, and the NASDAQ was down 14%. Over
a period of 32 months, gold had outperformed the S&P500 by
76%.
Global economic and political trends suggest that gold has only
begun its powerful surge. Many financial experts predict $1000+
gold within the next three years. Gold's 1980 high of $852
is equal to about $1500 in today's dollars. The current
price of gold, shown on this page, represents the early stage
of a bull market. Put a portion of your assets into gold now
and (in addition to the reasons why it's always wise to
own gold) you and your family will be celebrating your decision - particularly
given the likely fate awaiting stocks, bonds, currencies, and
real estate in the next several years.
So far, the dramatic rise in the price of gold has been ignored
by most financial commentators and by the general public. TV
talking heads and your friends, neighbors, and co-workers are
not yet buzzing about gold the way they were in the late 90s
about tech stocks. To preserve and increase your wealth, buy
gold before the herd stampedes. Once "gold" is on
everyone's lips, the period of maximum profit to investors
will have ended. Buying gold then would be like buying shares
in Internet startups after their big run-up. (Except that gold,
a scarce element not subject to technological obsolescence, Enronesque
bookkeeping, or bankruptcy, always retains significant value
and the potential to rise again. A share of stock in many a failed
company has plunged to zero or close to it and never recovered;
an ounce of gold hasn't sold for less than $250 since climbing
past that figure in May 1979.)
Let's look at each of the factors converging into the
perfect golden storm. The first four - global instability,
decline of the dollar, interest-rate bind, and investment climate - increase
the demand for gold. The final factor is the decreasing supply
of gold. As we learned in Eco 101, increased demand + decreased
supply = higher price.
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