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Why Invest in Gold Mining Stocks – NOW!?

By David Vaughn     Printer Friendly Version
December 7, 2005

Just watched gold hit 500 an ounce for the first time in how long? A very historic event. Around 7:30 PM Eastern time on a fine Monday evening, 11-28-2005. A very, very long time but definitely a time worth waiting for.

Now the graph directly below represents the HISTORIC evening when gold flew past 500 an ounce. It’s been close to 20 long years – marking a major LONG TERM TREND.


Now we want you to observe another graph below which is a week later. And the point we are driving home here is that gold’s rise to 500 is NOT a short term rally or a short term phenomenon. As the graph below illustrates gold is determined to hold this ground & to climb even higher yet.

As the graph illustrates above gold wants to continue climbing & it will not be held down!

Gold is becoming the premier investment of the 21st century & investors are quietly & with urgency recognizing this. Let me drive home a point here as we pummel our way forward into this new century & new era. Consider the following information below.

“There will be one billion handsets a year sold by 2009, with nearly 3 billion mobile users, says Gartner research.” “Gartner predicts that the handset sales will break the 1 billion per year barrier in 2009, when it says there will be 2.6 billion mobiles in use.” “It's a truly global phenomenon," said Carolina Milanesi, principal analyst at Gartner for mobile terminals.”

What we are trying to stress here is that our world is changing daily by leaps & bounds & the world we knew & experienced even in the 1990s is long gone.

The communications sector probably dramatizes better than any single technological advance just how quickly our world is evolving & changing even as we speak. And this new GLOBAL world of tomorrow will DEMAND a currency that is both stable & that cannot easily be manipulated by any one single government or power. The world has quickly learned from their observance of the United States just how easily financial currency can be manipulated for the benefit of just one nation. And as the circle of nations including China & others continues to grow economically a new & more stable currency is demanded by all & a currency that will no longer be easily manipulated for the benefit of just one sole country. Gold guru Doug Casey also believes gold is reassuming its role as the world’s principle currency.

“…gold is likely in the foreseeable future to reassume its traditional role as money worldwide. (And not just in bullion form, but in modern, safe and reliable bullion proxies AND ELECTRONIC TRANSACTION SERVICES such as those offered by” ”I have no doubt that gold will again regain its traditional role of money, but only after it is trading at far higher prices than it is today. Wait and see.” Doug Casey

While downtown today I went by to visit the cat that lives at the book store, Bentleys - purveyor of fine & second hand books. Zola is the cat’s name. Evidently the store owner named the cat after a renowned French writer, Emile Zola.

“French novelist and critic, the founder of the Naturalist movement in literature. Zola redefined Naturalism as…”

I’m bored already.

Sounds appropriate a name for a cat living in a book store I suppose. The cat is definitely a book worm & not a lap cat as the animal prefers to spend its time perusing the books rather than greeting store patrons with a rub. Supposedly Zola allows only one lap visit a year per privileged visitor.

Zola, “Do I read the books at night? Of course I do. How did you think I built up all this contempt?”

And the world of nations is awakening to the fact that only gold can act as that stable & unalterable currency. This new financial economy is of course centered on eCommerce & the Internet and we are already seeing gold used more freely via electronic commerce transactions. Remember our covering the cancellation by the government of M3 reporting data? The longer we contemplate this information the more significance we attach to it.

The following interesting & informative M3 info below is from Bill Murphy’s LeMetropole Newsletter.

“They know what's coming -- massive amounts of dollar creation (inflation) to fund the worsening trade and federal government budget deficits," says James Turk in the Free Market Gold & Money Report.” ”DO THEY SEE A CATASTROPHE COMING THAT WILL REQUIRE HYPERINFLATION TO BAIL THE U.S. OUT? MAYBE.” “It doesn't take much to realize that if investors like you and me don't know the reality of what's happening in the market and the economy because of deception, we can make some very bad decisions.” Le Metropole, 11-30-2005

In our opinion this admission to do away with reporting this important inflation data tells us with a fair amount of certainty what direction inflation will take in the coming year & beyond & also, which direction gold will take. Gold authority Paul van Eeden also adds some very interesting comments on the Fed eliminating M3 Reporting Data.

“The fact that the Federal Reserve will discontinue M3 could have more to do with their desire to obscure real U.S. dollar inflation than the reasons they stated.” “I FIND IT QUITE INTERESTING THAT THE FEDERAL RESERVE DECIDED TO STOP PRODUCING M3 FIGURES PRECISELY AT A TIME WHEN M3 SEEMS TO BE EXPLODING. The average annual increase in M3 during the past 20 years was 5.9%. However, during the past 3 months, M3 has increased at an annualized rate of over 10%.” Paul van Eeden, 11-28-2005,

As usual Paul hits it right on the nail. This is very important so let’s repeat again the meat behind what Paul van Eeden just communicated to us.

“I find it quite interesting that the Federal Reserve decided to stop producing M3 figures PRECISELY at a time when M3 seems to be exploding.” Paul van Eeden, 11-28-20005,

Gold veteran John Doody weighs in below on the M3 fiasco.

“Killing another messenger? Fed announced that as of 3/26/06 will cease
“publication of M3 monetary aggregate”. The broadest definition of the money
supply, M3 includes cash, checking, money market, plus small/large time deposits.
Apparently the data will still exist; but like X-rated movies, it’s too “hot” for
general audience, so the info will be suppressed? SURE LEADS ONE TO BELIEVE THAT THE FED’S “PRINTING PRESSES” WILL BE WORKING OVERTIME COVERING US’S TWIN DEFICITS.” John Doody, Gold Stock Analyst,

And now we can begin to see the concern our U.S. government has towards the issue of inflation. And for our purposes a major rise in inflation literally guarantees a very much higher gold price than what we are even witnessing today.


Well, as we ask ourselves how high gold may continue to climb one of the most determining factors will be to what degree we see a resurgence in inflation. The Fed would not be eliminating this M3 inflation reporting data unless it thought inflation was soon to return with a vengeance. The U.S. Government is ignorant enough to suppose that if they remove the “barometer” measuring inflation then just maybe no one will notice. Are folks complaining about the temperature outside? Well, no problem, simply do away with the thermometer & no one will be able to know what temperature it is. And so evidently the government believes that if they remove the most influential gauge monitoring inflation then maybe no one will notice inflation creeping silently to the stars.

“David Walker, U.S. Comptroller General warned that the U.S. would face a “fiscal hurricane.” He said, “WE FACE A DEMOGRAPHIC TSUNAMI” THAT WILL “NEVER RECEDE.” The top budget chief explained that ageing baby boomers will present fiscal challenges as benefits swamp future budgets. Former Fed Chairman, Paul Volcker warned that America’s deficits cannot persist forever, “The United States is absorbing 80% of the net flow of international capital and at some point, both central banks and private institutions will have their fill of dollars… SO I THINK WE ARE SKATING ON INCREASINGLY THIN ICE.” “As such, we believe that gold will at long last reach $510 an ounce this year and top $700 an ounce next year. However, we believe the ultimate target will exceed $850 per ounce. IN OUR VIEW, GOLD’S BULL MARKET HAS ONLY JUST BEGUN.” By John R. Ing, 11-30-2005,

The following commentary below comes from probably the best overall political/gold analyst from any where & from “down under”, Bill Buckler. This is no understatement in describing Bill’s abilities at examination as this fellow is probably surpassed by no one in his ability to always hit the nail on the head in as few words as possible.

“The problem for "reality" has come over the last three months. Over that time, Gold has been rising against a US Dollar which refuses to fall. The result, of course, has been an EXPLODING Gold price in terms of the other major global currencies.” “WHAT IS HAPPENING IS A GRADUALLY INCREASING UNEASE WHICH IS NOW BECOMING DISTRUST WITH NOT JUST PAPER CURRENCIES, BUT WITH THE PERVERSE ACTIONS OF PAPER (AND REAL ESTATE) ASSET MARKETS OVER THE PAST FEW MONTHS.” ’More and more investors, inside and outside the US, are recognizing the current surges in the paper markets as being unsustainable. They are buying Gold. Some of them are looking beyond that and expect that when REAL economic reality reasserts itself, the carnage on these same markets has the potential to be severe, to say the least. They are buying more Gold.” “THE STRAINS AND DISTORTIONS OF THE GLOBAL SYSTEM HAVE BEEN GROWING EVER SINCE. THEY ARE NOW OF UNPRECEDENTED PROPORTIONS.” “THAT IS WHY GOLD IS CLIMBING, despite a steady US Dollar, despite falling oil prices, despite global stock market rallies, and despite quiescent Treasury yields. Gold is not reacting to things that are happening in the financial system, it is reacting to things that more and more people expect to happen to it - soon.” Bill Buckler, The Privateer,

And is anything of consequence outside the world of money & gold happening in the world? The picture below is of a homeless person lying in a street in Paris trying to get warm as pedestrians walk by without one single act of compassion. The French definitely set a poor example of empathy. I hope it is not this way here in the town where you live. FRENCH HOMELESS DYING ON STREETS AS WINTER ARRIVES...

The following below is an important email from a reader concerning the important, & often forgotten, silver market.

“Gold's fundamentals are excellent and getting better with each day. It ought to go way up. Granted, however, with silver actually in shorter supply than gold, and a much wider critical industry demand, it by all logic, should shoot up much faster. During the 1849 gold rush when gold was discovered in Australia SILVER - FOR A TIME - ACTUALLY BECAME MORE VALUABLE THAN GOLD UNTIL THE COMSTOCK LODE WAS DISCOVERED. Remember, there was no industry demand for silver then even "remotely" close to what it is today. Take away the price controls of the SUA and others, you tell me what the silver to gold price should then be?!”
Bob B.

And below the very well respected & prestigious Gartman Letter remains very long term bullish on gold.

“Turning then to gold, we'll note for the record that we are long term bulls. We believe that gold one year from now shall be demonstrably higher than it is presently.” “We have maintained, and we shall continue to maintain, that gold is not being driven higher by trade deficits as the media would have us believe, for if it were, why then is gold going higher faster in EUR terms, or in terms of the Yen, or even in terms of the Canadian dollar, or Aussie dollar, or Brazilian real than it has been in terms of the US dollar, for those governments are running trade surpluses. Something other than trade imbalances is driving gold, and we have maintained for a very long while that IT IS BUYING FROM WHAT WE HAVE CALLED SECOND AND THIRD TIER CENTRAL BANKS WHO FIND THEMSELVES LADEN WITH US DOLLAR AND EUR RESERVES AND WISH TO DIVERSIFY BEYOND THOSE TWO CURRENCY REGIMES. Now we know this to be true, and indeed THE URGENCY ON THE PART OF CENTRAL BANKS TO DIVERSIFY IS GROWING APACE. Within the past two weeks we've heard from Russia, from S. Africa and from Argentina that they are doing precisely that: diversifying away from US dollar and EUR reserves by buying gold. Today we note that the official voice of the Chinese Communist Party, The People's Daily, is reporting that it is wise... even reasonable.... to EXPECT "ASIAN CENTRAL BANKS" TO FOLLOW THIS LEAD AND TO DIVERSIFY AWAY FROM DOLLARS AND EUR INTO GOLD. On that news, gold is back above the psychologically important $500/oz level. No one should be surprised by that fact. The Dennis Gartman Letter, 12-2-2005

And even the very respected professional & foremost precious metals consultancy, GFMS, is expecting continuing higher gold prices. Read what GFMS has to say below about how high the gold price will climb.

“LINDSAY WILLIAMS: Philip, this latest gold price spike is flying in the face of a strong dollar - the dollar hanging around 1.17 to the euro – so it’s ignoring currency factors. What do you think is behind it this time?”
“PHILIP NEWMAN: You talk about the currency factors, and I think for quite a while now it has been ignoring those - if you go back to when the gold price rally got under way in a significant fashion back in September 2005 - that’s when we really saw that relationship start to break down in a serious fashion. Gold was moving up and the dollar was moving up - I think what that tells is that WE ARE SEEING A SIGNIFICANT RISE IN INVESTMENT COMING INTO THE MARKETS.”
“…we now have an excellent base for the gold price to move up.” GFMS, 12-2-2005,

Let’s get back to the title of our article, “Why Invest in Gold Mining Stocks - Now!?”


Factors pushing the price of gold upward:

• Rising inflation.

• Increased demand from Asia and the Middle East.

As demand has risen, supply hasn't kept pace. It can take 10 years and $3 billion to open a small gold smelter in the USA, Holmes says. But gold-mining stocks, in small amounts, can actually help your portfolio, Bernstein argues. Gold stocks rarely move in lockstep with the broad stock market — which means THEY CAN REDUCE YOUR PORTFOLIO'S VOLATILITY.


“…a portfolio of 10% gold funds and 90% large-company growth funds actually makes smaller moves up and down than one that's 100% in large-company growth funds. That's because gold funds sometimes rise when growth funds fall.”


“Gold is the new favorite of the media. Pick up any newspaper or magazine and there are umpteen reasons listed in favor of investing in gold.”

“…after a 70% rise in the price of gold, the INTEREST IN THIS COMMODITY HAS ONLY INCREASED.”

“Then there is a belief that the long-term bull market for commodities, including gold, MAY JUST BE TAKING OFF. This view has been underscored by a persistent rise in the prices of other commodities too.”


“The price of gold is driven by factors which are broadly speaking different from those that drive the price of other assets such as stocks. This results in what is generally seen as a contrararian trend. To take an instance, even as stock markets corrected after the 9/11 terror attacks and the worsening economic outlook, THE PRICE OF GOLD SPURTED.”

"Sparky used to say there will always be a market for innocence."

And she brought forth her firstborn son, and wrapped him in swaddling clothes, and laid him in a manger; because there was no room for them in the inn. And there were in the same country shepherds abiding in the field, keeping watch over their flock by night. And, lo, the angel of the Lord came upon them, and the glory of the Lord shone round about them: and they were sore afraid. And the angel said unto them, Fear not: for, behold, I bring you good tidings of great joy, which shall be to all people. For unto you is born this day in the city of David a Savior, which is Christ the Lord. And this shall be a sign unto you; Ye shall find the babe wrapped in swaddling clothes, lying in a manger. And suddenly there was with the angel a multitude of the heavenly host praising God, and saying, Glory to God in the highest, and on earth peace, good will toward men.

"And that's what Christmas is all about, Charlie Brown."

There is no other asset class, historically, other than gold that will make investors more affluent. Gold equities definitely represent the best longer term investment class today. Gold Letter provides subscribers a brief review of those gold & silver companies that are poised to rise dramatically higher as gold continues its upward trek. For limited time only Life Time Subscription is available.

To order Gold Letter click the following:

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

December 7, 2005


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