|
Investment Indicators from
Peter George Issue No. 73
It Can Happen
- gold at $3500
Peter George
Oct 13, 2005
Scripture
'What has been will
be again,
What has been done will be done again;
There is nothing new under the sun.'
Ecclesiastes chapter 1, verse 9
SUMMARY
It was the Spanish
'Naturalist' philosopher George Santayana who arguably best expressed
the kernel of the above truth when he proclaimed the following:
"Those who fail to
learn the lessons of history
are doomed to repeat them."
We run the risk of making the
same mistakes today as we made in the past. We seldom learn.
As an old generation passes away, a new one takes its place.
They are as stubborn and foolish as their predecessors and frequently
forced to learn the same hard lessons afresh. Yet if we study
history, much of our pain could be avoidable.
The field of economics is no
exception - particularly the areas of money and banking. No one
likes the discipline of gold, least of all central bankers. It
restricts their ability to satisfy the open-ended demands of
politicians. In a brief review of the historic tussle between
advocates of a gold standard and central bankers, entitled:
"The Barbarous Relic
- It's Not What You Think"
GATA stalwart James Turk made
certain telling observations. He explained why the 'money elite'
which either owns or controls the world's central banks would
invariably rather manage without the restrictions imposed by
gold. In this way they are able to exercise power. Yet over time,
the 'command economy' that central banks operate inevitably encourages
the growth of DEBT rather than savings.
"It forces them to
walk a fine line between prosperity and economic collapse, given
the inherent fragility of a credit-based monetary system Banks
want to expand their balance sheets - make more loans in order
to earn greater profits."
Governments in turn want central
banks to ACCOMMODATE this objective because:
"The resulting credit-expansion
provides opportunities to acquire new things, which create an
illusion of prosperity that make people believe their wealth
is rising...The net effect is to perpetuate government power
and politicians' perquisites. Instead of following a sound and
time-tested 'PAY-AS-YOU-GO' policy, consumers, businesses and
governments have adopted a new creed - 'BUY-NOW-AND-PAY-LATER'.
So the mountain of debt that exists in the US today - and the
excessive consumption that continues to enlarge that mountain
- is directly the result of central banks and their need to grow
more debt to avoid the inevitable 'bust' that would follow if
this growth in debt were to stop. Newsletter writer Richard Russell
explains it very simply in just three words - 'Inflate or die'."
Turk explained that although
the British economist Keynes described the Gold Standard as a
'barbarous relic' historians have twisted it to assume he was
referring to gold itself. He would never have dared. Instead
Turk states that today it is central banks themselves who are
in danger of being relegated to the dustbin of history as 'barbarous
relics' because of the instability they have caused to the money
systems of the world - particularly that of the US. It is hard
to disagree. Turk continues:
"Given the powerful
interests lining up against it, it is not surprising that the
classical gold standard began being painted as undesirable, despite
its splendid 200-year track record of maintaining relatively
stable prices."
Turk speculates on the future
of central banking as a whole:
"If central banks once
served a useful purpose, it was when they were governed by the
discipline of the classical gold standard.
Having abandoned the gold standard:
"Central banks now
pursue reckless policies that erode - and in some cases destroy
- the value of a currency. In this way, central banking is not
only a barbarous relic of the past, it has become dangerous as
well. So when confronted with attempts by anti-gold propagandists
to bash gold, we know how to respond. The barbarous relic is
central banking and any central bank that prevents the RESTORATION
OF SOUND MONEY.
Turk concludes with the following:
"The Gold Standard
may be dead... but gold remains the standard."
Where is this leading? Here
are some thoughts.
S.1 COULD HISTORY REPEAT?
Twenty nine years ago
- on July 18, 1976 and at the tender age of 34 - the writer
was invited to submit a full page article on gold to South Africa's
then largest circulation newspaper, the Sunday Times. The paper
still retains its leading title but with a far bigger distribution
than before.
The article was entitled:
"IT CAN HAPPEN - GOLD
AT $500"
The price at the time was around
$120 an ounce. It briefly dipped to $110 but by Christmas 1979
- barely 3 years later - it had reached and exceeded the writer's
forecast target of $500. Less than a month into the New Year
- by January 21, 1980 - it had raced to an intra-day high of
$875, adding $375 in three weeks! The writer later earned the
title of 'Mr. GOLD'. Failure to sell at the top - unlike the
wise Jim Sinclair - caused the press to dub his subsequent predicament
as:
"DOWNFALL OF MR GOLD"
It was blazoned over their
billboards and taught the writer a hard lesson. Knowing when
to get out is as important as knowing when to get in. For now
it's buying time. The negative environment surrounding gold,
when the article was written in mid 1976, is in many respects
similar to that prevailing today. We will therefore incorporate
extracts from the article in this report and readers can judge
for themselves. The full article will be attached for the benefit
of those with an interest in history - who may wish to 'check
it out'.
The bull market on July 18,
1976, was 5 years old. Starting date was Nixon's closing of the
gold window on August 15, 1971. It was double that age if one
uses Pierre Lassonde's suggested trigger of 1966.
Lassonde is current Chairman
of Newmont Mining. In an
interview with Robert Bishop on September 19, he pinpointed
the two commodity super-cycles which have occurred since 1900.
Each was of 14 years duration. The first ran from 1924 to 1938,
the second from 1966 to 1980. In both cases the gold cycle was
prematurely cut short. In the cycle of the 1920's and thirties,
first it was artificially curtailed when the 'official' price
was raised from $20 to $35 in 1935, three years before the end
of the cycle. It was then pegged at $35 for the next 36 years.
In the second super-cycle - which lasted from 1966 until 1980
- the price of gold was still 'fixed' by a 'Gold Exchange Standard'
between central banks until 1971. This had the effect of compressing
the cycle. Only after 1971 was the price permitted to rise. There
were however early rumblings, demonstrated by the fact that between
1966 and 1971 the US lost more than half its gold reserves in
a vain attempt to hold the price at $35.
It was the actions of President
De Gaulle of France who triggered an acceleration of the run
in 1968 by brazenly exercising his country's right to cash mounting
dollar balances for gold. De Gaulle was determined to stem the
flood of American paper then swallowing up French industry. Which
country will step up to the plate this time? Apart from the 'hidden
agenda' of a central bank 'Gold Cartel' which regularly but unwillingly
parts with gold in an effort to contain the price or slow its
rise, there are no 'forced sellers'. How long before it becomes
a 'free-for-all'? Who will break ranks first? Will it be the
Russians with their mounting dollar holdings - $200 billion at
last count? With oil and gold set to explode, but manufactured
exports limited, the Russians have no need to play the game of
supporting the dollar. They can afford to be independent, holding
their reserves in whatever form deemed best.
Will it be China with $870
billion in the bank - including Hong Kong? To date the Chinese
have focused their efforts on fixing their currency to the dollar
at whatever the cost. This has protected their export markets
and facilitated rapid absorption of their rural unemployed at
a rate of 20m a year. There are still another 200m in the pipeline.
Increasingly China is seeking
to secure long-term supplies of oil and commodities by diverting
a major portion of their dollar holdings into energy and mining
stocks. Their first attempt - to buy US oil company UNOCAL -
met with fierce opposition from a threatened American establishment.
The Chinese were shocked and angry. No doubt they will redouble
their efforts elsewhere but it cannot have encouraged them to
continue holding dollars. Down the line, when US debt and housing
bubbles burst, China's exports to the US could shrivel overnight.
To cover this, Chinese chess players would have a game plan.
The most logical would be to emulate the West and unleash a copy-cat
credit boom for Chinese consumers. This could absorb most of
the production of Chinese goods now flooding into the US via
the likes of Walmart.
If Americans can live 'high
on the hog' at the expense of underpaid Chinese workers, China
might as well sell to her own people on the same system of 'never-never'.
At least they would enjoy the benefits of a better lifestyle.
Finally there's the Middle
East. Already angered by American military exploits in Iraq and
pressure on Iran, Arab producers grow restless. The trade-off
for holding dollars is evaporating. They will eventually realize
- as this report intends to show - that their oil fields are
'rapidly wasting assets'. When they wake and face the music,
even if prices rocket higher by multiples from current levels,
the reality of 'peak oil' will force them into a 'savings mode'.
Saudis in particular will realize they have to set aside funds
for the future. Holding dollars will not protect them. Only gold
can do it. The question is, where is gold going and how fast?
Can we anticipate a percentage gain of similar proportions to
the period from 1976 to 1980? Then gold rose from $120 to $875
in 4 years - a 700% increase...
|
More follows
for Subscribers, including:
- Projections on Oil, Uranium
and Gold
- Spotting the tipping point
in World markets
- Analysing the excessive risks
of the Repo market
- Updates on Aflease, Sub-Nigel
and Randgold
- Brett Kebble
We encourage you to access
the full report at Peter George's website with a view
to becoming a SUBSCRIBER. The address is: www.investmentindicators.com
|
Oct 12, 2005
Peter George
tel:
021-700-4880
cell: 082-806-3147
Contact
DISCLAIMER
Readers are advised that the material contained herein is provided
for informational purposes only. The authors and publishers of
this letter are not acting as financial advisors in providing
the information contained in this publication. Subscribers should
not view this publication as offering personalized legal, tax,
accounting or investment related advice. Readers are urged
to consult an investment professional before making any decisions
affecting their finances.
Any statements contained in this publication are subject to change
in accordance with changes in circumstances and market conditions.
All forecasts and recommendations are based on the currently held
opinions and analysis of the authors and publishers. The authors
and publishers of this publication have taken every precaution
to provide the most accurate information possible. The information
and data have been obtained from sources believed to be reliable.
However, no representation or guarantee is made that the information
provided is complete or accurate. The reader accepts information
on the condition that errors or omissions shall not be made the
basis for any claim, demand or cause for action. Markets change
direction with consensus beliefs, which may change at any time
and without notice. Past results are not necessarily indicative
of future results.
The authors and publishers may or may not have a position in the
securities and/or options contained in this publication. They
may make purchases and/or sales of these securities from time
to time in the open market or otherwise. The authors of articles
or special reports contained herein may have been compensated
for their services in preparing such articles. Peter George Portfolios
(Pty) Ltd and/or its affiliates may receive compensation from
the featured company in exchange for the right to publish, reprint
and distribute this publication.
No statement of fact or opinion contained in this publication
constitutes a representation or solicitation for the purchase
or sale of securities or as a solicitation to buy or sell any
specific stock, futures or options contract mentioned in this
publication. Investors are advised to obtain the advice of
a qualified financial and investment advisor before entering any
financial transaction.
321gold Inc
|
