Centennial Precious Metals, Inc: Serving Gold Coin & Bullion Investors Since 1973
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4/7/07

A publication of USAGOLD-Centennial Precious Metals, Inc.
Serving gold investors since 1973

An "ABCs of Gold Investing" Update

Occasionally I like to take a close look at gold's fundamentals -- a gut check of sorts. It helps me get a deeper sense of what is driving the market. It also helps me reorganize my thinking around sound principles. Vince Lombardi, the legendary coach of the Green Bay Packers, always stressed knowing and understanding the fundamentals as the key to success on the football field. Likewise, learning the fundamentals is key to knowing and understanding gold. By doing so, you will become a more confident, better informed and successful gold owner.

From scarcity to shortages, the past is prologue

I cannot remember a time when the fundamentals have lined up more favorably for gold. The factors which have driven the price up over 75% over the past few years remain in place and in fact seem to be intensifying. The past, in this respect, could very well serve as prologue. Great forces, mostly benevolent, are at work in the gold market. Demand, as reported copiously by the mainstream financial press, continues to grow steadily on a global basis. It is on the supply side of the equation, however, where we now find the strongest arguments for resumption of the bull market. To come to the point, fundamental trends suggest that the gold market may be moving from a period of general scarcity to outright shortages. Unless some formidable source for gold is suddenly found, the period of shortages could come to full flower as early as 2008.

For the remainder of this 7-page in-depth study of gold's fundamentals, we invite you to visit:

Golden Gut Check
Why gold is likely to keep moving higher over the long run
by Michael J. Kosares
Author, The ABCs of Gold Investing: How to Build and Protect Your Wealth with Gold
Founder, USAGOLD-Centennial Precious Metals, Inc.

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Short & Sweet

(Underlining for emphasis not links)

Early last week, I considered writing a short piece on the gold market which I thought I might title "Buying Opportunity." After all, the market had fallen abruptly over a two week period from the $1000 level into the $870s and that seemed like a fairly attractive opportunity. I didn't even have the first paragraph written and gold had already reversed itself and bounced back over $900. . . . . . Seems there's an underlying, built-in demand, probably from some of the major gold mining companies and bullion banks who need to square their forward sale positions. . . . . . . . . . .The Telegraph's Liam Halligan warns that Saudi Arabia might break its dollar peg, a move he says "would spark a massive flight of Middle Eastern assets away from the U.S. currency.". . . . . . . . . . . . .The Wall Street Journal recently referred to gold as "one of mankind's most venerable ways to sock away wealth." My, how times have changed. . . . . . . . . . . . .Two countries have been responsible for most of the central bank gold selling in recent years -- Switzerland and France. Now the World Gold Council reports that the once market-substantial Swiss sales program is about to run out of steam. By the end of 2007, the Swiss National Bank had sold 145 tonnes of the 250 tonne tranch it had allocated in the final phase of its liquidation program. . . . . . . . . . . . . .The news gets worse by the day for the gold shorts. Reuters reported recently that the German Bundesbank would probably "hold onto the vast bulk of its gold reserves" during the next fiscal year of the Central Bank Gold Agreement. . . . . . . .Our USAGOLD website continues to grow and flourish. In March, we had nearly 700,000 visits with weekday visits routinely over the 25,000 mark and peak days at well over 30,000 visits. We also had nearly 9 million page hits -- a record! (I might add that because we do not seek advertising revenue, we do not use any gimmickry to pump up our numbers. This is the real deal which shows not just the interest in gold, but the quality, utility and viability of our USAGOLD website. It was launched, by the way, in 1996 with the original Daily Market Report which I wrote as a service for our clientele. Our DMR is now in the capable hands of USAGOLD's in-house economist, Pete Grant). . . . . . . . . . . . . .Our most popular page is now the USAGOLD LIVE page where gold, silver, oil and currency prices are updated automatically in real time. The old stand-bys, our Daily Market Report and the Forum still post very strong numbers daily. Recently, we added USAGOLD Headline News which scrolls across the top of the Live page by which we post links to what we believe to be the most-important and useful news and opinion for gold owners. . . . . . . . . .To go along with the strong traffic stats at USAGOLD, March was a record month for client gold purchases as well. And April has gotten off to a strong start. We've had strong buying from the $1000 level all the way down with a strong surge around the $900 mark. . . . . .It doesn't seem like price is as much a factor as some would make it. Mostly, investors are looking to hedge the credit crisis, inflation/deflation, the mortgage meltdown, etc. Breaks in the upward trend are greeted as they have been throughout the bull market, i.e., as buying opportunities. . . . . . . . . . . . . . .Let it fall, let it fall, let it fall. That's the tune being hummed by the German finance ministry which now says it opposes formal intervention to prop up the dollar. . .This comes just ahead of the upcoming G-7 meeting of finance ministers and central bankers and will probably be viewed as a signal about European intentions towards the sinking dollar. . . . . . . . .The upcoming election seemingly has had little effect on the markets. Nevertheless, we should take note that the two Democratic candidates are working so hard at sniping each other that neither has had much to say about the sick economy. Meanwhile the presumptive Republican nominee has admitted publicly that he doesn't really know all that much about the economy. Oh well. . . .so much for help from the political sector. . . . . . . . .It should also be noted too that the heavily publicized Paulson plan to save Wall Street (and by it ourselves) looks like nothing more than the Bush White House pawning off the problem to the Federal Reserve. . . . . . . . Our favorite cartoonist, Ed Stein of the Rocky Mountain News, sums things up nicely in the two cartoons accompanying this issue. . . . . . .The gold mining industry is paying dearly for the sin of excessive forward selling. Miningmx.com reports that African mining giant AngloGold is currently receiving 20% less than the spot price of gold (assuming a $900 price) due to its contracted forward sales. Worse, Anglo is contracted to deliver 60% of its hedge book over the next three years. . . . . . And how does Anglo intend to climb out of the hole it has dug for itself? By selling shares, of course. The capital raised will go not into mine development, but into buying gold bullion in the open market. On top of it, the shareholders will suffer significant dilution of their interest. . . . . . . . .And you wondered why we always say owning the metal beats owning the shares?. . . . . . . . .The dollar is still substantially ahead of the euro in terms of worldwide currency reserves. It comprises 63.9% of total reserves and the euro, 26.5%. That's not to take anything away from the fledgling euro. Over a quarter of the world's reserves is significant by any measure. Also, a shift of 20% of existing reserves would put the euro at par with the dollar. . . . . . . . . . . . .If it comes, it will come quickly - almost overnight - when few are looking. . . . . . . . . . . Proving that you can indeed take it with you, the Clintons have taken down a cool $109 million in income since leaving the White House, according to tax returns released by the Clinton presidential campaign. . . . . . . . . . . Russia now ranks number three in currency reserves at an estimated $500 billion, behind China (#1) at $1650 billion and Japan (#2) at $980 billion. And it has launched a sovereign wealth fund (what else?) in order to find a place to put its growing pile of dollars. The Russians have said repeatedly that they are in the market for gold wherever they can find it. . . . . . . George Soros, the billionaire hedge fund speculator, told Bloomberg this past weekend, that "[c]entral banks are diversifying into currencies other than the U.S. dollar and into different types of investments." He also said that he expected sovereign wealth funds set up by countries that enjoy surpluses to turn their riches into real assets. "We are close to a tipping point where, I mean, the willingness to hold dollars is definitely impaired,'' he said. . . . . . . . . . . . .

News & Views

The trillion dollar meltdown

"Charles Morris, author of The Trillion-Dollar Meltdown, isn't one for sugarcoating. His analysis is dour and grim, but certainly not dull. And when read against a backdrop of an ever-weaker economy, increasingly anxious economists and a stream of gloomy predictions, it can be downright scary. Morris, a lawyer and former banker who has written 10 books, argues that the subprime mortgage crisis is only a taste of the mayhem that will play out across an array of financial assets. He lays out the likely course of write-downs and defaults on a whole gamut of assets -- residential mortgages, commercial mortgages, high-yield bonds, leveraged loans, credit cards and the complex bond structures that sit atop them. It comes to about $1 trillion, according to Morris. 'The sad truth, however, is that subprime (losses he estimates as high as $500 billion) is just the first big boulder in an avalanche of asset write-downs that will rattle on through much of 2008,' he predicts."

USATODAY/Trillion dollar meltdown paints scary picture

Editor's Note: Those of you who read these pages know that I agree with Charles Morris that the mortgage crisis is just one of several potential stress points for the financial markets. The modus operandi for dealing with future meltdowns has already been levered into place by Wall Street and the Fed. Inflate. As Richard Russell says, "Inflate or die!"

Dollar in terminal decline, admitted to intensive care

"If you still believe that the dollar is strong and the United States is set up to be a world superpower forever, these videos are a must-see. In them, analyst Max Keiser investigates the ill health and possible demise of the dollar. Since 2003, the dollar has lost more than one-third of its value compared to other major world currencies. Now, the U.S. dollar is in critical condition and is losing ground fast. How did things go so horribly wrong, so quickly? It involves an excess supply of dollars, consumer over-spending, increasing trade deficits and national debt, offshoring and a country (the United States) with FALLING standards of living for its people -- and it's all explained in the videos linked here."

Video: People Power/Is the dollar dying?

Editor's Note: Gallows humor at its best while imparting some important information. Excellent interviews with thoughtful commentators.

Bernanke creating inflationary nightmare

"I would abolish the Federal Reserve and then I would resign... No country has ever succeded by debasing its currency and that is what this man (Fed Chairman Bernanke) is trying to do. He's trying to debase the currency as a way to a revive America It has never worked in the long term or the medium term."

Video: Jim Rogers interview

Editor's Note: Jim Rogers tells it like it is in an in-depth CNBC interview. The above is his answer to the question "What would you do if you were made Fed chairman tomorrow?"

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Final Word

We will bring this issue to a conclusion with a quote from a Chinese official published in Friday's Financial Times: "The subprime market is very complicated. Chinese banks are not nearly sophisticated enough to make those sorts of mistakes."

Michael Kosares has nearly 35 years experience in the gold business and is the founder/owner of USAGOLD-Centennial Precious Metals. He is the author of The ABCs of Gold Investing: How to Protect and Build Your Wealth With Gold as well as numerous magazine and internet articles. He is frequently interviewed in the financial press and is well-known for his on-going commentary on the gold market and its economic, political and financial underpinnings.

Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.