2. drewster said...

Executive Summary: Gold is going to shoot up.
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It's a lengthy report. Main topics are dollar, gold, US economy, Kondratieff cycles. Here are some key points split into facts and opinions:

Facts:
- US debt/GDP ratio is nearly 350% (vs. the 270% peak in the Depression)
- The Federal Government’s accounts have not been signed off by its auditors for ten years (just like the EU accounts only bigger)
- Gold prices previously hit $850 in 1980, which is over $2000 when adjusted for CPI inflation
- Gold/Oil ratio has a long-run average of 1:16 but is currently at 1:9
- In 1933 President Roosevelt banned private ownership of gold; this was reversed in 1975.
- Gold price is rising not only against a falling US$, but also against traditionally safe currencies like the Swiss Franc and commodity-based currencies like the Australian Dollar.
- Five major asset classes have all risen in value since 2002 (real-estate, equities, bonds, commodities, and art)
- Bernanke is quoted on many occasions as being anti-deflation
- The average country holds 9% of its foreign reserves in gold; China only has 0.9% so lots of scope for it to buy more
- Many countries have already or are considering diversifying out of dollar reserves
- Hindu Indians have a religious attachment to gold; in the first half of 2007, consumer demand for gold surged 72% in India
- Gold mine output has been largely flat for the past 15 years
- The gold market is not as transparent as most other financial markets
- There are gold derivatives; gold can be bought and sold forward, swapped, and leased (avg. 0.25% interest)

Opinions (gold):
- Gold is the only asset to outperform in periods of either uncontrollable inflation or deflation
- The majority of investors are still not taking gold seriously as an asset class.
- Peter Hambro Mining is a good gold-mining stock to own (warning: do your own research too!)
- It is difficult to model supply and demand of gold, because much trading is hidden
- Central banks claim to hold a lot of gold, but in reality much of it is leased or swapped out - just like fractional reserve banking
- 25-50% of central bank gold is out on loan. This keeps the price down.
- Only physical gold bullion is safe; ETFs and other unallocated instruments are at risk in the event of financial collapse

Opinions (inflation):
- Greenspan delayed a K-winter deflationary recession when he slashed interest rates in 2001
- The US government deliberately misleads inflation expectations by fiddling the CPI and hiding M3 money supply
- The US government deliberately keeps gold prices low to flatter the dollar and the CPI; there are suspicious movements in the price which bear this out
- Devaluing the dollar amounts to a hidden tax on foreign holders of dollars
- The US government is broke and will have to print dollars to pay its bills
- The US govt will use inflation to reduce debts
- If inflation reaches a certain critical point, nobody will want paper money any more and there will be a crazed rush to buy real goods and assets
- BRIC and OPEC countries intend to further diversify their reserves out of dollars and into gold

Opinion (economy):
- A US banking crisis is likely to erupt
- If the US economy sinks they will have to withdraw troops from Iraq and Afghanistan
- Russia and China will become the new superpowers, the USA will decline in power

Disclaimer: Although supposedly professionally researched, many of these points belong in the realm of opinion rather than fact. Never invest more than you can afford to lose. If you've spent years saving up a deposit for a house then think carefully before gambling it in the financial markets.