December 2, 2009

Global Market Comments
December 2, 2009


Featured Trades: (GOLD), (GLD)

1) Welcome to the new gold standard! There was a time that to own gold you had to be a 'gold bug' and believe in the myriad urban legends that percolated in the underground. Fort Knox is either empty, or full of gold plated steel bars. The Treasury cut back on the minting of new gold coins because it had to ship the bulk of our reserves to China to cover the trade deficit. The US government is going to ban private gold ownership again. The Feds have unwittingly fanned the flames of paranoia, with the Patriot Act forcing all American gold and jewelry dealers to register with the Treasury Dept. But adherents to the yellow metal are considered raving nut cases and conspiracy theorists no more. Emerging market central banks, pension funds, hedge funds, mutual funds, and millions of individuals around the world have all simultaneously decided to keep a certain percentage of their assets in the barbaric relic. They are either making a bet on an extended super cycle in favor of all hard assets, or looking for insurance against a wave of hyperinflation that Washington's policies threaten.  Enthusiasts are no longer burying pillow cases of coins in the back yard, but instead are pouring into an ever expanding legion of ETF's, mining shares, bullion, and futures contracts. The SPDR Gold Shares (GLD), with $37 billion of the yellow metal, is now the world's sixth largest owner of gold. Some economists are now arguing that if you take world GDP and divide it by the value of the gold above ground today, an historic mean ratio would put the yellow metal at $5,300 an ounce. That makes the current spot price look like the deal of the century, and my target of the old inflation adjusted high of $2,300 positively conservative. To sign up for an excellent free weekly research product on precious metals, please click here for the Millennium Metals website.

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2) I thought I'd visit the front trenches of the gold boom by dropping in on the Hard Assets Investment Conference in San Francisco. I planned on spending one hour, but stayed eight. It proved incredibly fertile ground, not just for gold bugs, but also of enthusiasts for silver, platinum, uranium, rare earths, and base metals. A nearly football field sized conference hall was filled with booths from over 100 participating companies. Of course the coin dealers were out in force, flogging maple leaves, silver eagles, and krugerands. The gold miners alone had reps from Africa, Canada, Peru, Brazil, Argentina, Guyana, Mongolia, the Congo, and Burkino Faso.  I gravitated to the tables manned by grizzled old mining engineers with dirt under their fingernails who gave me the hard data on yields, processes, and costs that I was looking for. I pawed ore samples and core drillings of every possible description. The newsletter publishers also had a large presence. It turns out that there is no environmental movement without rare earths, and we are entering the golden age of nuclear power. One guy even offered to drink the runoff from pure yellow cake to make his point. The financial leverage of the junior miners is spectacular if the price of the barbaric relic keeps going up. I even learned about the fascinating world of collectable gold nuggets. By the end of the day my back finally gave out, and I went cross-eyed poring over a topographic map of lithium deposits in Chile's Atacama Desert. I'll delve into each of these areas in detail in the coming weeks, once I have had a chance to sort through the wheat from the chaff. The early preview: the price of everything is going up. The next conference on May 10-11 at New York Marriot should be a real whopper.

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'Central Banks are sewing gold into their lapels,' said Philip Gotthelf, president of Equidex, a foreign exchange dealer