Why the Gold Bull Market Will Stay Strong

Physician's Money Digest, October 2006, Volume 13, Issue 10

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.

1. Increasingly unstable oil supplies.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.

2. Russia, the monopolist. 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.

3. The growing risk of internationalterrorism. 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.

Wall Street


4. Nervous foreign investors. 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.

5. Six thousand years of value.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!

James DiGeorgia 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.