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Gold in the Popular Press: $8,000 or Bust
(October 13, 2003) Today’s Barron’s features an interview with James Turk of the Freemarket Gold and Money Report in which he makes the case for $8,000 gold during the current cycle. Meanwhile, the financial press wakes up to commodities’ potential in the face of a dollar widely anticipated to grow weaker. A brief weekend survey…
You could almost say that a consensus has been reached worldwide: the dollar is going lower, commodities are going higher, and our favorite commodity, gold, is the odds-on favorite to perform well whether we have deflation, inflation, stagflation, a weak jobless recovery, a traditional booming recovery, or just about any other scenario you can dream up.>br>

“Downtrend for the Dollar is Likely to Continue” is Tom Barkley’s “Currency Trading” column title this morning in the Wall Street Journal.

The article begins, “The dollar doldrums should continue this week after beginning with a holiday-inspired calm, as a slew of US economic data are likely to be overshadowed by the continuing implications of last month’s Group of Seven meeting. The US currency has beaten a retreat since the G-7’s communiques call for more-flexible currency policies, which was interpreted as putting pressure on Asian countries, in particular, to accommodate a weaker dollar to help fix global imbalances.”

“New Glamour for an Old-Fashion Asset” is the title of Conrad de Aenlle’s article about gold in the business section of the New York Times on Sunday 10/12.

Mr. Aenlle’s article starts out, “Gold, the ultimate old-economy asset, is close to its highest price since 1996 and is capturing broader interest than it has for most of the last 20 years. That leaves two major questions for people who are thinking of investing in gold: how to do it, and whether to do it at all after the recent run.”

The NYT article (illustrated with a picture of a big pile of gold bullion bars) goes on to discuss gold investing, gold funds, asset allocation, and, of course, the traditional cautions expressed in the popular press against the idea of –gasp!- an individual actually having any physical gold in his or her hot little hands:

“Few conventional investments are more cumbersome and costly. Gold pays no income and can be expensive to store, and trading commissions are typically far higher than those for stocks and bonds.”

Yes, we are reminded once again by the financial press of the awful burdens of gold ownership.

On the same page 7 of the Sunday NYT, we find an article by Jonathan Feuerbringer entitled, “Who Wins and Who Loses if the Dollar Keeps Falling?” He begins with this, “A falling dollar has always been seen as a benefit for Americans with money abroad. A weaker dollar means that foreign profits will be higher and loses smaller. But as long as the dollar decline is orderly and restrained, it is also likely to be good for Americans who stay invested in stocks at home, although it won’t help those in bonds.”

The gist of the article is that 1) the dollar will continue to fall, and 2) US stocks with foreign exposure will prosper, i.e., will earn you a greater dollar return. The head-ache inducing part of such statements is that they ignore the fact that a weaker dollar means just that, a dollar that is worth less. Let’s repeat this slowly: Your percentage gains may look great, but you’re still running on a treadmill.

As the politician once said in defense of inflation, it will allow us all to live in million-dollar houses. Unfortunately, they will be the same humble abodes that we currently call home. So who loses if the dollar keeps falling? Every darn one of us, of course.

Really, such gloom about the dollar (which we read as optimism about our favorite yellow metal) is almost scary. You can tell that Jennifer Hughes senses a whiff of this in her article “Sentiment is Driving Force in Dollar’s Fall” in the Financial Times of this past Saturday, wherein she writes, “Analysts often warn that when a market is positioned one way, in this case, focused on a weaker dollar, the chances of a sudden turnaround are greatest.”

But of course there’s a nay-sayer in every crowd.

Instead of dwelling on the chance of a cold-water shower on our 30-month old gold rally, let’s turn instead to the most massively bullish gold call we could possibly imagine in a major financial publication. Barron’s this past weekend featured such in Sandra Ward’s 3-page interview with James Turk, of and the Freemarket Gold and Money Report.

Many of you are already familiar with Mr. Turk, and we have written about his electronic gold accountancy here before (“Exploring the World of Virtual Gold,” June 21, 2001, available in our Archives).

We recommend that you go out right away and buy this latest Barron’s off your local newstand if you don’t already have it, not only for Mr. Turk’s always insightful thoughts about the gold market and gold stocks, but also just for the sheer outrageousness of seeing an $8,000 gold prediction published in a respected financial sheet.

Basically, Mr. Turk contends that the low gold prices that we saw over the past few years allowed the smart money crowd to put away quite a bit of it.

“Gold has formed all the classical patterns, including a selling climax after the Bank of England announced in 1999 it would sell half its gold. Gold has been accumulated by so-called strong hands, and it is going to take much higher prices to shake that gold out of those strong hands. Looking at gold purely from a technical point of view, one has to be bullish.”

Mr. Turk goes on to elucidate his Fear Index, a number which measures dollar confidence. He perceives that today’s currency fears are on the low side, and therefore this is a favorable time to acquire gold before doubts about the US dollar become even more widespread.

And his gold prediction? We present here, in black and white, the shorthand of how he gets to $8,000 gold:

“…Another interesting parallel is the early ‘Seventies, when gold was at $35 an ounce and the Dow was about 800. Throughout most of the decade, the Dow traded between 600 and 1000. Eventually, gold and the Dow crossed at the end of that decade at 800. Adjusting for 2003 dollars, and multiplying gold by a factor of 10 because it takes $1 to buy what 10 cents purchased then, you get gold at $350. If you take the 800 Dow level of 1971 and multiple it by 10, you get 8000. If we repeat this, and that’s what I’m expecting, the Dow will trade between 6,000 and 10,000 for the next several years. And gold will move from $350 an ounce up into the thousands. Gold could go from $350 to $8,000, which is no crazier than going from $35 to $800.”


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