Market News ~ July 2006 ~

By David Bradshaw, Editor, RMP
Today's :60 "Golden Minute" --Listen--
July 31, 2006 ~ updated M-F 7a-7p

Precious metal prices zig-zagged Monday in choppy trading as slowing U.S. growth coupled with higher inflation was offset by a statement by U.S. Secretary of State Condoleezza Rice saying a cease-fire may be reached in the Mid-East this week.

Israel rejected mounting international pressure to end its war against Hezbollah and launched a new incursion into Lebanon despite halting most air raids for 48 hours, reports Reuters.

Gold looks set to extend its gains this week on demand from investors who are concerned that a slowing U.S. economy and rising consumer prices will create stagflation for the first time since the early 1980s.

Investors are betting that a slowing economy will bring inflation back under control. If they're wrong about this, stagflation with mediocre growth and rising prices will be the inevitable outcome" says Forbes.

Monday gold closed down $1.50 in NY to $633.80/oz., silver closed unchanged at $11.28/oz. Metal prices drifted higher after the close. Year-to-date gold prices are up $115/oz. or 23% while silver is up $2.50/oz. or 28%.

"We remind readers how stagflation comes about (and why Ben Bernanke is doomed)", writes Bill Bonner in Monday's Daily Reckoning...

"The Keynesian economics practiced by governments and central bankers depends on deception. As more money and credit is introduced into the economy - as "stimulus" - it is mistaken for real wealth. Consumers think they have more money to spend; businessmen think they have more customers; investors think they see more profits. Deceived, they happily expand the economy. As time goes on, however, prices catch up to the funny money and the consumer wakes up to the fact that he or she is no better off than before. The businessman finds that though he has more customers, he must also pay his workers more. And his supplies cost more, too. The investor sees that he did not really make any money; profits disappeared as costs rose and the gain on his stock barely equaled the general loss of purchasing power of the dollar."

"So, gradually, the old trick stops working. Money and credit may pour in, but no one is fooled. Instead, prices rise, while the economy goes limp."

"Gold is a long-term buy-and-hold market. If you only have 5-15% of a portfolio in gold it should be viewed as insurance against a drop in the other 85-95% of your investments. If it rises as it has over the long term, great, but I think people should be looking for safety first, not profit," Swiss America CEO Craig Smith told Doug Fabian's radio audience. [Listen]

"The global dollar sell-off is accelerating. Gold has responded by racing past $500/oz., $600/oz., and $700/oz. We should expect market volatility, sharp price swings and corrections as the world's faith in the U.S. dollar declines and their faith in gold grows -- ever pushing it toward four-digit prices", says Craig R. Smith.

The latest Fed survey of economic conditions around the country underlined the inflationary impact of higher energy costs, while a number of regions reported a decline in the overall rate of growth in their economies. Signs of a growing economic slowdown boosted hopes for an end to interest rate hikes in August.

"The demand for gold is as strong as it ever has been," AngloGold Ashanti CEO Bobby Godsell said last Thursday. However, with the gains in the gold price, jewelery demand was under pressure, he added. All in all Fin 24 reports it's a "Glittering outlook for gold".

"Gold should trade in a broad range of $575 to $675 through the end of August," said Peter Grandich in a note to investors. "Strong seasonal factors and a continuing long list of bullish fundamental and technical factors should lead to a new year high in the fall."

"We've got a green light for further declines in the dollar," said Michael Metcalfe, a currency strategist in London at State Street Global Markets. "Investors will start selling dollars again once we see the peak in Fed rates next month.

"By re-jiggering the manner in which CPI and GDP are calculated, the government misrepresents the true health of the economy", Peter Schiff, President of Euro Capital Mgmt. told CNBC last Tuesday.

"From the government�s perspective, all the misrepresentations are part of a giant confidence game that is meant to keep all the marks from wising up. A fiat-based monetary system only functions as long as confidence is maintained", writes Mr. Schiff.

"Where does smart money go in a crisis? On the defensive or bargain-hunting?", asked KNX's Business Hour with Frank Mollek Monday afternoon. "Gold is the crisis super-metal. It's a classic hedge against uncertainty as well as a reliable store of value -- unlike all paper currencies. But never buy or sell in a panic, instead, get educated first, then put 5-15% of your assets into tangibles. We like investment-grade U.S. gold and silver coins, because they are less volatile than bullion based on their rarity", Mr. Smith told KNX recently.

"Crude-oil prices are see-sawing between fears of a wider war in the Middle East, specifically between Israel and the Iranian-Syrian axis, and concern over the direction of the global economy," said Gary Dorsch, editor of the Global Money Trends newsletter.

U.S. stocks ended lower Monday to cap a mixed month for the markets as second-quarter earnings and rising hopes of an end to interest-rate increases were offset by concerns over slowing economic growth and the conflict in the Middle East. For July, the Dow rose about 0.3%. The Nasdaq logged its fourth straight month of losses, falling 3.7% and the S&P 500 Index posted a monthly gain of around 0.5%.

"This market is exhibiting all the classic behavior of a traditional bear market: sharp but short-lived rallies sprinkled in among an ongoing downtrend. The rallies are so fierce that, at face value, they appear to be an end to the decline. But since they have no follow-through, the bears continually reassert their will", says Larry McMillan in Forbes.

"In the world of investing, the craze for fast, if not advance, information has uprooted almost every rule of patient investing. The new rule seems to be: 'Don't bother about long-term results. Taking advantage of the short-term swings will take care of the long-term results.' Consequently, everyone seems to have turned into a short-term trader masquerading as an investor � or worse, as an investor committed to the long haul", writes Gene Marcial in the latest Businessweek.

The dollar fell to three-week lows against the euro and yen Monday with investors awaiting key economic data later in the week for more clues to future interest-rate moves in the U.S. There is a growing market conviction the Fed's two-year interest-rate tightening campaign is coming to an end.

"Central bankers are temporarily boosting the in-credible shrinking U.S. dollar, but we must look closely at the fundamentals for clues as to where the markets will go in the future", says Craig Smith.

"The devaluation of the dollar isn't something that happens on a particular day. It is something that happens every day. In the last 50 years, the dollar has lost 86 percent of its purchasing power, reflecting an annual inflation rate of 4 percent", says Scott Burns in Dallas Morning News.

"But it's virtually impossible to establish a store of value with any paper currency, given the ocean of debt the world is now swimming in. All currencies are subject to violent swings given geopolitical events. Smart money is looking for safety, value and is now rediscovering gold as the bedrock of a diversified portfolio", says Swiss America CEO, Craig R. Smith.

Mr Smith continues, "If the war in the Mid-East escalates I expect to see $90-$100 per barrel oil and $850 gold. Maybe higher. Israel is not going to stop until they eliminate or severely damage Hezzbolah. If that happens, it may just pull Syria and Iran into the conflict, which could turn this current crisis a real mess."

"Many oil producing nations are getting tired of exchanging what is perceived to be a 'precious diminishing commodity', oil for a not-so-precious multiplying commodity, the U.S. dollar", says Mr. Smith in his book, Black Gold Stranglehold.

"The shocks from the Middle East now have the potential to be more negative than the shocks we had last year, such as Katrina and the runup in oil prices," says Lakshman Achuthan, managing director of the Economic Cycle Research Institute, or ECRI. He notes that the economy is in a much more fragile state than it was a year ago, reports Thestreet.com

"Experts agree gold is a 'crisis hedge'. Geopolitical tensions have never been higher and show no sign of letting up soon. Therefore, investors must decide what impact these events may have on their money. Fund and money managers are now hedging against more trouble in the world. I think individuals should do the same", says Swiss America CEO Craig Smith.

"Big money is coming back into gold. The daily chart of GLD shows gold closing above its blue 50-day moving average. Since the 50-day MA is above the 200-day MA, and gold today (July 11th) broke out above both MAs, this is what I term a "moving average buy signal" says Richard Russell in Dow Theory Letters.

"A MAJOR breakout in gold was triggered July 11th on geopolitical concerns, a weaker dollar and near record oil prices. This could signal the beginning of gold's next major leg up to $1,000/oz. A technical breakout is what major portfolio managers watch for before buying or selling. If you have any poor performing investments or liquid capital, add to your gold portfolio today!" said Jim Carrillo, a broker at Swiss America.

"With the market burdened by rising global tensions, inflations fears, Fed rate hikes and hurricane season, commodities and commodity-related issues should continue to represent a 'safe haven' for investors amid the chaos", says Jocelynn Drake, senior editor at Schaeffer's Investment Research. She advises Forbes readers, Seek Shelter In Commodities.

Tangible commodities and high quality collectible investments again outperformed intangible investments like stocks, bonds and T-Bills in the first half of 2006, just as they have every year since 2001.

"Despite the recent volatility in the gold bullion and lower grade generic $20 gold piece markets, the U.S. Gold Commemorative coin prices have remained steadfast without a downward correction", writes Tom Rodriguez, Sr. broker at Swiss America.

"Over the last 5 years a Mint-State-66 Morgan Silver dollar has gained 170% to $420 each today -- with silver spot prices under $11/oz. Sixty days ago, when silver spot topped $15/oz., this same coin was only $375. This illustrates how high quality U.S. rare coins can easily go up -- even though bullion is going down," says Swiss America broker Henri L. Parris.

Bill Fleckenstein said recently he thinks the Fed is done raising rates, saying "The Fed wants to be loved. It doesn't want to be the tough cop. So it's done fighting inflation and the rate hikes are over. That's started a rally, but it won't last." If Bill is right, we can expect a fresh dollar decline will support higher metal prices after the Fed meets in August.

"You needed to know two words to make decent money in mutual funds this year: China and gold. China's voracious consumption of commodities, such as iron, coal and steel, should lead to higher investment in resource-rich emerging markets, such as Brazil and Russia. All of which is good news for gold, which often serves as a basic currency in emerging markets",USA Today reported.

"The way I see it, gold has made its bottom. It's just starting to wake up from a generation-long slumber ... prices are not just going through the roof, they are going to the moon before this bull market is over", says economist Doug Casey.

"A small investment in gold could protect some of your assets from inflation or a falling dollar", said John Waggoner last month in USATODAY. "Sooner or later, the Fed will have to stop raising rates or risk recession. Then, foreigners will have one less reason to buy dollars. The dollar's fall could resume. And so could the rise in gold."

"The gold story is a long-term story - the bull market is established and nothing that has happened recently changes that. At this stage, it is quite clear that only a minority of investors own gold. We would only worry greatly if a decline in the price occurred at a time when everybody and his brother owned gold," says a recent Onassis Newsletter.

"The recent metals correction may have been the best opportunity to buy on a major dip this year. Gold is now trading far above its 200-week moving average of $550/oz.", Craig Smith reports. (see chart)

Smith advises:"Investors must decide what type of market they're really in. If it's a BEAR market, you sell the rallies. If it's a BULL market, you pick a price and buy. If there are dips, you buy more and hold on. WE'RE CLEARLY IN A LONG-TERM BULL MARKET IN COMMODITIES AND COLLECTIBLES. That's why it is incumbent on long-term investors to stay the course and buy every opportunity that presents itself".

"The Fed is clearly backed up against the wall. If they raise rates to shore up the dollar, the stock market and housing will take a hit. If they lower or keep rates at current levels, inflation will continue to show up", says Craig R. Smith, CEO of Swiss America.

This writer's best guess and advice: Hold on tight to core precious metal and investment-grade coin positions and aggressively buy the dips, thus cost-dollar averaging for greater long-term growth. Commodities and high quality collectible investments are on track to outperform paper investments like stocks, bonds and CDs again in 2006, just like they have every year since 2001!

"Since I last wrote about U.S. Gold Commemoratives in May 2004, we've seen an average of a 30% price increase in grades MS64, MS65 and MS66, with several dates increasing 45% to over 50%! I expect this series to continue performing for several years to come" says Tom Rodriguez, Sr. Broker at Swiss America.

The United States Mint has released its first ever 24-karat (.9999 fine) gold coins in June, The American Buffalo struck at the U.S. Mint at West Point. In addition to the bullion coin version, Mint-State 69 and high-relief, mirror-finish versions, known as a proof, will also be minted for collectors.

Robert Kiyosaki, best known for his "Rich Dad" series of books, has been investing in gold since 1972 and said he thinks it is still a good investment. "I still think gold will go to $1,500 an ounce. I'm betting against the U.S. dollar. Gold is a hedge against U.S. government mismanagement," said Kiyosaki, adding that his family members have a tradition of saving all their spare change for months on end and then trading all the coins in for a single gold coin.

7-28-06 -- By David Bradshaw, IFN -- A new documentary, "AMERICA: FROM FREEDOM TO FASCISM" from director Aaron Russo (The Rose, Trading Places) that tracks the increasing government surveillance of American citizens through the use of new technologies was released in 5 U.S. cities today. Here's excerpts of ten published movie reviews (pro and con). If you decide to see the film, please send us your review...

... Tangible commodities and high quality collectible investments again outperformed stocks, bonds and T-Bills in the first half of 2006, just as they have every year since 2001. Energy, precious metals and housing were the big financial success stories in 2005, rising between 18-36% -- often driven by speculators seeking short-term profits. Here�s how the numbers stack up so far in 2006 for some of the major tangible and intangible investment sectors...

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Inflation, Deflation, or Bust!
6-30-06 -- By Bill Bonner, Daily Reckoning -- Concerning the US economy, and by implication the entire world, there are two major currents of thought. There are, on the one hand, those who believe in the perfection of man and those who don't. The first group thinks the science of central banking has made amazing strides. In the 1980s, the Volcker Fed learned that it could tame inflation. Then, 20 years later, the Greenspan Fed found that it could avoid deflation too. "Liquidity" is an economist's word for more cash and credit. "Inflation" is the word used to describe what happens to a currency when too much liquidity is made available...

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Golden Opportunites
6-23-06 -- By Mary Anne & Pamela Aden (adenforecast.com)..."This [bull market in gold] is a major, mega-trend and it's going to take time, so don't get discouraged or impatient. As long as this major bull market stays in force, plan to stay on board and we think you'll be glad you did. Basically, there are six major factors driving this bull market: 1. too much spending, 2. too much money is being produced, 3. inflation, 4. the weak U.S. dollar, 5. international tensions and 6. China's growth and ongoing demand for commodities, which is coinciding with a new upmove in the 200-year commodity cycle." ...

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Metals Pullback, Relax!
6-14-06 -- End the the bull market in gold... or just a bumpy bull ride? -- By Craig R. Smith, CEO Swiss America -- Gold prices have corrected 29%, as of today, since peaking at $725/oz. on May 9th -- but remains up 9% ytd! While many pundits see today's dramatic fall in precious metal prices as a healthy and normal strong bull market correction, others are calling it the end of the bull market. Which is it? ... I'm glad to see 'hot money' leave the metals...

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NOTHING HAS CHANGED...
6-13-06 -- Yet some "gurus" say the gold bull market is over?! -- By Pat Mershon, Sr. Bullion Trader, SAPS -- Why did gold prices fall over 7% in one day? My guess is some very large precious metal producers have resumed hedging. This either sets up a great buying opportunity, or a state of massive confusion...

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"In Coins We Trust"
5-26-06 -- By David Bradshaw, IFN -- Tangible commodities and high quality collectible investments are on track to outperform intangible investments like stocks, bonds and CDs again in 2006, just like they have every year since 2001! Gold and silver coins offer the missing link in all paper currencies: a "benchmark" store of value. The U.S. dollar is slowly but steadily sliding into oblivion , taking with it the hopes and dreams of all Americans -- along with the value of their savings account or investments. It is no longer a benchmark of anything, except the public's faith in government (which is evaporating daily)!

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ABOUT THE EDITOR

David M. Bradshaw is Editor of REAL MONEY PERSPECTIVES, a new, syndicated daily financial/market news digest. In 2001, he published REDISCOVERING GOLD IN THE 21ST CENTURY: The Complete Guide to the Next Gold Rush and has been an economic commentator since 1987, when he produced the World Economic Perspectives radio show. In 2005, he released a new CD, "WHAT'S YOUR WORLDVIEW?" a one-hour CD sample from his 24-hour series, "THE BIG PICTURE: The Shape of Things to Come" discussing geopolitical, economic and spiritual trends in the 21st Century. Read my 2006 book review of, "The Meaning of Life" ... MORE at MIF... PERSONAL NOTE: Youngest daughter Braida Zoe (age 2) swims, trampolines, loves to learn, speaks in sentences, and is shown with her mom, Micki, and dad... me.

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DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of Swiss America. Past performance of any investment is no guarantee of future performance. All investments have risk.