17 REASONS WHY GOLD WILL CONTINUE TO RISE - Part 2

6. Investment Demand For Gold Is Rapidly Accelerating.

Despite the fact that gold has been rising steadily for ten years and sophisticated investors are climbing aboard to protect themselves from the ravages of monetary debasement, conventional institutions and the average citizen remain largely unaware of gold’s utility.

When the next leg of the global financial crisis arrives and stocks and bonds come under severe pressure, investment demand for gold could potentially rise exponentially.

7. Growing Recognition That Many Paper Gold Products Are Not Backed By Gold.

At the March CFTC hearing with respect to position limits on gold and silver on the Comex, Jeffrey Christian of CPM Metals, advertised on his firm’s website as “an expert on precious metals”, openly acknowledged that transactions on the London Bullion Market Association (L.B.M.A.) are minimally backed by available physical gold. Given that the L.B.M.A. has long been regarded as the exchange where physical gold is transacted, that qualifies as a remarkable admission.

Investors should also have strong reservations about gold ETF’s, gold pooled accounts and gold certificates where the gold is unallocated and thus not specifically accounted for.

8. Mine Supply Is Not Anticipated To Rise For Several Years, If At All.

Despite gold prices surging from a low of $252 per ounce in 1999 to over $1,200 recently, mine production has been eroding for nearly a decade. This suggests that mine supply is insensitive to higher gold prices, a fact confirmed in the 70’s when mine supply actually fell as gold made its historic rise from $35 per ounce to $850.

Aaron Regent, the head of the world’s largest gold company, Barrick Gold, was quoted at a conference in late 2009 lamenting the state of the gold mining business. He went so far as to suggest that global gold production was in terminal decline despite record prices and the Herculean efforts by mining companies to discover new ore bodies in remote areas. He actually alluded to “peak gold” by implying that production has already reached levels that can’t be exceeded, an expression that is now commonplace in the oil industry.

9. Central Banks Running Short of The Gold Necessary To Keep Market In Equilibrium.

The western central banks, who have supplied massive quantities of gold to the market over the past fifteen years, both to meet burgeoning demand and to suppress the price, are running dangerously short. Their activities were reminiscent of the late 60’s when central banks expended over 100 million ounces in an ultimately failed attempt to hold gold at $35 per ounce. We believe that this time they have disposed of far more gold and did so clandestinely, employing swaps, leases and opaque accounting.

This era’s central bankers have obviously learned nothing from the past but are clearly considerably more desperate due to the dramatically worse situation on the financial and economic fronts. It is telling that the annual selling quotas under the European Central Bank Agreement are 400 tonnes per annum and the banks, after meeting their past quotas for years, are selling nothing.

10. Increasing Liklihood Of Accelerating Purchases Of Gold By Asian Central Banks.

The enormous concentration of U.S. dollars in the reserves of a number of Asian central banks in conjunction with low gold exposure virtually ensures that they will be more aggressive purchasers of gold in the future. Russia and China have already revealed their intentions and India may have stolen a march on everyone when it announced late last year that it had purchased 200 tonnes of the well advertised IMF sale.

What appears to be a huge swing from collective heavy selling by the central bank community to net accumulation is going to have an extremely salutary impact on the gold price.

11. Increasing Skepticism About U.S. Gold Reserves.

The U.S. has long been the world’s largest gold holder with a current reported position of 8,133 tonnes (over $300 billion worth). However, there have been recurrent rumors that the U.S. has mobilized an unknown portion of their gold reserves via swaps to facilitate leasing, a key component in the gold price suppression scheme.

The absence of any outside audit of the reserves since the 1950’s and the Fed’s current intransigence towards being subjected to an audit only heighten suspicions that the U.S. does not have nearly as much gold as they claim.

{Part 3 tomorrow)