<http://www.lemetropolecafe.com/clearpixel.gif>

7/22 The gold price is performing well! - James Sinclair & Harry Schultz

The gold price is performing well!
What characteristics of the economic environment indicate a long-term nature to this gold bull market?
By James Sinclair & Harry Schultz


Why gold's present price performance is good.


As we speak to gold advocates, we pick up a distinct dissatisfaction concerning the present level of the gold price. In their opinion the price has not performed well in light of the present condition of the equities market. That would be a reasonable position were it not for the fact that gold rarely, if ever, leads the commodity market. Yes, the CRB Index has moved above its 200 week moving average, a bullish indication. However, it only JUST happened. That means that the commodities market is not yet accepted by the general investment public as bullish, nor is it, yet. For cost of production reasons and because of the expansion of monetary aggregates during a period where long-term attractiveness in equities is lacking, We firmly believe that commodity prices will continue to rise.

The government bond market is still soaking up liquidity from securities liquidation and will continue to do so for awhile. This period of intermediate and long-term bond strength will become exhausted as soon as the non-dollar denominated investors start to curtail their buying as a result of the weakness of the US dollar. There is also the continued selling by the gold dealer's cartel to consider. We believe that this supply of gold is from continued gold leasing by central banks to these entities. However, we believe that, selling will be limited by the perception of a credit risk as the share values of the financial holding companies continue to fall. Chase Morgan has a huge multi-year head and shoulders indicating credit risk. We believe both"credit risk" and this holding company will be spoken of in the same sentence in the not too far future. To everything there is an end. The end of gold leasing will occur when credit risk enters the picture. Look for an upward bias in leasing rates as the signal for the astute gold traders of this impending positive occurrence.

Therefore, we conclude that disappointment over the gold price is slightly myopic. The gold price is ahead of itself, timing wise, and therefore is acting extremely well. Yes, it can fall back again, but we see this gold bull market lasting very, very long term. Do not fear.

Why is this gold market long term?


1. Terrorism, do you really believe it is over or soon will be? In the next Harry Schultz Letter (www.Hsletter.com) there will be a discussion of this and what in fact is Jihad. Let us just say at this point that this event in human history has just begun. Jihad is not understood in the West and cannot be stopped by the military means now being utilized.

2. Litigation consequences of the present accounting Bill going through the Congressional/Senate process, which the Bush administration has promised to sign will drastically effect earnings statements. Assuming that CEOs themselves have the responsibility, backed with their personal assets, to certify the balance sheet and income statements of public companies, the overstatement of assets and earnings is absolutely at an end. The content of this Bill makes successful civil litigation against management for misstatements of corporate financial affairs much easier. It makes, what used to be only civil, criminal. As such when a transgression is established by criminal law, the civil liabilities simply fall out automatically. This means in order to establish significant growth in earnings, real business must be successfully conducted. The boom of the 90s was fueled by explosions in earnings whose basis had a great deal to do with fancy accounting. It will be a long time before we will experience"an explosion" in earnings, as was experienced by the use of mirror and lies.

3. Country Debt failure is possible in Brazil. If Brazil goes there will be significant repercussions among other South American nations. As it looks right now, the Brazilian situation is critical and there is no immediate solution on the horizon. We believe that Brazil will default or defacto default. This will result in erasing a decade of progress that unwound as the boom of the 90s ended the camouflage.

4. The Price of Oil will not be cheap in the foreseeable future. The demand for fossil fuel and the growing dependency of the US on OPEC oil guarantees a firm market. Energy is at the basis of the manufacturing process. As such it will work as an increasing cost factor well into the future.

5. The Japanese Economy is not fulfilling its hoped for recovery. What is being termed by some as bad monetary policy on the part of the Japanese Central Bank could well be a reaction to the weaker US dollar in trade considerations. Regardless, look for significant further upset in Japanese's economy and therefore more gold buying from Japan.

6. Trade problems were ignited by the Bush Administration's aggressive action of steel tariffs. At a critical time in world economic history, when trade wars are least desirable, the US started one. Well, it has happened and shows no real possibility of ending soon or easily.


Conclusion:

It is our opinion that all of the above will work in time to support the gold market, resulting in a multi-year gold bull market, not simply a short term gold bear market rally. Technically speaking gold has risen against a technically weak reaction mode. Gold should reassert itself in August and thereafter establish a new high in this phase of the Bull market. Look at weakness as an opportunity to purchase at better levels. Avoid gold producers who are hedgers, as one would avoid Ebola. Sell 33% into strength, buying in an orderly manner, on reactions, which will continue to occur. Repurchase that 33% in a similarly orderly manner. Maintain 66% of your position at all times. This will give you comfort during declines and should increase your profitability, if you use discipline.

You can reach Harry Schultz at www.hsletter.com and James Sinclair at www.tanrange.com




<http://www.lemetropolecafe.com/clearpixel.gif> <http://www.lemetropolecafe.com/clearpixel.gif> <http://www.lemetropolecafe.com/clearpixel.gif> <http://www.lemetropolecafe.com/clearpixel.gif>

Copyright 1999, 2002 Le Metropole Cafe. All rights reserved.


<center>

<HR>

</center>