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2002 -- A Perspective.
by Professor von Braun
January 1st, 2002
It has been difficult over the last few months to find something of interest to write about. The world of economic activity continues to act in some rather peculiar way that seems to be a cross between total denial and ongoing bedazzlement. The insistence that the next great bull-market for stocks is just around the corner becomes tedious and the buffoons on CNBC are reaching their "use by" date. Meanwhile we have financial debacles that simply appear and disappear with no major repercussions being apparent. Enron is one example and Argentina is another. The CRB index is holding up rather well and we now have cheap gasoline again, which is nice.
As of today we have the official Euro, which conveniently reduces the paper currency game to three major players and a few bit players on the side. To some degree it could be said that the attempt by Central Bankers to fool the gullible public into believing that paper money is real is now in the last act. The Argentineans certainly have lost faith in paper it seems except for lighting fires perhaps.
Will 2002 see the beginnings of a new bull market for precious metals? I don't believe that anyone who has followed the metals market over the last few years has not reached the conclusion that the Central Banks have a vested interest in keeping the gold price low. They also have the ability by virtue of their gold reserves, or what's left of them, to fill the gap between supply and demand for a few more months, perhaps another year at the most.
However their paper currency game is itself beginning to get into trouble. The answer to date has been to drop interest rates and provide massive amounts of liquidity. Now that may be a wonderful idea while it lasts but will it continue to work? The more money poured into the system the more the requirement is for holders of that money. That's a lot of IOU's that Greenspan and his mob have created, joined by of course the ECB and the Japanese. But now the participants have to hold each other's IOU's in ever increasing amounts while trying to increase demand for their own. A picture comes to mind of a group of whirling dervishes who while whirling away, at the same time are trying to fix dinner. The outcome would be food all over the place and not very much to eat.
Perhaps there is one last rally
left in US stocks, I certainly would not write the euphoria off
just yet, even though economic demand is beginning to subside.
However rising commodity prices should begin to herald the potential
for inflation and the US consumer is getting very tired and further
That's apart from the fact that the recognized means for completing all these transactions is itself starting to look tired as well. The king is naked as are his consorts.
Should the CB's have one last attempt at trying to destroy the concept that gold is money, and I believe they will, then the buy of a lifetime will be upon us. Gold at $200 could happen and any decline below $250 will signal that the final decline may be upon us. Now I know there are a lot of long suffering gold bugs out there who have suffered financially as a result of the low gold price but for those that have some cash left then the practice of accumulating physical metal at these levels may prove to be a very rewarding one. Certainly Enron employees would have been much better off with gold in their 401K plans.
As for the mining industry, well the ongoing process of cross contamination, sometimes referred to as consolidation, continues. The hedged producers buy the unhedged producers and vice versa. The disappearance of Homestake was an indication of how serious the situation is for some of the players. Newmont's death wish re its acquisition of Normandy I believe is investment banker driven. Could it be coincidence that Franco Nevada's cash hoard ends up in Newmont's bank account and is used to pay off rather a large loan to Chase Manhattan, now owned by J P Morgan, the advisor to Newmont? Well it could be coincidence, but then again it could not. How does Newmont plan on unwinding Normandy's hedge book when it has difficulty making a profit?
Interesting times. Once again we point out that owning a basket of gold stocks for the long term is not a practice we would partake of. On a very selective basis perhaps, but these companies are becoming more complex when it comes to understanding what they actually own. One needs a degree in derivatives to comprehend this complexity. Gone are the days of cash costs, reserves and reliance upon quarterly reports. The physical is a lot safer, providing that you take delivery.
It is very possible that 2002 may prove to be the year that confirms the beginnings of a bull market in commodities, including precious metals that could last through to 2009. Those that continue to hold paper assets, whether they be cash, stocks or bonds may need to start consulting with gold bugs for advice on how to handle an ongoing bear market.
The Prof can be contacted by email at email@example.com
Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.
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