chapman - for the bugs - au and ag

  1. dub
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    It used to be that most Japanese looked down on gold as something of a stodgy investment favored by their overly conservative grandparents. But the old codgers may be getting the last laugh as young Japanese investors are now flocking to gold in unheard-of numbers. "The party is over," said Itsuo Toshima, Japan regional director for the World Gold Council, referring to the somber realization among young Japanese investors that quick profits are now much harder to find.

    "The Japanese have lost faith in stocks, in the (U.S.) dollar and even in their banks, and so are turning to gold like never before." Toshima said that the buzzwords among Japanese investors are now "risk minimization" and "asset preservation." "People used to come to me and say, 'So how much money can I make on gold?' but that has all changed," said Toshima. "There has been a definite shift among young Japanese investors from being 'return conscious' to being 'risk conscious,' and that is good for gold."

    Toshima explained that the decade-long slump in the Japanese economy has reached the point where even very young people are now asking themselves if they will have a job in the coming years, how will they provide for their children's future and will their pensions even be there when they are ready to retire. "Young people worried about job security or their pensions were virtually unheard of just three or four years ago."

    Toshima said that a surge in the number of first time investors in the gold market has bolstered Japanese gold demand in 2002 and will continue to do so in 2003. Gold Invest Hit 80 Tons In First Three Quarters Of '02 "Industrial gold demand is down because of the poor economy and jewelry demand has been basically flat, but demand for gold in Japan's investment sector has really taken off."

    According to figures compiled by the World Gold Council, Japanese gold investment demand in 2001 came to 64.8 metric tons, but this figure already hit 80 tons in just the first three quarters of 2002. While declining to give any specific price or demand targets, Toshima said that he expects Japanese gold demand in 2003 will top the robust level seen in 2002. Toshima, did however, warn that the Japanese gold market could see some short-term profit taking. "The Japanese bought a large amount of gold about three or four years ago when it was trading around Y1,000 a gram. But with the gold price moving over Y1,400 just last week, some of these investors must be sorely tempted to take profits."

    Japan's over-the-counter gold price was pegged at Y1,390 Thursday, down Y6 from Wednesday. Toshima said that in 2003 the World Gold Council will be concentrating most of its resources in promoting gold in the investment sector, as "this is the real growth area." Toshima explained that the council will be conducting a series of workshops around Japan to teach sales people at mining companies, bullion houses and regional banks how to better market gold to investors. Toshima said the council is looking to "build markets" where the growing number of new Japanese gold investors can easily get their hands on some bullion. "This rise in Japanese gold demand is not a boom. This is a trend with some real staying power," said Toshima.

    Japanese gold buyers have been on a rampage just like they were earlier this year. That was caused by the government cutting savings account insurance to an $80,000 limit per account. This time we believe the massive buying is the result of and realization of monetary debasement. A Japanese flight to quality has begun. The Japanese can now see where their country is headed financially and they are seeking the ultimate safe haven. As we predicted, gold is trading in a very wide range and becomes more volatile daily.

    This is an opportunity to invest in a growing mineral resource that could easily exceed 20 million economically mineable tonnes of ore. In addition, this is essentially a Silver play and then the question is - Why should you invest in Silver?

    Because of the ongoing Silver supply deficit (100 million ounces per year), known Silver stockpiles are low and are well on their way to zero. Silver is being consumed and not stored like gold. New uses are steadily being discovered for various applications: among others; Silver use in super conductivity technology for electricity transmission efficiency; use in battery manufacture for electric and electric/gas hybrid cars; soldering by replacing the now used tin-lead alloys to soldering with a tin Silver alloy. There is new evidence that colloidal Silver may be used in the future as a disinfectant as it has been found to be a very efficient killer of bacteria. All in all, supply and demand issues favor Silver.

    Remember Gold is "Accumulated" but Silver is "Lost". Also there is currently 10 times more Gold than Silver in above ground stocks! Percentage wise I expect Silver to outshine Gold in the years to come.

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    Volatility is something derivative positions can't stand. We are sure you remember LTCM just over four years ago and its resultant collapse. In addition, the shorts are trapped, which will add real zest to the rally. And, let's not forget the hedgers who will be destroyed in this process.

    Gold sellers have their gold bars on sale in department stores in China. It's expected the Chinese will purchase 400 tons of gold in 2003.

    Now that gold has broken away from the manipulators we hear all sorts of foolishness regarding gold. Most miss the fact that basically gold is stronger because the dollar is becoming more a fiat currency. Gold is denominated in dollars, thus if the number of dollars are being inflated their value must drop and the value of gold must rise. Those who believe a cheaper dollar will increase exports to salvage the economy are mistaken. We don't manufacture very much any more so the lower dollar can be of little consequence for exported goods. We have begun to ship services offshore so that would also deter exports. Thus, a cheaper dollar will really only assist deflation, whose pull is getting stronger and stronger. The lower dollar and lower interest rates have not produced a recovering economy and we still have a tremendous debt overhang by government, corporations and individuals. Gold has overwhelmed the manipulators and is telling us you had best not own dollars because they are very overvalued. You had best own gold because it's the only real currency in a world of fiat money.

    As we said in our last issue we have confirmation with gold having broken up and over $330 an ounce that not only has phase two of the gold bull market begun, but because attempts at suppression are failing, we could have clear sailing upward from here. In other words, soon we will have, for lack of a better term, a normal market from here. Remember the gold that was sold by central banks was absorbed by the people who ordered the sales in the first place. This is part of what suppression is all about. Buy as much gold as cheap as you can. These elitists know currencies will devalue versus gold and that's why they have bought it. Besides who has the funds to buy a tonne, or two, or three at a time? You can mark our words, we can promise you several years down the line we will revert to a gold standard or a gold exchange standard. That puts all the inventory power back into the hands of the insiders, who will then refund the central banks. We also believe this time there will be gold convertibility or a gold exchange standard. That is when anyone at anytime, if they choose, will be able to exchange a currency for gold at the local bank. Such a system will mean the end of fiat currencies. Unfortunately the elitists will probably want a worldwide monetary unit. One-world money, 15-30% backed by gold. That means we will definitely see $512.00 an ounce in 2003 and probably $840.00 an ounce. The Federal Reserve' Alan Greenspan has said in his recent speeches that he is not concerned with inflation. He knows deflation is the problem. His only alternative is arranging zero interest rates and massive reflation by massively increasing the money supply. The problem is it won't work. The system must purge itself. Yes, we could have higher inflation for a short period but the deflationary drag will be overwhelming. The bottom line outcome of increasing aggregates and inflation or being unsuccessful is the same. A flight to quality and a tremendous rise in the price of gold either way is inevitable.

    The Blanchard anti-trust lawsuit against Barrick Gold and JP Morgan Chase is an incredible boon for every holder of gold coins, bullion and stocks and for the Gold Anti-Trust Action Committee. The word about gold price manipulation is sweeping around the world, that is everywhere except in the CFR; elitist controlled United States of America. It is an outrage that "message discipline" and the compliant financial press in the US is making a mockery of the notion that we have free speech in our once great nation. This suit was filed in a US Federal court, the whole world knows about it, but it was only a footnote in the few publications that reported its existence. Not one word on television. Not a word on CNBC. CNBC Europe discussed the suit but not headquarters in Fort Lee, N.J. It is obvious that gold has been suppressed in order to achieve or maintain financial stability so that the elitists can continue to loot the world¹s inhabitants. Stay fully invested. You have to be in the game to win.

    The main implication in the Blanchard lawsuit against JP Morgan Chase and Barrick gold is the probability that the US Treasury and the Bank of England are underwriting any losses they incur. Are these two corporations acting in behalf of official interests? Of course they are and that's what the exercise is all about. Why or how was Morgan able to subsidize Barrick's hedging, which flooded the gold market? Don't forget Peter Monk is wired to the Royal Family and to the Bushes. Barrick was manipulating in restraint of trade with their accomplice Morgan. These were not legal business interests. All the evidence exists, now the question is does our legal system work? If Reg Howe's suit is any example the answer is no. If this case is thrown out of court we advise you to start cleaning your weapons. A land without a fair legal system more often then not ends up in revolution.

    Sales of American Eagle gold coins jumped to 43,500 ounces in November from 31,000 in October. Sales for the year should be close to the 325,000 ounces sold in 2001, but both are still off from the 2.1 million ounces sold in 1999, at the height of year 2000 computer fears known as Y2K. This year through last week, $465 million poured into gold oriented mutual funds, after a net outflow of $251 million in the same period a year earlier. The 2002 pace is well above the average mutual fund flow of just $84 million since 1992. For the year the CBOE Gold Index, which includes 10 gold mining companies is up 47%, while the price of gold is up 22%. Presently speculators hold a net long position of 55,000 contracts, which is the largest since 1996. After 20 years in the investment wilderness gold is again a pursued asset class. Reallocation is in process and just a small amount of money could dramatically change the fortunes of gold shares.

    Currently, 76% of the world's central banks' reserves are in the form of dollars. By contrast, gold is a smaller percentage of reserves than at any time in the last 50 years.

    On 12/23/02, at 08:30 A.M EST on CNBC, a commodity announcer in explaining away the market's problems referred to those who were rushing to gold as the lunatic fringe. We have been quite restrained in our assessment of the shortcomings of the investment community, government, the media and CNBC in particular. Now it's no more Mr. Nice Guy. We don't like being called lunatics, so we will begin vicious open warfare. Enough is enough, it's bad enough they either manage the news or don't report it at all, but to call us lunatics goes far too far.

    Over and over we are asked where are we headed. Well, we believe the Dow is headed for 4500 or lower and we believe interest rates will head higher late next year as gold and silver prices hit new highs. If our President has his way war will begin in February and oil will climb over $40. If the military expedition takes longer than one month oil could climb to $70 to $100 a barrel. Stocks will go down, bonds will go down, government pensions and social security will be cut and private pensions will be reduced by two-thirds. Where will you be? You'll be in gold and silver coins and shares. You'll have paid off all debt except your home and those with residual property will have sold it. You will have prepared for the safety and feeding of your family. You will survive. You are going to witness the fall of a modern Rome and live to tell and write about it.

    Anyone who follows gold knows that production is declining and that it takes five to ten years to take a mine to production. To that end a survey by Toronto-based Beacon Group found that worldwide gold production by 2010 could be nearly 30% lower than in 2001, assuming a long-term average price of $275 an ounce. Even with gold prices at $350 an ounce we could speculate production could be 20% lower and that's probably the bottom line because it takes so long to bring a mine into production. This, of course, is why hedged producers are buying in their hedges and they have a long way to go in cleansing their hedge books. This contraction in hedging will continue to put upward pressure on gold prices and along with less production and increasing demand prices, gold will move strongly higher. Don't forget hedging is a double whammy. While buying back hedges, producers are not sellers, so the buybacks have a double leveraging affect. This time things are different. This will be a long-term bull market probably stretching some five to ten years. Thus, investors should accumulate and be patient. The stock market is headed lower, bonds and real estate are at their tops and that leaves gold and silver coins, bullion and shares.

    Fortunes will be made by those with foresight and perseverance. This is the investing chance of a lifetime. As far as we are concerned the risk is gone, it's all a piece of cake from here.

    The tectonic shift in gold prices is being accentuated by the falling US dollar and that Islamic countries are serious about accelerating their efforts to replace the dollar with the Arab dinar, backed up by physical gold, a plan formulated by the Malaysian government, which is now receiving serious attention in the Middle East. The falling dollar and the current account deficit are taking their affect on foreign investment flows into the US. As an example, the share of stocks and bonds in the US held by Japanese institutions dropped to just 10% in October, while EU investments were up 66%. EU net purchases of US long-term securities plunged $78.92 billion in the full year 2001 to just $18.49 billion in the first three quarters of 2002. As you can see the flight to quality is in motion.

    The dollar has hit 1.386 versus the Swiss franc and that is long-term support. If that breaks, which it probably will, 1.25 is the next spot and then 1.15 for a 33% correction. Just three years ago it was 1.75. This year the franc has gained 16.7%. The euro is 1.048 that is up 17.69% and the yen is 118.53 up 9.5% for the year. As alternative real money, gold has recently traded at $354, up from $285 earlier in the year. It is troubling when the dollar declines so easily against the euro, a political experiment in progress. All these problems we've talked about for so long are starting to come together. As a result of the falling dollar, we see a minimum gold price of $512 an ounce for 2003 and in all likelihood $840 an ounce.

    January 6, 2003

    An international financial, economic, political and social commentary.
    Published and Edited by: Bob Chapman
    FOR A FREE INTRODUCTORY COPY GO TO: [email protected]

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