You are here

Turk was misquoted on Buffett but sees more breakouts for gold

Section: Daily Dispatches

Gold rush may mean inflation bust;
The metal's recent jump worldwide
and high oil prices signal
serious inflation pressures ahead.

By Katie Benner
Friday, June 24, 2005

NEW YORK -- Gold rising along with the dollar -- and with oil
jumping to record highs near $60 a barrel -- may signal serious
inflation woes ahead.

It's enough to give a gold bull deja vu.

A handful of precious metals insiders at the recent New York
Institutional Gold Conference predicted that the price of spot gold
will hit $850 an ounce in the next few years from its current level
near $440.

The last time it got anywhere near that high was in the late 1970s
when out-of-control inflation, unrest in the Middle East and an oil
crisis pushed the precious metal from $150 to $810 a troy ounce.

Gold is currently trading 30 percent above its 10-year moving
average on the New York Commodities Exchange, and gained five
percent this month to stand less than $10 away from March's peak at
$446.70, even while the greenback gained against the euro.

During the recent dollar rally, the American Stock Exchange's index
of gold-mining stocks, or BUGS, also moved toward three-month highs,
and individual gold and mining stocks including Placer Dome, Newmont
Mining, and Barrick Gold have moved in tandem with indexes.

This, some economists contend, points to a troubling inflation
problem, greater than currently perceived.

"Despite all the rate hikes, the (Federal Reserve's) overnight
lending rate is still less than inflation," said James Turk, co-
author of the book "The Coming Collapse of the Dollar and How to
Profit From It."

It is oil prices that are really making the gold market look like
1970s redux, with crude prices hovering near $60 a barrel.

While economists debate whether high oil prices will spark inflation
or will slow economic growth by acting as a tax on consumers and
businesses, the gold and bond markets have come down on the side of

"The recent run in gold has moved in conjunction with rising crude
prices," David Meger, senior metals analyst at Alaron Trading, said
in a recent note.

Gold prices began to jump higher in the third quarter of last year,
concurrent with the latest oil price surge.

"Middle East nations are getting more petrol dollars as (oil) prices
rise, and they're not putting it back into paper assets," said
Charles de Vaulx, manager of the First Eagle Gold Fund. "They're
trying to protect the value of their profits -- just like in the
1970s -- so they're buying gold," he said.

With oil prices so high, some traders believe there's still a
considerable upside to gold, despite the fact that some market
analysts, like MKM Partners' chief market technician Katie
Townshend, say the metal has become overbought in the short term.

"Based on historic ratios between gold and oil, gold should now be
over $500 an ounce," said Frank Holmes, chairman and chief
investment officer as U.S. Global Funds. "Or the price of oil needs
to come down to $40 to $42 a barrel."

When inflation grips a market, the value of dollar-denominated
assets is eroded. So a shift to gold represents, among other things,
a broader shunning of financial assets in favor of hard assets as a
hedge against perceived currency risks.

"Even Warren Buffett is buying gold because he sees the dollar as
weak," claimed Turk.

At the moment, however, gold and the dollar are both rising. But
metals traders argue that the price of gold is still an accurate
indicator of inflation risks, because the dollar's rise doesn't
reflect true strength, only relative value compared to an equally
troubled currency.

"Confidence in the euro as an alternative to the dollar has fallen
apart," said Frank Holmes, chairman and chief investment officer as
U.S. Global Funds.

Michael Darda, chief economist at MKM Partners, said that currency
weakness across the board has helped to keep the dollar from falling
as gold rises.

"Gold prices are rising against almost every major currency," said
Darda, noting that it's unusual for gold and the dollar to be rising
at the same time. "So the run up in gold prices here has not
affected the dollar to the benefit of other currencies."

Darda said spot gold would have to hit over $1,000 an ounce to
signal a currency market collapse like the one that hit at the end
of the 1970s.

Few analysts believe the metal will trade between $600 and $800 over
the next few years, mostly because they assume rising oil prices
will slow demand for fuel and eventually bring crude prices down.

But consulting firms like Alaron Trading are still bullish on gold,
particularly because they see weakness in a variety of paper assets.

"Four to five years ago when the equity bubble burst we were hopeful
that gold demand would surface. But people went to other asset
classes like real estate or hedge funds," said de Vaulx.

"We're seeing both real estate and hedge fund become more uncertain
now, and if it's going to happen, we'll see the investment demand
for gold," de Vaulx said.


To subscribe to GATA's dispatches, send an e-mail to:

To unsubscribe, send an e-mail to:



Free sites:
(Korelin Business Report -- audio)
(In Spanish)
(In English)

Subscription sites:

Eagle Ranch discussion site:

Ted Butler silver commentary archive:



Blanchard & Co. Inc.
909 Poydras St., Suite 1900
New Orleans, Louisiana 70112

Centennial Precious Metals
3033 East First Ave., Suite 807
Denver, Colorado 80206
Michael Kosares, Proprietor

Colorado Gold
222 South 5th St.
Montrose, Colorado 81401
Don Stott, Proprietor

El Dorado Discount Gold
Box 11296
Glendale, Arizona 85316
Harvey Gordin, President
Office: 623-434-3322
Mobile: 602-228-8203

Gold & Silver Investments Ltd.
Mespil House
37 Adelaide Rd
Dublin 2
+353 1 2315260/6
Fax: +353 1 2315202

Investment Rarities Inc.
7850 Metro Parkway
Minneapolis, Minnesota 55425
Greg Westgaard, Sales Manager
1-800-328-1860, Ext. 8889

178 West Service Road
Champlain, N.Y. 12919
Toll Free:1-877-775-4826
Fax: 518-298-3457
620 Cathcart, Suite 900
Montreal, Quebec H3B 1M1
Fax: 514-875-6484

Lee Certified Coins
P.O. Box 1045
454 Daniel Webster Highway
Merrimack, New Hampshire 03054
Ed Lee, Proprietor

Lone Star Silver Exchange
1702 S. Highway 121
Suite 607-111
Lewisville, Texas 75067

Miles Franklin Ltd.
3015 Ottawa Ave. South
St. Louis Park, Minn. 55416
1-800-822-8080 / 952-929-1129
fax: 952-925-0143
Contacts: David Schectman,
Andy Schectman, and Bob Sichel

Missouri Coin Co.
11742 Manchester Road
St. Louis, MO 63131-4614

Resource Consultants Inc.
6139 South Rural Road
Suite 103
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
1-800-494-4149, 480-820-5877

Swiss America Trading Corp.
15018 North Tatum Blvd.
Phoenix, Arizona 85032
Dr. Fred I. Goldstein, Senior Broker

The Moneychanger
Box 178
Westpoint, Tennessee 38486
Franklin Sanders
1-888-218-9226, 931-766-6066



If you benefit from GATA's dispatches, please
consider making a financial contribution to
GATA. We welcome contributions as follows.

By check:

Gold Anti-Trust Action Committee Inc.
c/o Chris Powell, Secretary/Treasurer
7 Villa Louisa Road
Manchester, CT 06043-7541

By credit card (MasterCard, Visa, and
Discover) over the Internet:

By GoldMoney:
Gold Anti-Trust Action Committee Inc.
Holding number 50-08-58-L

Donors of $1,000 or more will, upon request,
be sent a print of Alain Despert's colorful
painting symbolizing our cause, titled GATA.

Donors of $200 or more will receive copies
of "The ABCs of Gold Investing" by Michael
Kosares, proprietor of Centennial Precious
Metals in Denver, Colorado, and "The Coming
Collapse of the Dollar" by James Turk and
John Rubino.

GATA is a civil rights and educational
organization under the U.S. Internal Revenue
Code and contributions to it are tax-deductible
in the United States.