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World Gold Council urges diversion of gold demand into Indian bank paper
By Zachary Howard
Reuters
Wednesday, February 16, 2005
NEW YORK -- Gold prices will soon soar when the dollar's "orderly"
decline likely becomes a freefall and investors flock to undervalued
assets like the precious metals, long-time gold bull James Turk said
Wednesday.
As publisher of investment newsletter The Freemarket Gold & Money
Report and co-author of a new book, "The Coming Collapse of the
Dollar and How to Profit From It," Turk advocates buying gold to get
in on a bull market in metals -- and commodities in general -- that
he sees lasting five to 10 years.
Gold is often viewed as an alternative to the dollar as well as a
classic "safe haven" investment in uncertain times.
Turk said in an interview he felt that the gold market is primed for
a big rally as soon as a lack of demand for dollars and the massive
pile of U.S. debt catches up with the greenback to send it even lower.
Since the dollar embarked on its long-running decline in early 2002,
it has lost about 33 percent of its value against the euro, which has
become a key benchmark.
"My expectation is that you're going to see gold at $500 per ounce
before the end of the year," Turk said. "I think that's already baked
into the cake. But we could very easily overshoot that on the upside
if people start to lose confidence in the dollar. It really comes
down to demand for the dollar."
The benchmark April gold futures contract in New York settled at
$426.90 an ounce on Wednesday, down 40 cents. Futures reached a 16-
1/2-year peak in early December at $460.50.
Gold prices have risen for four years in a row, averaging annual
growth of 13.5 percent, Turk said. He predicted that values will
increase another 20 percent this year.
"We're only a few years into the current cycle where money is coming
out of overvalued financial assets, like the stock market, and coming
into tangible assets like gold, which is very undervalued now," he
said.
Turk, who wears the title of gold bug proudly, based on his belief
that gold is money, said it was difficult to time exactly when the
dollar will drop, causing gold to spike up.
But he said that an extraneous event, possibly related to the energy
market, currencies, or international trade, might be the catalyst for
a massive dollar selloff.
Meanwhile Turk believes the exchange-traded fund called streetTRACKS
Gold Trust, which launched in November on the New York Stock
Exchange, was bad for the gold market because it does not provide for
independent auditing for all of the gold the fund supposedly owns.
Although streetTRACKS launched to much fanfare and already has
amassed more than $2 billion in assets, Turk contests the view that
this represents fresh gold demand, saying the market price of gold
would not have fallen so much since then if that were the case.
"The consequence is there is anecdotal evidence to suggest that there
is a lot of paper behind GLD and not necessarily a lot of physical
metal," he said.
"One would conclude that people who would otherwise have bought
bullion and kept the gold price above $450 are buying GLD instead and
getting paper rather physical metal."
Looking at a recent proposal for sales or revaluation of gold held by
the International Monetary Fund to finance Third World debt relief,
Turk said the idea was unlikely to succeed due to what looked like
broad opposition, especially from gold producing counties such as
South Africa and the United States.
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