Gold and Silver Rallies Gold and Silver Rallies: Objects in Motion
by Eric J. Fry
The Rude Awakening
Wall Street, New York
Wednesday, March 8, 2006 Eric Fry examines the recent Gold and Silver Rallies. ------------------------- - Some historical comparisons suggest your gold
reserves could be on the way up...but just how much?
- From daydreaming to reality – taking the step from
fantasy to financial freedom and,
- A room full of ten-foot chocolate fudge and all the
market data...
------------------------- Eric Fry, reporting from Wall Street... "Daddy, today at school I was thinking of something really
cool," beamed Ethan, your editor's 7-year old son. "Oh really?" came the reply. "Yeah," Ethan continued, "when I'm in school, I like to
imagine really cool things." "Exactly WHEN were you doing this imaging?" "While the teacher was reading a boring book," Ethan
explained. "So you were day-dreaming, right?" "Well, kind of...But I was imagining," he insisted. "I understand," your editor replied. "But when you are
imagining during school hours, it's called daydreaming." "I know. But I thought if I told you that I was daydreaming
during school, you'd be mad at me." "Are you kidding?" your editor laughed. "I daydreamed
during about half of my education. It's too bad it wasn't a
graded subject. Daydreaming is valuable. If I didn't
daydream during school, I probably never could have become
a writer...So what was in your daydream?" "Well, I was thinking about this massive playland full of
food. You'd go into a "Breakfast Room" filled with enormous
piles of pancakes and sausages and eggs. And all this stuff
would be piled up high to the ceiling so you could walk all
around it." "So when you walk around in the Breakfast Room, would you
just lean out and take a bit whenever you wanted?" "No, you'd have to get a plate," Ethan explained. "But
there'd also be other rooms too, like for lunch and dinner.
The "Dinner Room" would be filled with hotdogs and
hamburgers and T-bones and all these other kinds of
meat...And after that, there'd be the most awesome room of
all." "I think I can guess." "Right, it would be the Dessert Room," he smiled. "It would
be filled with every imaginable kind of dessert." "I'm imagining...But I'm also thinking that that you might
need to add a 'Weight Loss Room' to your playland." "Um, Daddy," Ethan responded with a furrowed brow. "That
would be lame..." Since Ethan's daydream resides only in HIS mind, the rest
of us must entertain daydreams of our own creation. The
bull market in gold, for example, may not provide the
thrill of a ballroom full of 10-foot tall hot fudge
sundaes, but it does provide ample fodder for daydreams and
delicious ruminations...as you will see below.
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-------------------------
Objects in Motion
By Eric J. Fry "An object in motion tends to stay in motion, unless acted
upon by an opposing force," Sir Isaac Newton theorized more
than 300 years ago...A similar tendency seems to operate in
the financial markets. Now that commodities, in general – and precious metals in
particular – are in motion, how much longer might they
remain in motion? We have no clairvoyant insight, but we'd
side with "Newton's Law" on this one. Gold and silver will
continue rallying until "acted up" by a credible global
monetary force. Currently, however, the monetary regime
that operates in the U.S. and throughout the world is
nothing short of incredible. The world's largest debtor-nation prints without limitation
the money that the world's largest creditor-nations lend
back to the world's largest debtor-nation. This special
currency, called "the dollar," possesses tremendous cache,
despite possessing no intrinsic value whatsoever. Pretty
incredible, huh? Sign Up for The Rude Awakening Start your mornings off with a dose of Rude news. The Rude Awakening is dedicated to highlighting phenomena in the financial markets that others may not see. Let the Wall Street Journal and the New York Times "break news." Sign up FREE Today! We will not share your email address with anyone else, period.
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Gold and Silver Rallies: How High can They Go?
Therefore, we wonder, just how high might gold and silver
climb before a countervailing force arrests their upward
motion? Here again, we possess no clairvoyant capacity, but
a doubling of current prices would seem a realistic "base
case" scenario.As we noted in yesterday's Rude Awakening, Chevreux analyst
Paul Mylchreest, predicts the gold price will flirt with
$1,000 an ounce by 2008. To lend credence to his
prediction, he presents the following analysis: "The long-term average in the Gold/Oil ration has been
around 16x, but is currently only 8.6x. The argument that
oil has experienced a structural price increase due to the
difficulty in finding new reserves could equally apply to
gold, as production flattens off and reserve lives
deteriorate...A 16x multiple on a crude price of $60 would
give a gold price of $960 a barrel." 
Applying a similar logic to stock market values, Mylchreest
reasons, "The Dow Jones Industrial Average/Gold ratio
compares the performance of paper financial assets, in this
case equities, with gold (the ultimate store of value)...At
its peak in 2000, the Dow traded at more than 40x the gold
price. At the bottom of the two major credit cycles in the
last 100 years, 1933 and 1980, the Dow/Gold ratio fell to
only 1-2x. Since the collapse of Bretton Woods in 1971, the
Dow/gold ratio has averaged 12.5 x. Applying a Dow price of
11,000, therefore, would imply a gold price of $880." 
Hmmm...Sounds plausible. But by 2010, 2011 and beyond, a
more titillating menu of comparisons and metrics might
pertain. For example, if the gold price were to return to the PEAK
gold/oil ratio of the last 20 years, it would sell for
$1,800 an ounce. Or if the gold price were to return to its
record high-price of $850 an ounce, adjusted for inflation,
it would sell for $2,178. Lastly, if the gold price were to
return to the peak Gold/Dow ratio of the last 20 years, it
would sell for about $3,000 an ounce. Ah, Yes!...It's fun to daydream.
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reality, not a daydream.
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investment circle today! http://www.agora-inc.com/reports/RCH/ERCHG314 ------------------------- [Joel's Note: Do you have a bone to pick with today's
column? Some insight of your own or a suggestion for a
future Rude musing? Email serious comments and daydreams
alike to your head-tripping editor at:
aussiejoel@the-rude-awakening.com Cheers, jOEL ------------------------- 
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