Gold Outlook: The Seven Factors Polishing this Precious Metal

by Guest Editorial Natural Riches Natural Riches

Gold Outlook: The Seven Factors Polishing this Precious Metal

by Michael Checkan, Wealth Protection Advisory Panelist, Investment U

Friday, February 10, 2006: Issue #510

Editor's Note: Today, we're fortunate to hear from Michael Checkan, president of Asset Strategies International, to get his firsthand gold outlook. I've known Michael for over 20 years as an astute and even-handed expert on precious metals and foreign currencies. And his company is tops. I'll be back in a few days with my own perspective on the markets. Until then...

~Dr. Mark Skousen,

I just returned from the World Money Show in Orlando, FL, where there were 12,000 registered attendees, 120 speakers and 250 exhibitors.

One of the big questions at the event was whether or not gold prices have peaked. The price of gold has doubled from about $280 in January 2000, to about $570 in January 2006, as you can see below (source: http://www.kitco.com)

Price of Gold: January 2000 to January 2006

I know no one who can predict the future of gold, especially me, even though my last 40 years were spent buying and selling gold in world markets. However, I do know that gold at $570 is still very cheap. Let me explain...

On Friday, January 18, 1980, I was on the trading floor of the COMEX in New York. The gold price on that day reached its all-time high of $877 per ounce. This price today, in 1980 inflation-adjusted dollars, means the gold price should be at $2,200.

Now, compare that with its current level of about $570 per ounce. Clearly, gold has a long way to go before it reaches its historical high. Let's take a look at the past in order to understand the present and possibly the future.

Gold's Outlook: An Uncanny Resemblance To 1980

Economist Joseph Schumpeter once said, "The modern mind dislikes gold because it blurts out unpleasant truths." How right he was...

Three days after gold peaked in 1980, President Jimmy Carter addressed Americans on the State of the Union. I've highlighted below the key statements from the address and other headlines of the day. Do you get a feeling of deja vu?

  • "At this time in Iran, 50 Americans are still held captive, innocent victims of terrorism and anarchy."
  • "First, we will continue to reduce the deficit and then balance the Federal budget."
  • The Cold War was at a crescendo as the Soviet Union amassed troops for military operations in Afghanistan.
  • 1979 saw the largest peacetime increase in consumer prices in history... 13.3%.
  • Of course, the major catalyst to higher prices was the escalating cost of oil.

The similarities to today's events are unnerving, and many lessons from the past are about to replay this year.

Why Gold Is On The Move

Today, there are seven factors driving gold skyward...

#1. Supply and demand fundamentals: Global mine production of new gold decreased by more than 5% (the largest decrease in more than 60 years), while gold demand rose by more than 7%.

#2. The huge increases in debt: Over the past five years, the level of trade and government debt has soared. The debt now exceeds the accumulated debt of the previous 220 years of American history.

#3. Growing uncertainty about the dollar: Uncertainty in the financial markets about the future of the U.S. dollar is growing. The current weakness of the dollar may simply be a reflection of trade flows or, more likely, a systemic loss of confidence.

#4. A gold bull spreading to other currencies: Over the summer of 2005, an important bullish signal was given when gold broke through resistance in euros at the 350 figure.

#5. Rising retail investment: The real swing factor in gold-oriented interest has come from the man on the street, (the streets of Shanghai, and Mumbai, and finally Peoria).

#6. Increasing investor interest in gold ownership: When investors become interested in owning gold and reallocate even a small 10% portion of their portfolio to it, the global supply cannot meet the incremental demand.

#7. Price and expenditure shocks: Price and expenditure shocks continue to impact the already fragile U.S. economy. Hurricanes Katrina and Rita, plus, the energy situation created a very dim outlook for the dollar.

The Best Way To Buy Gold

While it's fine to buy and hold gold coins and bars in the U.S., there is another way that many people don't know about - the Perth Mint Certificate Program (PMCP). Here's how it works...

You buy your gold from a trusted dealer, and have it put in storage at the Perth Mint in Australia. You then receive a certificate that shows title to the gold held on your behalf.

The PMCP is the world's only government-guaranteed program. It's so secure that it's permitted into self-directed individual retirement accounts (IRAs). And there's no storage fee for unallocated (unsegregated) gold. In fact, the Perth Mint has provided safe storage of the metal since 1899.

In short, the PMCP is the safest and most practical way to invest in gold.

All the best,

Michael Checkan

Today's Investment U Cribsheet

  • If you're interested in participating in the Perth Mint Certificate Program, please feel free to contact me at Asset Strategies International, Inc., 800.831.0007 or 301.881.8600, or e-mail me at rcheckan@assetstrategies.com. We're based in Rockville, MD, and in addition to precious metals, we specialize in foreign currencies and overseas wealth protection. You can also visit us on the web at http://www.assetstrategies.com.

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