By Chris Weber, editor, The Weber Global Opportunities Report

Saturday, October 25, 2008

I get this question from time to time. Personally, I am amazed that gold held up so well in the past few months. Gold is down about 7% from a year ago. Compare this with any stock market and any currency.

I think we could see gold ease to $615, or even lower. This would roughly mirror the huge bear market within the bigger bull market of the 1970s.

But I want to point out that the only people asking me why gold is not higher are Americans. In terms of the U.S. dollar, gold has indeed fallen from its March peak of just over $1,000.

But the U.S. dollar has risen so much against the other currencies that if you are a European, New Zealander, Australian, or citizen of most other countries, gold is actually at its all-time high.

Look at the chart below. It is the price of gold in terms of the euro. And remember that gold's price would look even stronger if measured in terms of the U.K. pound, or the Aussie or Kiwi dollars.

Americans are not used to thinking in terms of other currencies. But if they did, they would see how strong gold is. It will one day reach new records in terms of the greenback.

Also, it is good to look at the long-term picture of gold. It reached a peak of $850 back in 1980 and then fell into a long, 20-year bear market. For an asset to work its way back to its previous high after so long means that something impressive is going on. All that is happening is that in terms of the U.S. dollar, gold is simply taking a rest after a huge run-up from $252 in 2001 to $1,030 last March.

Let it rest and build a new base. Long-term holders will be rewarded, as current holders in Europe, the U.K. and most other countries already are. Keep in mind gold's outlook for the next five to 10 years...

The world's central banks continue to try anything to get banks to lend their newly created money and thus stop the deflation danger. The Fed has been buying unsecured commercial paper. Governments are now taking ownership positions in big banks, offering them money in exchange for lending it out.

I remain unconvinced that the banks will lend again to the average borrower. They may start lending to other banks, but this is not the same thing. Thus, the immediate danger is still for a deflation, and even a possible deflationary depression, as credit continues to dry up and people and companies that have borrowed too much continue to be in trouble.

But further out, the vast inflation of money and credit that has been going on by the world's central banks will, after some time lag, start to cause price inflation to soar. Gold and silver look relatively weak now, but in time they will rise.

I'm not really worried. I continue to take the long view on both metals and urge you to do so as well. Indeed, I am worried that the massive inflation and government intervention we are seeing will bring back a rush into these two inflation hedges.

I think we will see a plunging value of paper currencies in the future, with prices of gold and silver soaring. I don't like to say this because this could come along with other forms of instability. It looks like we are entering a period where people will become much less wealthy than they thought they were.

These are certainly interesting times. They are also dangerous... which is why I continue to urge my readers to buy protection in the form of gold and silver.

Good investing,

Chris Weber

Editor's Note: Starting at 16, Chris Weber turned $650 earned from his paper route into $1.8 million in cash within a decade through a series of remarkably insightful investments. Since then, he's parlayed that wealth into a multimillion-dollar fortune, thanks to one simple secret: Government self-interest, and what governments do with their money, create the market's safest and most profitable opportunities.

He records his thoughts on investing in his personal newsletter, The Weber Global Opportunities Report. You can learn more about Chris by clicking here.

Further Reading:

A Long-Term Look at Gold and Silver

Could Gold Fall to $600? Yes...

Market Notes

CRUDE'S TRENDLINE IS BROKEN

The trendline in crude oil we just featured on October 17 has been broken.

As we covered in that column, "the market" likes the bearish argument for crude oil right now: The world economy is now in a recession... and a recession squashes demand for gasoline, diesel, and all other types of petrochemicals.

As you can see from this week's chart, the recent decline below $65 a barrel has broken the long uptrend oil began in 2002. We stand by our prediction... This "breaking" will get worse.

– Brian Hunt

Why Isn't Gold's Price Higher?

Market Notes

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