Ted Butler has ''great expectations'' for new Comex president

Section:

By Mathew Ingram
Globe and Mail, Toronto
Saturday, July 10, 2004

http://www.globeandmail.com/servlet/story/RTGAM.20040710.wxrtakingstoc
k10/BNStory/Business/

Gold has always had an almost mystical quality to it,
thanks to its association with legends such as King
Midas and Nebuchadnezzar. For some the yellow
metal is good for nothing more than making
jewellery. But for others it is the world's original
currency and, therefore, the only real protection
against runaway inflation, a global financial
meltdown, or other economic bogeymen.

Over the past three years, gold has been
something else as well -- a great investment. And
despite a recent pullback in prices, many analysts
think there's still plenty of upside left in bullion
prices.

The price of bullion did climb more than 60 percent
between July 2001, when it sat at US$265 an ounce,
and earlier this year, when it reached a high of
US$427. But in the past few months it has lost some
ground. Bullion has spent most of the past six months
stalled at about $400 an ounce, although it rallied this
week as the U.S. dollar fell in value amid concerns
about slower growth. That has led some gold bears to
argue that the metal's rally has finally run out of gas.

But others hold a much more bullish view -- and one of
the key planks in their argument is the health of the U.S.
dollar, which some economists believe is weak and
likely to get even weaker as a result of spiralling deficits
and a slowing economy. That, in turn, will push the price
of gold up in U.S. dollar terms, say the bullion bulls, just
as it has the price of crude.

Even with the price gains over the past three years, gold
is right about where it was in the mid-1990s -- which is
roughly halfway between the high of $850 an ounce it hit
in 1980 and the low of $252 in 1999. There were several
factors that combined to push gold prices down so
sharply in the late 1990s: Among other things, central
banks sold a lot of their gold, which forced more supplies
into the market, and investors abandoned many
traditional stores of value, such as gold, in favor of
technology stocks.

As a result, one of the stock market stars of the late
1990s was Barrick Gold, which virtually invented the
modern phenomenon of gold hedging. By selling its
future production at a guaranteed price, Barrick
insulated itself from the drop in gold and made billions
more than its competitors. However, it also
contributed to the fall in gold prices, critics argued,
since hedging helped accelerate the sale of reserves
by central banks. But the hedging strategy hurt
Barrick when prices rose. The market's darling now
is Newmont Mining, which is unhedged and thus
reaps the full benefit of price increases.

Not surprisingly, Newmont believes the weakness
in the price of gold is a temporary downturn.
Company President Pierre Lassonde has said he
believes there will be a "long-term bull market in
hard assets like gold," a result, in part, of the
massive U.S. budget deficit of $500 billion and the
equally massive U.S. trade deficit.

But Mr. Lassonde is not alone. UBS Securities says
it sees gold at $470 next year, while Canadian gold
analyst Martin Murenbeeld said earlier this year he
sees gold at $460 in 2005. Others have gone even
further: John Embry of Sprott Asset Management has
said gold could hit $1,000 by 2010.

For the bulls, the price of gold has a lot more to do
with the health of the U.S. economy and the U.S.
dollar than it does with the actual physical supply of
the yellow metal. In that sense, gold is unlike
almost any other commodity, in that its price
movements are often almost completely
psychological. If the U.S. economy doesn't recover
strongly, or if the falling value of the dollar sparks
rate increases that hold back the recovery, there is
a good chance that foreign investors may stop
wanting to hold as many U.S.-dollar assets or
government bonds.

And what's the next best place for investors to put
their money in such times of uncertainty? The
ancient metal of kings -- or at least that's what the
bulls are hoping.

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http://www.investmentrarities.com

http://www.kuik.com/KH/KH.html
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(In English)

Subscription site:

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Eagle Ranch discussion site:

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Ted Butler silver commentary archive:

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----------------------------------------------------

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