James DiGeorgia

Gold is such a uniqueinvestment because itsvalue is inherent. Itdoesn't rely on the performanceof somebodyelse. Unlike real estate, gold's valuedoesn't depend on low interest rates.Unlike a stock, its value won't plummetwhen a company fails to make itsnumbers. Unlike a bond, it can't nosedivewhen Moody's downgrades afirm's credit rating. Unlike a currency,the government can't print more of iton a whim. Although gold has recentlytaken it on the chin, that's a short-termevent. When it comes to the longterm, the following five irresistibleforces will force it back up.

High energy prices eventuallyripple throughout the economy, causinghigh inflation. High inflation pushesup the price of gold. Current tensionsin the Middle East will only help spikeoil prices. New tensions with Iran, aprecarious relationship with SaudiArabia, and new threats in Nigeria,which recently saw the kidnapping offoreign oil workers, all have contributedsubstantially to high oil prices.

Russiahas no problem in using naturalresources as a weapon to achieve itsgeopolitical goals—if you don't do theirbidding, they'll choke off your supplies.We saw this in January, when Ukraine'sentire gas supply was turned off over apricing dispute. More recently, Putinthreatened to do the same to all ofEurope if his aggressive plans to takeover a certain European energy infrastructurewere blocked. As Russia is theworld's largest producer of natural gasand the second largest producer ofcrude oil, its ability to disrupt thesesupplies should cause us real pause.

There is the ever-presentthreat of al-Qaeda attacking UScities and oil infrastructure. Broaderattacks were predicted by a conferenceof terrorism experts at the University ofCalifornia, funded by the Departmentof Homeland Security. While we hopenone of these attacks succeed, it wouldbe irresponsible to ignore the threat, ormany "conventional" investments willget real ugly, real fast.

Ourgovernment borrows over $1 billionper day just to stay afloat. Thus, oureconomic health is dependent on theforbearance of others—the willingnessof foreign dollar-owners to hold ontotheir greenbacks. That's a considerablerisk because the top dollar ownersaren't exactly US allies. The 

just ran an interesting articleentitled "Holdings of US Debt BecomePotential Weapon," which describedhow America's rivals could easily usetheir US debt holdings as a "geopoliticalweapon" against us.

Increasingly, investors are turning togold today—much as they have for thelast 6000 years to preserve wealth. Somuch so, that for the first time ever inthe history of the United States, the USMint is now issuing a pure gold coin!

 is editor and publisher of the Gold and Energy Advisor Newsletter (www.goldandenergyadvisor.com) and the author of the popular book, The New Bull Market in Gold.

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Why the Gold Bull Market Will Stay Strong

Oil has hit record highs thatcan slowly and quietlycripple our economy. Ahostile dictator is controllingour oil supply. Foreign leaders arenow warning us that they're going tostop purchasing dollars. We are indesperate need of more oil, yet wecan't find it. As oil supplies are tight,as war erupts in the Middle East, asgold rebounds and then swings wildly,and as our economy is in serious trouble,we must ask ourselves: Is this thebeginning of the end for the dollar?

Russian President Vladimir Putinblames America for the fall of the Sovietempire. Although it isn't new that othercountries blame America for their problems,other countries don't have thelargest natural gas reserve and aren't theworld's second largest producer of crudeoil like Russia is. According to the 

, Russia is now "using oilas a weapon to threaten its neighborsand global energy supplies." 

Putin has already shut off severalcountries' gas supplies until they met hisdemands, showing no remorse over theloss of revenue. Russia supplies almost10 million barrels of oil to world marketseach day, about 12% of the world'stotal supply. If Russia restricted oilexports even by a small amount, itwould turn the supply/demand curveupside down, making prices skyrocket.It's troubling that our economic fate liesin the hands of someone who has thepower to make American oil and gasprices triple overnight, just because hehas a score to settle.

The current tight markets will notstabilize in the foreseeable future. Theequipment needed to find more oil isdisappearing. Due to two harsh hurricaneseasons and other economic factors,oil rigs in the Gulf of Mexico arefar fewer in number than several yearsago—shrinking from 148 rigs 5 yearsago to the 90 that remain today. Rigowners are now asking and gettingastronomical prices around the worldfor the use of their drilling equipment.Remarkably, gas giant BP is leasing adrilling ship in the Gulf of Mexico for$520,000 per day—the same shipleased 2 years ago was $184,500 perday. Based on these figures alone, oilprices should not drop significantly.

Although we are not running out ofoil yet, we are running out of cheap oil.This has the potential to cause a financialstorm unseen in this country sincethe Great Depression. The problem isthat as oil fields age, their pressure decreasesand it gets more expensive toextract the oil. The world has relied onlarge fields in Saudi Arabia and othercountries that were all found in the1960s or before. Those fields that wehave been relying on for 50 years arebecoming expensive to operate. The oilthey are finding is worth less than themoney they've spent to find it.

As for other foreign economic concerns,Yu Yongding, a member of TheMonetary Policy Committee of thePeople's Bank of China, has warned thatChina is going to diversify out of USdebt holdings and into gold. "We're stillfacing the possibility of a big devaluationof the US dollar, so the capital losseswill be huge?[which] will be a tremendoushit to the Chinese economy," Yu said. Everyone who owns dollarswants to sell them, but they can't sellthem all at once without collapsing themarket. Still the economic danger isclear; China, and other countries, will bediversifying away from US dollars.

The opportunities in this economicclimate are clear: oil and gold. Countriesmoving away from purchasing US debtwill look to bolster their reserves withgold, which should keep the preciousmetal's price climbing consistently higher.Oil prices will march in step, andthose companies who have provenreserves and can get oil and gasoline tothe market will profit mightily.

 is editor and publisher ofthe Gold and Energy Advisor Newsletter(www.goldandenergyadvisor.com) and theauthor of the popular book, The New BullMarket in Gold and The Global War for Oil.

The Beginning of the End for the Dollar?

Our nation's finances arein serious trouble, and ifit feels like you're notgetting the whole storyfrom those in charge,you just may be right. But which investmentswill keep you afloat as the dollarsinks? Why, commodities, of course.

Imagine there's a company you'vebeen following, and a few months ago itannounced a dismal $318-million loss.The CEO promised a company turnaround.However the company was hidingan ugly truth from the public—theywere actually keeping two different setsof books. The first set held the numbersannounced to shareholders and lenders,while the second set had the real numbers,showing that the company hasbeen bankrupt for years. The companywas only able to survive because lenderskept loaning money. The real numbersshowed that the company hadn't lostjust $318 million, but closer to $760million. It is unlikely that you'd invest inthis company. The problem is, you'realready invested.

This company is the United States.And the numbers are far worse than theexample. The United States is "officially" $318 billion in debt, with the realnumber closer to $760 billion. And thatfigure doesn't include the future obligationsof Social Security and Medicare,which pushed the actual national deficitin 2005 to $3.5 trillion.

In fact, the US government is dependenton new lending to stay afloat, to thetune of $2 billion per day. Often, thatcomes from foreign countries thatwould like nothing more than to help usdig a bigger hole, such as Middle Easterncountries, Argentina, and Russia.

This debt exerts downward pressureon the US dollar. As more of the babyboomers retire, and more of thosefuture obligations become due, the governmentwill have to issue more dollars.This will lead to inflation and a severedevaluation of the dollar. Worse, currentgovernment bond owners maystart selling off their debt, driving thedollar down further and scaring awaynew lenders.

How do you short the United States?By taking your current dollars andinvesting them in commodities, specificallygold and other precious metals,which can rise despite other externalforces. As a tangible asset with intrinsicvalue, commodities represent a saferefuge when other investments plungeor when geopolitical trouble erupts.

In the past this may not have beenenough to drive up commodity prices,as commodity producers generally producedas much as possible. Whenevercommodity prices moved up, theywould increase production, leading to aglutted market, and prices would againcome back down.

This is no longer the case. New managementteams are in place at manycommodity producers—executives withbackgrounds in investment banking.Only some of that money is going backinto increasing production. The rest isbeing used to buy back shares, pay offdebt, pay dividends, or acquire othermining companies.

All of these activities drive up thecompany's stock price, increasing shareholdervalue—but none of them increasethe world's supply of gold orother commodities (eg, Rio Tinto hasn'tdeveloped a new copper mine in over adecade, even though the price of copperhas quadrupled in the last 5 years).

All of this combined means that thiscommodity boom promises to be evenmore pronounced than past bull markets.I continue to believe that $1000per ounce of gold is not far away, andthat this is just a consolidation phasebefore its next blast upwards. 

James DiGeorgia is editor and publisher ofthe Gold and Energy Advisor Newsletter(www.goldandenergyadvisor.com) and theauthor of the popular books The New BullMarket in Gold and The Global War for Oil.

Why the US Debt Is a Boon to Commodities

With the exceptionof water, oil is themost importantcommodity in theworld. Since itsfirst commercial use in the mid-1800s,we've burned almost a trillion barrelsof the stuff. And we burn another 84million barrels each day. One hundreddollars for a barrel of oil is a scarythoughtâ€”so scary, most analysts are incomplete denial. But, it's inevitable.

The oil industry says we have about1.2 trillion barrels of extractable oil inthe ground. But this is almost certainlya gross exaggeration. Petroleum reservesare self-reported by oil-producingcountries, and there's no way toverify these numbers.

Royal Dutch/Shell was forced in2004 to slash its reported reserves by23%â€”and another 10% or so recently.Chevron Texaco, ExxonMobil, Total,and Italy's ENI also appear to haveexaggerated their reserves. 

recently publishedreports about Kuwait's national oilcompany purporting that its reservesare about half of what's claimed.

The world burns up 30 billion barrelsof oil each year. The oil industry needs tofind that amount in new discoveries,plus a few million more barrels to offsetincreases in consumption. But they'reonly finding a fraction of that amount:3 billion to 7 billion barrels a year.

It's not that they aren't looking.ExxonMobil alone will spend an estimated$19 billion this year on oil discoveryinitiatives. Unfortunately, all ofthe big oil fields were found decadesago. The world's 19 largest fields producean average of 500,000 barrels perday, with an average age of 70 years inproduction. Of the hundreds of fieldsfound since 1980, only three produce200,000 barrels per day.

When you first drill a well, the oil isunder a lot of pressure, and comes outfast, easy, and cheap. But after a while,the pressure decreases and you have tostart pumping. You still can extractplenty, but now it comes out slowerand costs more. After that, you'reforced to pump water into the field toforce more oil out of your extractionwell. At this stage, you're getting a lotless oil, and each barrel is much moreexpensive. This gets worse every yearuntil the field becomes unprofitable,and it's abandoned. Oil insiders callthis "depletion." The world's biggestoil fields are all old and starting todeplete rapidly.

, theworld is now losing more than a millionbarrels of oil per day to depletionâ€”twice the rate of 2 years ago.And the decline rate is accelerating.Though we have billions of barrels ofoil left in the ground, fewer barrels eachyear can be brought to market.

As our oil supply is depleting, consumptionis skyrocketing. Increasingconsumption is a worldwide phenomenon.Oil consumption has increasedevery year since people started usingthe stuff over 100 years ago. As thechief executive of Kuwait PetroleumCorp recently said, the era of cheap oilis gone forever.

We used to look to fields in Texas,the Gulf of Mexico, the North Sea, andother peaceful places for our oil, but nomore. Those fields are depleting rapidly.

Now we have to look to othersources. Unfortunately, 83% of theworld's oil is in only 10 countries, andmost of these countries are not stableplaces. As seen in the Table above, the"Political Risk" column contains a ratingfrom global insurer AON Corp.Note that 8 of the top 10 oil countriesare rated as medium risk or worse.Overall, more than 75% of the world'soil is in countries rated as unstable.

As our oil supply is sinking, demandis shooting up. This means permanentlyhigher prices. We're at the beginningof a major shift in the markets. Theseshifts come along just once or twice ageneration, and can be obscenely profitablefor those who play it right. 

James DiGeorgia

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