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Three Big Pieces of News for Gold Investors

By David Galland
Saturday, November 22, 2008

In the past few months, I've read a number of analysts, Jim Rogers even, who have expressed the view that gold could dip to the mid- to low $600 level.

As we've seen in the past few months, anything can happen in this market... but there are things happening all over the world that tell me buyers of physical gold are finding any price near $700 to be too cheap to pass up. In other words, there are ready buyers ready to "keep a floor" under gold at current levels. On that topic, a friend sent this item along last week...

(Gulf News, Nov 12) Riyadh: There has been an unprecedented demand for gold in the Saudi market recently, with over 13 billion Saudi riyals (Dh12.75 billion) being spent on the yellow metal during the last two weeks.

Demand is expected to rise still higher as more investors turn to gold as a safe haven in the midst of the global financial crisis, according to market sources.

The Saudis have a lot of money to pour into gold. Not just a lot... but a really, really, big, stupendous mountain of the stuff. Oh, and like you and me, they're human. 

Which means they can't help but glance through the morning's financial news, adjust the reading glasses, and think, "Blessed Mohammed! This is getting really, really serious. Maybe just a little extra gold under the tent right now wouldn't be such a horrible idea."

They aren't alone. We are getting regular reports that at these prices, demand is soaring in India (where price inflation is now running around 11%), and brisk sales have pretty much wiped out physical supplies of small coins and bars in the U.S. and Europe... among other corners of the world.

On that score, a few days ago, I received this note from a subscriber. It speaks volumes about the current state of gold:

Today I decided to purchase some gold bullion coins. So I called the Northwest Territorial Mint, one of the larger operations in the country or at least the Northwest, so I've been told.

I called to see what the availability was. The operator put me through to sales, where I sat for 30 minutes. I finally got in my car and drove 40 minutes there, all the while still on hold. When I finally got there, a woman went in the back to see about bullion coin availability. She was told they were back ordered with 30,000. Not dollars, orders. If I placed an order today, they thought they could fill it in 16 weeks.

While we already know $750 is no magic number below which gold cannot fall, I take no small comfort in the fact that there is a clear increase in demand at that price. In time, as the dollar continues to participate in the fiat currency race to the bottom, that number will ratchet higher and higher still.

Maybe not overnight, but in the next six months to a year, certainly... or as certain as anyone can be about anything these days.

One thing that could get the show on the road pronto-like has to do with the continuing presence of the other 900-pound gorilla in the room, foreign dollar holders. Like the Saudis, the Chinese have at their fingertips a lot of greenbacks. Actually, not just a lot, but enough to remake the Great Wall. And they, too, are human.

And so, over their morning cup of tea, they finger the abacus while watching the daily financial news and say, "Holy Mao! This is getting really, really serious. Maybe just a little extra gold in the rice jar right now wouldn't be such a horrible idea."

On that front, here's some news from Hong Kong...

(The Standard, Nov 14) Hong Kong: The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

China's fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson's US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.

Beijing's reserves could easily go up to 3,000 to 4,000 tonnes, Tanrich Futures senior vice president Colleen Chow Yin-shan said.

In another article, from Bloomberg, the head of China's gold association commented that he thought China could triple its reserves. Considering China has around $2 trillion in foreign-exchange reserves, the country could triple its gold reserves and not even blink.

In the final analysis, we can't say with certainty what path gold will take between now and the time this crisis is over. But I see signs all over the world that there is a huge amount of buying interest for gold right now. And until I can see some tangible evidence that it has lost its value as money, I'm a happy holder and, at under $750, a buyer.


David Galland

Editor's note: David Galland is the managing director of Casey Research and editor of The Casey Report, a monthly letter focused on helping readers get profitably positioned in powerful long-term trends. In recent months, subscribers have made big profits shorting bank, real estate, and financial stocks through easy-to-buy, easy-to-sell ETFs. To allow new subscribers to see for themselves if The Casey Report is right for them, a two-month trial offer is available. Learn more now

Market Notes


For the rest of their lives, investors will talk of the great collapse shown by our chart of the week. It's the past three years in the "CRB."

You can think of the CRB as the "Dow Industrials of commodities." It's one of the most widely used gauges of raw materials like oil, corn, copper, and natural gas. The index is down an astounding 51% since its July peak... and near its lowest levels since 2003. It's one of the greatest commodity declines in the history of mankind.

Common sense tells us the huge amount of money the government is creating out of thin air will eventually cause high inflation. But for now, falling prices – or "deflation" – is the order of the day. Let's all go celebrate with 
cheap food and cheap gasoline.

– Brian Hunt

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