Don’t Miss Out on the Next Gold Rush

As James Bond fans know, Goldfinger’s infamous plan to blow up all the gold in Fort Knox failed to inflate the value of his holdings. Actually, there was no need for him to have been so devious. Had he been patient, according to precious metals expert Paul Van Eeden, he would have been well on the way toward achieving his goal before year-end 2005.Goldfinger should have realized part of his dream last year since the ingredients were all in place to have made 2004 the year of the gold rush. Granted, inflation, a major gold catalyst, was dormant last year. But there were other significant catalysts that should have sparked a run on the precious metal, chief among them being the surging oil price, the ballooning twin deficits, the falling dollar, the war in Iraq, and brisk Asian demand. Yet gold, surprisingly, showed very little glitter last year, advancing only about 5.5% from 2003’s close of $415.45 an ounce. How come?For some thoughts, I rang up Mr. Van Eeden, who takes issue with my premise that gold’s been a laggard. Observing that the gold price is chiefly a function of the American dollar exchange rate (the value of the greenback, versus foreign currencies), he contends gold is selling exactly where it should be.The numbers seem to bear him out about the movement of gold. In the last three years, the dollar, versus the Euro, tumbled 27.5%. In the same period, the price of gold ran up more than 50% from a 2001 close of $278.95 to a 2004 finish of $438.45. In other words, down went the dollar, and up went the price of gold, which is currently trading at around $442.Last year, observes Mr. Van Eeden, gold was relatively stable compared to the previous two years. It fell 8% against the currencies of G-10 nations. While he notes that gold has not fully responded to the Iraqi conflict, the rising twin deficits, etc., he believes “we’re likely to see that impact at some point.”Mr. Van Eeden, who writes a monthly paid e-mail newsletter that covers his personal precious metals investments and his reasons for buying them (subscription is $1,985 per year or $140 monthly), believes gold is on the verge of a new and sharply rising trend that will catapult its price to more than $500 an ounce by year-end and to between $700 and $800 in three years.His rationale: renewed pressure on the dollar, spurred by a decision by China at some point this year to revalue upward its currency (the renminbi), which is fixed against the dollar. The basis of such a revaluation is twofold: to reduce the cost of Chinese imports (China is a large importer of raw materials) and end China’s need to hoard American dollars, which could then be sold and used to further stimulate the Chinese economy.If China takes such an action, Japan, which has also been hoarding dollars, would likewise revalue the yen upward, notes Mr. Eeden. In turn, the dollar would fall dramatically against their currencies, and that’s precisely what he expects – actually a 30% drop against Southeastern Asian currencies over the next three years, what with our trade deficit predominantly against Southeastern Asia. Also, Mr. Van Weeden sees further dollar deterioration against the euro.As part of his scenario, Mr. Van Eeden, who essentially views gold as an “exchange rate phenomenon,” expects both China and Japan to reduce their purchases of U.S. Treasuries. So the process of their supporting the dollar will not only slow further, but should come to an end this year, he believes.As a wild card in gold, he thinks a dramatic decline in the dollar against Asian currencies could ignite a wave of speculative buying in the metal by hedge funds and other funds that could drive the price of the metal above $1,000 an ounce. The all-time high is about $850, which occurred in January 1980.Okay, let’s say you buy his sunny gold outlook. What’s the best investment strategy? For the average investor, Mr. Van Eeden’s top pick is Street TRACK Gold Shares, a trust unit traded on the New York Stock Exchange that tracks the price of gold on a percentage basis.For risk-takers only and never for widows or orphans, he favors five low-priced securities he personally owns, all traded on Canadian exchanges. Four are gold stocks – Altius Minerals, Radius Gold, Miranda, and Rimfire. The fifth, Energy Metals Corporation, is a uranium producer.

Don’t Miss Out on the Next Gold Rush

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