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Why Gold Is Going to 500

By David Vaughn     Printer Friendly Version
July 23, 2004

And how is gold doing for the week ending?

Ignored by the masses, but quickly being bought up by wiser souls with financial understanding. It really is sad that the fundamentals for gold are so positive & obvious but ignored by most readers of these commentaries.

I suppose after gold begins its new stage beyond 430 momentum buyers will get on board. But why not now examine the facts & place your positions before it climbs higher?

And why is gold heading to 500 an ounce?

I always love to hear what Jim Sinclair has to say because he lays out so clearly all the facts & cuts through the rubbish. Jim explains well what is now happening in our economy & the new deadly stage we have begun to enter.

“Gold will chop for a while as "All the Kings Men and Gals" try to hold the line but ALL of them cannot put the US dollar together again. The dollar is dead in the water…” Jim Sinclair, 7-19-2004

Yes, the dollar has begun its long slow decline south but is anyone noticing?

“It might well be above COT's heads to understand what the slowdown in the purchase of US Treasuries by non-US entities actually means but in simple terms it is the death of the dollar by monetary science.” Jim Sinclair, 7-19-2004

And more?

“Because the dollar is dead in its tracks, no effort by anyone can stop gold from reaching $440 and going above $480 - and quite soon as I see it.” Jim Sinclair, 7-19-2004

Trends, trends, trends!

That is the name of this game. Whether you profit is dependent on how successful you are at recognizing & understanding a developing trend. And while recognizing a simple trend may seem easy the history books are littered with individuals & entire nations who were unable to recognize trends & consequently lost their lives or their fortunes because they failed to prepare.

Well, I see that Martha Stewart was sentenced Friday. Bet she would not have been sentenced with jail time if she had been a man. A loophole & a fine would have been the end of it.

You don’t believe me?

Her primary crime to my understanding was lying but didn’t President Bill Clinton do the same thing? Lie before the Fed? Oh! Bill was a “man” & only lying to cover up his foolin’ around. And Martha was acting on an insider stock tip. And we KNOW Bill or Hillary never, never acted on inside info for unfair profits, right?

But maybe Martha’s biggest crime was a lack of humility.

When Bill Gates began to be persecuted under the last Presidential Administration he immediately went out & followed the advice of his PR folks & got a good haircut & started a charitable foundation he consequently pumped tons of money into. He displayed humility & worked on improving his image.

But Martha?

“Stewart rebuffed criticism that she should have shown more remorse or been more contrite during her trial. … I didn't go and cheat the little people. I just didn't do that. We're all little people." ABC News, July 16, 2004


Martha considers herself one of the “little people.” I believe Martha spent over 35 million on her last house. Yes, Martha is just one of us “little people.”

Watched “I, Robot” today. Great movie. The story happens in the year 2035 & Will Smith pays 47 dollars for a cup of coffee.

But we don’t experience significant inflation any more today according to what our government tells us. And always volatile energy & food prices are not part of the equation. So I guess the 47 dollars Will Smith pays for a cup of coffee in the year 2035 is really not inflation (according to the government definition).

But tell the average working man or woman in the street that there is no inflation today.

Hourly Pay in U.S. Not Keeping Pace With Price Rises

“The amount of money workers receive in their paychecks is failing to keep up with

inflation.” EDUARDO PORTER, The New York Times, 7-18-2004

But getting back to the movie though it was fiction it did remind me how time passes & change sets in. But most folks living today refuse to believe the good times of the past 20 years will ever leave us. When I wrote last week that many of the worlds resources would dry up in our life time or our children’s I was quickly rebuffed by a reader.

“…resources running out? Come on! Extrapolate from history. Necessity is the mother of invention.”

“…someone at MIT or elsewhere will design a technology that produces MORE power than it consumes. …keep the faith, brother. …come on, you're smarter than this resource depletion bunkum.”


Overall the email message was polite & from a nice reader but totally unrealistic & too optimistic. Our world population is growing now at a non-linear pace & the economic expansion in Asia & China will further dramatically drain & tax resources. But even if we cannot stop the process maybe we can profit from it.


Are you ready to support John Kerry? He may just be the best candidate for those who believe that government is best governed by those who least govern!

“YOU'RE GOING TO FIND US WORKING” … “You're not going to have to look for us on vacation. You're going to find us working for America." John Kerry, Associated Press, 7-7-2004

”Kerry has missed more than 80% of Senate votes this year, the AP reports.” Associated Press, 7-7-2004

Ever hear of a fellow called “Jim Puplava?” Can’t forget a name like that. Great financial analyst! And if you begin to read & follow his material you will see that the man makes sense & understands well our present economic environment.

What does Jim presently have to say about the economy & these “good times?”

“In the last five years the U.S. economy has added over $15 trillion in debt bringing total outstanding debt to $37 trillion. According to Kurt Richebächer, “During the 13 quarters from the end-2000 to the first quarter of 2004, private household debt has soared by $2.52 trillion, or 36%, and financial sector debt by $2.9 trillion, or 35%. Jumping from $578.1 billion in 1980 to $11,280.6 billion in the first quarter of 2004, the debt of the financial sector in the United States has skyrocketed from 21% of GDP to 98.4%.” Jim Puplava, 7-16-2004

And what is the point & the message to be derived from all of these numbers?

“An economy this leveraged and a financial market that is this highly geared can’t afford to withstand a major rise in interest rates.” Jim Puplava, 7-16-2004

That’s right. Alan Greenspan is between a rock & a hard place & he no longer has any decent maneuvering room in either direction. And understanding this knowledge will help us to understand the trend that is now taking shape & developing.

And what is this developing trend?

“Analysts' predictions of a normalized federal funds rate of 3-4% are a pipedream. Rates that high would break the economy's back and send it back into recession. Interest rates that high would also break the carry trade and bring down the financial markets.” Jim Puplava, 7-16-2004

Yes, the very tool that the Fed has used for years to combat inflation is no longer working & the long term developing trend is for inflation to significantly grow in the coming years.

And that is not our only problem. Remember that this massive US debt is being financed by foreign countries & particularly Asia?

“Fund flows into the dollar are weakening and are barely enough to finance the current account deficit.” Jim Puplava, 7-16-2004


“The U.S. needs to take in $45 billion a month to finance the current account deficit. Foreign investors purchased a net $56.4 billion in U.S. securities in May, down from a revised $76 billion in April.”

“The May figures are the lowest seen since last October when foreign purchases dwindled to only $28.2 billion.”

“Whatever your economic views are, it is getting harder to ignore evidence of an economy that is slowing down. Moreover, the massive stimulus of the last three years appears to be coming to an end.” Jim Puplava, 7-16-2004

And if you can sincerely understand this information & data then you can understand why we are so positive about eventual higher gold prices.

"Gold is gaining strength every day it stays above the $400 mark and that indicates a bull market…" Kevin Kerr, a senior trader at Kwest International.

Myra P. Saefong,, 7-16-2004

And let’s close by listening once again to the one individual who understands the gold market best.

“We stand on the threshold of a gallant upward move in gold no matter what happens in Iraq and no matter what US economic indicators are used to support the value of the US dollar. Jim Sinclair, 7-19-2004

And is 500 an ounce truly near?

“You add a crisis of any kind to the $480 plus that gold wants anyway and $529 will have a hard time playing "hold the line." Jim Sinclair, 7-19-2004

No, I am not personally going to try & establish the timing for gold’s next substantial move, but it would really take a blind moron & a mole not to see the fundamentals lining up in gold’s long term favor.

My wife called me to let me know the contractions had begun & the water had broken. I hurried home as quickly as I could. Times like these are stressful & you are never totally prepared.

The fourth baby born I watched it take its first breadth of life & I heard its first tiny cry. Anyone need a kitten? These are great cats & perfectly bred for children. They come with lots of love & care.

And speaking of those things that are pregnant:

“…the resource market has not been this pregnant in many, many years.” Robert Bishop, 7-21-2004

Oh, before we part again let me share one fantastic quality about Jim Sinclair. Jim has been incredibly successful in his life & his success did not come from chance.

“I have been and continue to be a teacher of discipline.” Jim Sinclair, 7-19-2004

The above statement by Jim means more to me & it should mean also more to you than all his wonderful insightful & accurate analysis of the gold market.


Because “discipline” is the principal key to any & every type of success in life. I don’t care if you seek financial success or merely personal success at home with your family. If you do not learn to exercise self imposed “discipline” in your life you will never succeed at anything.

I like what he said so much so that I’ll say it again.

“I have been and continue to be a teacher of discipline.”

There will be a ton of money made in gold stocks in the next few years. But for those who cannot exercise discipline & have a prearranged time when to buy & when to sell you will probably never win.

Heed Jim’s words & be a “teacher of discipline.”

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David N. Vaughn
Gold Letter, Inc.
Gold Letter Website

July 23, 2004


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