Two Weeks Closer to $700

There are never any certainties when it comes to markets. One therefore has to make every decision based on potential reward weighed up against perceived risks.

Right now the reward in owning the precious metals in my view clearly outweighs the risks. In fact, I think the circumstances today are such that the bigger risk comes from not owning the metals, rather than owning them.

When it comes to deciding where to hold your money (your liquidity), the precious metals are your best choice. The metals offer the best value, thanks to the central banks. They are keeping gold cheap and undervalued.

As the reasons for owning the metals continue to mount, central bank efforts to cap gold's price become increasingly obvious. If anyone didn't believe the gold price was being capped by central banks, they must now be convinced as a result of events the past few weeks. All of these should be sending gold higher:

• a weak US dollar
• the price of crude oil back near its all-time record
• the CRB Continuing Commodity Index recently made another record high
• hedge funds are collapsing from subprime woes, causing a flight to safety and increasing worry about the deterioration in the quality of bank assets

There is nothing safer than gold because it does not have counterparty risk. In other words, gold is not reliant upon some government promise to maintain the value of the currency they manage. Nor is gold reliant upon a bank promise claiming that your dollars or other national currency are not at risk.

This risk-free attribute of gold is becoming increasingly important as the subprime woes mount, as evidenced by the strong demand for physical gold. For example, the Istanbul Gold Exchange reported last week that Turkish July gold imports jumped to a new record of 45.7 tonnes, an astounding 36.5% above the previous record set in May 06. Despite this strong demand gold stays stuck below $666, the level central banks are trying to defend.

We know they are defending that level by, among other things, the following:

• increased anti-gold propaganda by central banks (for example, Italy saying that it will sell gold to reduce its government deficit)
• the huge increase in Comex open interest on little price movement (the central banks are feeding paper into the market to stop price advances)

Nevertheless, central banks will get blown out of the water -- and soon I think. I'm still looking for $800 gold before the end of this year. Take a close look at the following charts. They are both very bullish.

Gold and silver have the potential to leap upward at any moment. Looking at the other side of the coin, the US dollar has the potential to collapse at any moment.

As I noted in the last alert: "Eventually the market will overpower government efforts to cap gold's price. In the meantime, continue to accumulate both gold and silver as they remain relatively undervalued...Gold and silver have yet to achieve the multi-decade highs already seen by many commodities, but they will inevitably climb higher as the dollar makes new multi-decade lows. So get ready for $700 gold." We are now two weeks closer to $700 gold.

Published by GoldMoney
Copyright © 2007. All rights reserved.
Edited by James Turk, alert@goldmoney.com

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