Centennial Precious Metals, Inc: Serving Gold Coin & Bullion Investors Since 1973

6/08/05

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

"The question might legitimately be asked, 'Russell, why only 15% of assets in gold?' And my answer runs like this -- Every fiat paper currency in history has ended up in the ash can. The dollar and the euro and the yen will end up the same way unless they are ultimately backed by something real like gold. Therefore, why not be invested say 50% or even more in gold? The answer is timing. And nobody on God's green earth knows the correct timing." -- Richard Russell, Dow Theory Letter

Note: This market update will be published intermittently during the summer months.

Short & Sweet. . . . . .

Gold jumped $7 on Thursday in one of its biggest one day gains in a long while. It was no accident that the big move came the day after the Netherlands resoundingly voted against the European constitution. A number of analysts pointed out over the past week that gold could be one of the big beneficiaries from the political disarray in Europe. . . . . . . . . . . But there is quite a bit at work in the world economy that will stir investors to seek refuge in gold. This week we will get right to it here in Short & Sweet. Further down the page, I think you will find this week's cache of Nuggets also worth some study . . . . . The pension crisis in the United States continues to gather momentum. Some of the potential looses being reported are enormous. Otto Kramer, chairman of the New Jersey pension fund, told Financial Times last week that U.S. state pensions are facing a shortfall of several hundred billion dollars and are in much worse shape than corporate retirement funds . . . . . . . . . . . . . .One of the unintended consequences of the French and Dutch "No" votes on the constitution is likely to be a further unraveling of the confederation's stability pact. Italy, which is seen as the most stressed of the European economies, has already warned that it will run deficits above the 3% ceiling. I suspect that the referendum will move politicians to the left -- but that may be a misreading of the results. The core vote was for national sovereignty not an endorsement of the socialist agenda. . . . . . . . . . . . .Bank Credit Analyst recently echoed a theme we've hit on a couple times on these pages, i.e., public complacency in the face of great uncertainty. Says BCA, "What a strange picture. The Fed is raising interest rates and money growth is extremely weak, yet the U.S. financial system shows all the signs of being awash in liquidity. Bank loan officers have thrown caution to the wind in their eagerness to lend, deal making is rampant, the housing bubble keeps inflating, and the corporate sector is flush with cash. Meanwhile, long-term rates drop as short rates rise, and risk premia in financial markets remain low for what seems to be a very risky environment. liquidity is very large following a long period of extremely stimulative policy." . . . . . In the "Too-Good-to-Pass-Up" Department, I ran into these charts at the Resource Investor site. They more or less summarize how many feel when they attempt to analyze the charts and fundamentals with respect to the current gold market. Please be assured that the Resource Investor is a top-notch site and this glitch doesn't in any way reflect the overall quality of that important site. Sorry fellas, I just couldn't resist. They say a picture is worth a thousand words. . . . . . . In the article featuring these charts, Tim Wood makes the very good point that "Whilst 2005 has so far been a yawning concern compared with prior years [for gold], it's hardly a lost case. The volatility in remainder of a year, especially in the last third is relatively immense. It's far too early to declare 2005 a write-off and the past half month's action shows a more lively market than we've seen for a while. The European Constitution drama and U.S. interest rate conundrum could be catalysing in a way that brings forward what has become a [gold's] customary late-year rally." . . . . . . . . . Talking about kicking a dead horse, a UK Treasury official told Reuters that the use of International Monetary Fund gold reserves to fund third world debt relief is still an option on the agenda for the G-8 meeting in London this coming week. It doesn't look like Gordon Brown is ever going to give up n kicking the golden dog. Fortunately the ramifications of the constitution vote in France and Holland will be the dominant theme in London this week and even Mr. Brown may be forced to turn his attention to more pressing matters -- like whether or not the European Union will survive the blow dealt it by the electorate in those two important countries . . . . . . . . . . . . . . . . .After a short, tax-time respite when revenue collections rise, the national debt is right back where it started at the end of March, $7.77 trillion and rising rapidly. . . . . . . . . . .Julian Robertson, the legendary hedge fund operator, was recently interviewed on CNBC about the state of the world economy. According to political analyst Al Martin, Robertson predicted a real estate crash that would leave 20 million Americans homeless followed by an inflationary spiral "unheralded in economic history." Insana then asks, "Where it all end?" to which Robertson replies "utter global collapse." Robertson headed the now defunct Tiger Fund which set the bar for hedge funds for a number of years based primarily on his predictions for the economy and financial markets. . . . . . . . . . .Oil broke $55 this week on tight refinery capacity. Heating oil was also up at a time of year when it is generally stable to down. A harbinger of things to come??. . . . . . . . . .The "shockingly weak" payrolls number has analysts guessing that the Fed will hold off on interest rate increases until after the summer. . . . . . . . . .The trade numbers will be released on Friday (6/10/05) in what will otherwise be a thin week for government reports. . . . . . . . .More next time. . . .MK

Please call our Trading Desk for quotes and assistance buying gold coins and bullion. 1-800-869-5115 Extension #100 4:00am - 7:00pm MT

Nuggets

Gold in vogue again as cracks show up in dollar and the euro flounders
by Ayanda Shezi/Business Day 

With China and India fuelling demand for gold and other precious metals, analysts say there is room yet for more gains. The rise in the levels of prosperity in these countries has seen demand for bullion become structurally higher. Absa treasury economist Chris Hart says with many countries around the globe starting to devalue their currencies as a solution to the economic challenges facing them "precious metals will shine again as more investors start to consider them as a prime store of value". Hart says with the structural problems in the dollar and the Euro "looking sick", gold is becoming more attractive.

Full article

Euro-constitution posts
April-May 2005
by Michael J. Kosares

Europe at the moment is a nation without a governing political document. It has a central bank that issues a currency without political protocols - essentially a currency without a country. I see that as a disadvantage, not an advantage. Until that is addressed, it will be a competitor but only in terms of default. Under current conditions, I could easily see the euro simply becoming Dollar Lite in international markets. But that's probably acceptable from the European point of view. It is not interested in sponsoring the chief reserve currency at this time, but more a shared responsibility concept with the dollar. I think this is a G-7 understanding already agreed to tacitly. (4/05/05)

Full article

Ed.Note: This html file includes the lost post I mentioned in a forum post over the past weekend referring to Wolfgang Munchau's Financial Times opinion piece. These posts also cover my comments on the ECB 47-tonne gold sale. I see the gold sale, reneging on the stabilization pact and the no vote as interrelated events. Over the weekend, there were calls from politicos in Italy, Germany and France to return to the respective national currencies.

What's worrying Green span? Has the Fed lost control of interest rates?
by Richard Duncan

The surging US current account deficit is creating numerous destabilizing imbalances in the global economy. The Fed seems to have only begun to understand the full implications of this now that the current account deficit has grown so large as to undermine their ability to control US interest rates.

Their best hope of regaining control over the situation is for the United States to force a sharp devaluation of the dollar relative to all the Asian currencies in order to reduce the US current account deficit; the European economies are simply too weak for the Euro to bear any more of the burden of adjustment. The United States has now adopted - and begun to enforce - a Weak Dollar Policy. Asia must come to terms with this fact and recognize that this policy shift poses a grave threat to its export-led model of economic growth.

Full article

The Financial End game Slowly Plays Out - and then...... the Sudden Systemic Implosion which will usher in the Brave New World
by Niger Mound/Safe Haven

"Baking the news cake" for palatable reception and consumption is an art form perfected for specific markets, based on the cultural and educational profile of the local, national or even international consumer. CNN, CNBC , NBC and Fox News are little more than propaganda organizations serving up a daily "McNews" for the generally poorly read and traveled, culturally naïve, and generally poorly educated US consumer, on the basis that those who eat junk, drink junk, read junk, watch junk and listen to junk deserve, well... just more junk? Mr. Hitler and Dr Goebbels would have been heartily jealous of such a malleable and docile, if not to say almost bovine populace, who could readily absorb such shallow rubbish and believe it all! Unfortunately, the insidious US style media is polluting the planet in the global attempt to produce a "dumbed down", ignorant, poorly educated and malleable global serfdom, hooked on trashy TV and video entertainments and other such puerile nonsense, and moreover, up to their necks in debt and easy credit. Again, one is led to ask why? Aren't we living in the enlightened 21st Century?..... or, are we regressing to type, as demonstrated over thousands of years of human suffering at the hands of our own dubious species?

Full article

Gold Price Manipulation Debate - James Turk vs TimWood
Resource Investor/Fame

[Tim Wood] The real threat to gold is that governments covet it at particular times in history.  Let's remind ourselves that 72 and a quarter years ago President Roosevelt expropriated gold.  You became a felon if you held gold beyond a certain date, but he gave you dollars in return. However, a little while later he devalued those dollars by 41%.  In other words there was a 41% tax on anyone who had gold and silver holdings.  What we've now seen in the past three decades is an enormous accumulation of gold in private hands.  At the same time we are seeing an increasing risk of a monetary accident in the United States for several reasons that we don't need to go into. 

Gold flowing into private hands; politicians with no real out, except possibly to go and grab that gold again - there's never been a repeal of the intention of that legislation.

Why I say there's been misdirected energy and purposelessness in this whole issue is that what the gold price conspiracists should have done for the six years of their organised existence was created a lobby to ensure that gold and silver - all precious metal holders - are safe from the arbitrary depredations of the judicial, legislative and executive branches. 

If we can own gold safely in the knowledge that it will never again be taken from us, that is a cause worth pursuing, otherwise it's irrelevant.  Government money always wins.  Thank you.

Full article

Editor's Note: This debate between James Turk, who believes that government is the main culprit in holding down the gold price, and Tim Wood, who believes that it really doesn't matter that the government is a player in the gold market. As you can see from the snippet above, the debate took an interesting turn toward a subject near and dear to the hearts of all gold owners -- the possibility of a government gold confiscation. Wood and Turk have some interesting opinions to offer on the subject. If you are a client of USAGOLD - Centennial Precious Metals, you already know that we share this concern -- only we offer a practical, if not perfect, solution to the problem. (There is no perfect solution.) Owning pre-1933 gold coins offers the best protection against the confiscation threat as detailed in a USAGOLD study titled, You Can Survive a Potential Gold Confiscation. (For details, or to receive a copy of the study, we invite you call the Trading Desk 1-800-869-5115 Extension # 100) James Turk (with co-author James Rubino) recommends the study in his recently published book, The Coming Collapse of the Dollar and How to Profit From It.

An ABCs of Gold Investing UPDATE

C is for Choosing a Gold Firm

With oil moving higher and stocks in trouble, we are receiving a steady stream of inquiries on buying gold. First-time buyers need to be careful in choosing a gold firm. In talking with a number of clients who are in contact with some of our competitors, we are hearing stories of aggressive telephone sales tactics and item pricing. Long ago, we decided to keep our staff small, our pricing competitive and our relationship with prospective clientele more laid back. You can contact us without worrying about being put on a call list. We are happy to answer questions and discuss your gold purchase in full, but we leave the ball in your court with respect to the follow-up.

That might cost us a client now and then, but those who become clients do so in their own time and without being constantly bothered by one of our brokers. By this they become better clients who tend to stay with the firm for many years. (We have clients who started with us in the 1970s.) Most of our clientele are business and professional people fully capable of making up their own minds. They tend to gravitate to us because they find out we know what we are doing in the gold market and can apply that expertise to their gold portfolio. Contact us and discover the difference. And don't be like some who have caved in to the pressure and found out later that the great deal they thought they had wasn't so good after all. We have been a part of the gold business for over 30 years. We were just certified by the Better Business Bureau for over ten years of membership. Our volumes are large; our clientele well positioned based on their needs and goals. We look forward to working with you.

1-800-869-5115
Trading Desk
Extension #100
Mention you received this Market Update and ask about our special offers.

Better Business Bureau certificate for 10+ years membership
--About us--

Archives

NEW Disturbing Trends: Is Now the Right Time for Gold?

2005 Gold Market Forecast - "I foresee two potential scenarios for the gold market in 2005. One involves a see-saw market which culminates with a roughly 20% gain on the year in keeping with the average over the last three years. This would take gold to the $525 level. The other involves a substantial price spike resulting from an uncontrolled deterioration in the value of the dollar. In that scenario, gold would threaten and probably exceed the $600 level."

MarketUpdate 5/23/05 - The threat of a dollar crisis and rolling financial breakdown continues to dominate the financial pages. This issue, like the last two, focuses on the reasons for this concern and related developments around the world. Our intent is to keep you informed so that you might position yourself ahead of Mr. Buffett's "stampede" as referenced above. In my more than 30 years in the gold business, I cannot recall a time when there has been more legitimate justification for concern about the financial system matched by a more widespread complacency on the part of the general public.

MarketUpdate 5/16/05 - The madness of crowds can pop up anytime, anywhere. No era is immune; no individual beyond its unflinching grasp. And crowd madness pays no heed to intelligence or experience. In 1841, Charles MacKay wrote an important book titled "Extraordinary Popular Delusions and the Madness of Crowds -- the book that Bernard Baruch called the secret to his incredible wealth. In it MacKay points out that Roger Bacon, "by far the most learned man of his age" believed that the philosopher's stone could turn lead to gold. (Book link provided)

MarketUpdate 5/09/05 - Last week systemic risk was in the air. General Motors and Ford's bonds reduced to junk status. Rumors of at least one hedge fund and possibly others on the ropes. Talk of several major American corporations in financial trouble. Amidst all of this, the Chairman of the Fed raised the specter of systemic risk citing Adam Smith's "invisible hand" and the forces of chaos and creative destruction in the market.

MarketUpdate 5/02/05 - The brief history outlined in this week's masthead quote speaks volumes why gold makes sense for the average investor. The graph to your immediate right supports Mr. Bonner's reference to the "5¢ dollar." Modern nation states have a way of running their currencies into the ground. Germany, Turkey, Argentina, Mexico, Brazil, Russia, Poland, Greece, Hungary, China, Austria, Thailand, Chile and Yugoslavia (just to name a few) experienced wipe-out inflationary episodes in the 20th century. The damage was significant enough to leave an indelible mark on the indigenous population for generations to come.

MarketUpdate 4/25/05 - Day to day we sometimes get lost in the heat of the daily market battle only to lose sight of our progress with respect to the war. This short essay is about the progress of the war.

MarketUpdate 4/18/05 - "Perhaps the reality is that the current crop of problems defy easy answers and short term solutions and when all is said and done, that is probably the real message delivered by last week's stock market plunge. If the down trend gathers momentum in the weeks ahead, 2005 could turn out to be a more harrowing year for investors than most anticipated."

MarketUpdate 4/11/05 - "This past week was a quiet one for gold, but it could very well have been the calm before the storm. A vanguard of highly regarded analysts have begun to voice concerns that there is too much complacency in the face of some of the most far-reaching threats to stock market stability in memory."

MarketUpdate 4/4/05 - "Europe doesn't have a huge balance-of-payments problem as the United States does. It's not at war. Europe doesn't have a lack of currency reserves to tap for foreign payments. So why liquidate gold when the dollar is in severe trouble and gold is on the rise?"

MarketUpdate 3/28/05 - "The old school will tell you that inflation needs to be weighed in a larger context -- one that encompasses real rate of return. (A yield bearing asset shows a real rate of return when its interest rate exceeds the inflation rate after taxes.) Currencies with a positive real rate of return attract investment capital, and they rise. Currencies with a negative real rate of return experience an exodus, and they fall."

MarketUpdate 3/19/05 - "This is a good starting point for those of you who are new to the gold market. The current bull market trend began in late 1999 when Europe's primary central banks signed an accord limiting gold sales and leases of the yellow metal. This proved to have a liberating effect."

* * *