Bull market beginnings 6 reasons why gold could soar

If you could buy gold today at the lowest price its been in 12 years , chances are you’d jump at the chance.

Charles Huelsman of Paulson Investment Co. of Portland, Ore., who puts out an investment newsletter called Berry’s Letter, says that’s exactly what Japanese investors are doing.

“Today the most exciting gold market action is not in dollars. It is in yen,” says Mr Huelsman.

“In that currency the price of gold recently reached a 12-year low. The response of Japanese investors has been to buy more gold than is produced in South Africa.”

He says South African gold mines produce about 58 tons of gold a month while Japanese buyers have bought an average of 72 tons a month during the first six months of this year.

Combined with central bank buying, the Japanese demand has resulted in a shift of the supply- demand balance. The global gold market has changed from a buyer’s market to a seller’s.

Mr Huelsman gives a concise rundown of what the move in gold might be anticipating.

“Often gold is accumulated as a hedge in anticipation of trouble or some financial malady. Today there are many candidates:

* “The next recession. Thirty of our states already have significant pockets of depression. As we cycle into the next economic contraction, the question again rises: Will it be a depression?

* “Protectionism. The record July (US) trade deficit, $18 billion, has Federal Reserve Chairman Volker warning that continuation of this trend could produce levels of unemployment high enough to get protectionist measures through Congress. The one concept that all economists agree on is that such action has a depressing effect on world trade.

* “Failure of the Baker plan. If Treasury Secretary Baker’s plan works, western banks will lend Third World countries sufficient funds to stimulate their economies so they can eventually pay off some of their debts. Failure spells non- producing assets for too many western banks.

* “Financial institution ill- health. A private bank rating company puts more than half of U.S. banks on yellow or red alert. . . . When non-producing Third World, energy and farm loans become writeoffs, the result is deflation. Through history, gold has held its purchasing power in deflationary depressions.

* “Too much consumption. It is not that all consumption is bad. Consumption can be economically disadvantageous when it is at the expense of savings, savings that could become job creating loans or investments.

* “Terrorism. Recent events speak for themselves. These unthinkable actions add an element of fear to gold market psychology. Volatility results.”

Mr Huelsman says he believes this is the beginning of a bull market that could see gold prices climb much higher as a result of some or all of these factors.