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Why Isn't This Making The News Any More?

By Tom Dyson, publisher, The Palm Beach Letter
Tuesday, September 11, 2007

Ned Everett lives in Brooklyn and owns his own antique and metals store.

On January 19, 1980, Ned eats breakfast, kisses his wife and walks to work, just like he does every morning. The store is seven blocks from his house. The first seven blocks pass by as usual. But as he turns the last corner, a surprise greets Ned:

A line has formed outside his store and is stretching around the corner. Some people are even carrying silver and gold trinkets in their arms.

I found Ned's story in The New York Times. It comes with a picture of Ned's store with all the people outside. The day before, gold had jumped to more than $800 an ounce, generating lots of interest in the press. This article was trying to demonstrate the public's sudden interest in selling gold and silver heirlooms.

This issue of The NYT actually ran a dozen stories on gold that day. Another story claimed that scientists had figured out a way to manufacture gold from lead. If that doesn't sound outrageous enough, the newspaper article goes on to report that the scientists were Russian, working in a secret Siberian research lab... and they produced this gold by accident... using a technique that could manufacture gold for less than $600 an ounce.

"After an experiment in nuclear bombardment," explained the paper, "the lead shielding inside an accelerator or – it isn't clear – the vessel of an advanced form of nuclear reactor changed composition. The result: gold."

While it's true that lead can be turned into gold – at costs more like $60 million an ounce – this story was obviously a hoax. But at the time, this was considered worthy of mainstream reporting.

I bring up January 1980 and these old newspaper stories about gold to give you an example of speculative euphoria in the gold market. This is what a bull market top looks like.

Fast forward to today...

On Friday, gold closed at $701 – the 13th time in history that gold has closed a trading session above $700. (Gold closed above $700 three times in May 2006. Before that, you have to go back to the 1970s.)

I paid a guy to help me tile a floor this weekend. I asked him if he'd heard about the rise in the gold price. He knew all about the subprime meltdown and the problems in the mortgage industry, but he knew nothing about gold. In fact, he looked at me as if I were crazy when I said I collected rare gold coins.

"What do you want them for?" he asked with a quizzical look.

Also, I've seen no lines outside coin dealer shops, no mainstream newspaper articles about gold... and no discussion of gold at dinner parties, even after I try to start one.

In sum, gold is breaking historical records again... and closing in on its all-time high. Yet unlike January 1980, virtually no one is discussing it. This tells me gold's bull market has a long way to run...

Good investing,

Tom




Market Notes


LOWER INTEREST RATES ARE ON THE WAY


This summer, a new candidate emerged to challenge subprime lenders as the world's worst investment... the sector that depends on the freewheeling American shopper.

We highlighted the weakness in the $17 billion department store chain Kohl's last week as evidence the housing market is having a sickening effect on America's spending habits. But we're not picking on Kohl's... the entire complex of "spending sensitive" stocks has taken a nosedive in the past few months.

In addition to America's department stores, some of the biggest names in consumer spending are getting crushed right now. Consider the new lows in Brunswick (recreational boats), Harley-Davidson (motorcycles), Winnebago (recreational vehicles), Pool Corporation (swimming pool construction and supplies), and Wal-Mart (everything).

We've no doubt the Federal Reserve's policymakers have their eyes on the poor health of these spending bellwethers... and it's likely that the time-honored tonic of lower interest rates is on the way.



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