| > | | | | good luck with that gold bar in that freezing cave |
| Gold bugs have always come up with crazy | | | | with no indoor plumbing or "TiVo." |
| predictions as to how far the price of gold might go. | | | | For obvious reasons, I'm not likely to join the rabid |
| Their predictions that gold should have traded above | | | | gold bugs on steroids anytime soon. But here is why |
| $1,000 and close to $2,000 five years ago are | | | | I think gold could actually add a digit to its current |
| nothing new. In fact, as far as rabid gold bugs are | | | | price. Leaving aside for a moment currency |
| concerned, there's no limit to how high gold could go, | | | | weakness and fears of hyperinflation, there are other |
| considering the amount of money printed by | | | | reasons why gold could be on a steep ascent in the |
| recession-squeezed governments, which in turn has | | | | near future. |
| devalued their currencies and staged the environment | | | | For starters, just as once oil has peaked, it is quite |
| for hyperinflation. The kind of inflation experienced in | | | | possible that gold production has peaked as well. |
| countries like Zimbabwe, where $1,000 bills were | | | | Since 2003, gold production has been decreasing on |
| worth less than toilet paper and often used as such | | | | average by about two percent. Second, years ago, |
| by Zimbabweans. After all, gold is the only real | | | | discovering 50 million ounces of new gold was |
| currency the world has ever had, as gold bugs never | | | | routine; not so much anymore. In 2008, only 15 million |
| fail to say. But when usually sober banking giants, | | | | ounces of new gold were discovered, which |
| such as UBS, come out with predictions that, in the | | | | represented less than one-fifth of 2008's total gold |
| next five years, gold could hit $2,500 per ounce, well | | | | production. The obvious conclusion: the supply of gold |
| then, that is something to think about, for sure. | | | | is rapidly deteriorating. |
| On the other hand, taught the lessons of bubbles | | | | But what about demand? In the current economic |
| past, one could easily argue that gold is walking the | | | | environment, shouldn't the demand also be on a |
| line, toying with becoming a full-blown bubble. It's a | | | | decline? True, the recession has crippled jewelry sales |
| reasonable counterargument. In 2001, gold traded at | | | | and reduced the purity of gold used to make jewelry. |
| about $250.00 per ounce. Today, it is about $915.00 | | | | To quantify it, the demand for gold jewelry is |
| per ounce. If the global economy finally manages to | | | | expected to decline from 60.8 million ounces in 2008 |
| gain some traction, which, granted, could be next | | | | to 56.5 million ounces in 2009. However, the decline in |
| year just as easily as next decade, investors could | | | | jewelry demand has been offset by strong |
| start buying equities and other assets again, rendering | | | | investment demand for gold, be it bullion, gold stocks |
| gold a pretty and pretty much useless commodity. | | | | or gold ETFs, which is expected to go from 43.3 |
| But gold bugs do not give up that easily, nor are | | | | million ounces in 2008 to 52.3 million ounces in 2009. |
| they all created equal. I divide them into two groups | | | | Finally, there is the factor of deep mistrust towards |
| -- lukewarm gold bugs and gold bugs on steroids -- | | | | the central banks, which print currencies as if they |
| both of which have counterarguments of their own. | | | | were Zimbabwean toilet paper. As the presses work |
| Lukewarm gold bugs have a good counterargument, | | | | faster and faster, they heat up and threaten to burn |
| which they always qualify by saying that there are | | | | those who touch them. Investors have been burned |
| no guarantees that gold will actually hit that | | | | badly recently by nearly every asset class -- stocks, |
| "hallelujah" $2,000-per-ounce mark. Their merriment | | | | real estate, oil, etc. We are seeing some confidence |
| with gold is near-term in scope and rests mostly on | | | | in the U.S. dollar lately, but that will evaporate once |
| the unique convergence of gold-favoring economic | | | | those printing presses heat up to the point of |
| factors, such as too much fiat money in the system, | | | | melting. If and when that happens, investors are likely |
| loss of investor confidence, and latent hyperinflation | | | | to start piling up gold again. |
| fears, as well as severe supply and demand | | | | The herd, including both hedge funds and individual |
| imbalances. | | | | investors, is running to gold to protect itself from |
| As for the gold bugs on steroids, most have | | | | inflation and from unreliable currencies. Yet, the true |
| damaged their vocal cords screaming that the | | | | contrarian in me does not feel like running in the |
| evidence is in plain sight. Just look at the Dow-to-gold | | | | opposite direction and shorting gold at the moment. |
| ratio, which stood at one-to-one only two times in | | | | Quite the contrary: I think the herd might be right |
| the last hundred years. In 1934, still reeling from the | | | | this time -- there is too much wrong with our world |
| Great Depression, the Dow hit rock bottom at 33 | | | | today to ignore its thunder. |
| points, while gold was trading at $35.00 per ounce. In | | | | Profit Confidential |
| the early 1980s, which also marks the worst U.S. | | | | LOMBARDI PUBLISHING CORPORATION |
| recession since the 1930s, the Dow was at 800 | | | | News, Analysis, and Information Services Since 1986. |
| point, while gold traded at $800.00 per ounce. | | | | One Million Customers in 141 Countries. |
| Yesterday, the Dow closed at 7,522 points and, if | | | | Lombardi Publishing Corporation |
| you were a gold bug on steroids, you would have to | | | | Financial Publications Division |
| believe that the world was doomed to complete and | | | | 350 Fifth Avenue, Suite 3304 |
| utter failure and that all asset classes were nothing | | | | New York, NY 10118-3304 |
| more than a pile of rubble, out of which only gold has | | | | Copyright 2008; Lombardi Publishing Corporation. All |
| a shot at resurrection like a phoenix rising from its | | | | rights reserved. No part of this e-newsletter may be |
| ashes. In that reality, it makes perfect sense for the | | | | used or reproduced in any manner or means, including |
| Dow to nosedive to 2,500 points and gold to trade | | | | print, electronic, mechanical, or by any information |
| at $2,500 per ounce. The only problem is that if the | | | | storage and retrieval system whatsoever, without |
| Dow were to be at 2,500 points, it would also mean | | | | written permission from the copyright holder. |
| the world would have to end as we know it; so | | | | |