Steve Quayle News Alerts

December 26, 2002

I was so excited last night I barely slept. I had not planned to do a MIDAS today, but there are some very important points that need be emphasized and I thought it might be helpful if I brought them to your attention.

*Christmas Eve, I went to a dinner party at my sister’s house in Basalt, Colorado, which lies right outside of Aspen. In the normal course of conversation the subject of gold came up – what else would you expect from me? I spoke with a young, retired software guy; an engineer; an institutional stockbroker; a purveyor of fine wines; and a money manager. Although most knew that gold was starting to pop, they all commented how dead it has been for so long. When I told them why, there heads began nodding yes, ah ha! However, not one is invested in gold or the gold shares.

*On Christmas Day, I happened to catch part of a FOX show on the markets. Gold was brought up and I never heard such drivel in all my life from four supposedly knowledgeable market observers. None of them knew anything about gold. Zip, yet the average viewer would have thought them to be on the ball. The only real bull of the group declared he was preparing to go short.

*Then we have a Bloomberg article that came out yesterday. It features comments from GATA antagonist Leonard Kaplan, a member of the clueless clan. Three weeks ago, he told his clients to sell all their positions at $325. He constantly has laid out all the reasons why gold was not going higher, including an onerous gold supply (In all fairness, he did advise people to get long again if technical resistance above the market was breached). However, now he is saying $380 to $400 will be hard to take out???? A little more than two weeks ago, he was bearish at $325. Now, why is he even talking of those much higher numbers? What kind of fundamental analysis is this? The rest of the comments in this piece are little better:

New York, Dec. 25 (Bloomberg) -- Gold, on track for its biggest annual gain in 23 years, may rise further in the new year as the threat of a U.S.-led attack against Iraq prompts buying of the metal as a haven, analysts and traders said.

Gold futures have soared 24 percent this year, reaching a 5 1/2-year high close to $350 an ounce, as tumbling stocks and a weakening dollar sent investors looking for alternative assets. Prices may rise as much as another $50, even before any attack, some traders said. "We might go to $380 or $400, but it's going to have a hard time getting over that,'' said Leonard Kaplan, president of Prospector Asset Management, a money-management company in Evanston, Illinois.

Gold for February delivery closed at $347.30 an ounce yesterday on the Comex division of the New York Mercantile Exchange, the highest closing price since May 1997.

This year's gain for gold is the largest since prices more than doubled in 1979 as investors sought refuge from rampant inflation, which reduced the value of competing fixed-income assets such as bonds.

An attack against Iraq might spark a surge in gold prices, said Bill Giannone, senior gold trader at Hudson River Futures in New York. Gold would "move up very sharply, very quickly and then pull back,'' he said.

U.S. President George W. Bush has accused Iraqi President Saddam Hussein of concealing weapons of mass destruction, saying military action may be needed to disarm the Persian Gulf country.

Opposition

The U.S. has run into opposition from France and Russia, both permanent members of the United Nations Security Council, for an attack any time soon. UN inspectors aren't scheduled to give a full report of their search for banned weapons in Iraq until late January.

Gold soared 12 percent in the three weeks following Iraq's invasion of Kuwait on Aug. 2, 1990, and gave up all the gain by mid- October. Gold prices fell 7.4 percent on Jan. 17, 1991, the day after the beginning of Desert Storm, the allied response to the incursion, on prospects for a quick end to the military action.

"If what occurs is similar to back then, there will be a fairly rapid sell-off in gold shortly after the action starts, and that coupled with the ensuing positive impact on the economy, will put gold under pressure through the summer,'' said Frank McGhee, head gold trader at Alliance Financial LLC,a Chicago-based gold-trading company.

War can drive gold prices higher as investors affected by the fighting seek assets that are portable and financial markets face dislocation, Kaplan said.

"It is the only asset that is not somebody else's liability,'' Kaplan said.

Economic Recovery

A strengthening of the U.S. economy next year would help boost stock prices and strengthen the dollar, reducing investor demand for gold, traders said.

The Standard & Poor's 500 stock index has fallen 22percent this year and is heading for its third straight annual decline. The dollar has weakened close to a two-year low against the euro and fallen against the yen, also helping gold by making the dollar-priced metal cheaper for buyers using those other currencies.

Gold prices might gain later in 2003 if the cost to the U.S. of any attack and occupation of Iraq thwarts the economic recovery, McGhee said.

"I would expect a rally in early fall based on the reality that this is not going to be quickly resolved,'' McGhee said of such a prolonged occupation, which would require "along term commitment there.''

http://www.lemetropolecafe.com/