Iraq & Gold!

by David N. Vaughn, Mar 14/03

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What has happened to the price of gold?

This market now moves solely on investor psychology, on rampant emotions that can flip almost instantly, rather than fundamental considerations. ... In my opinion, the market was shouting that the "war premium" in the gold price is probably higher than most analysts reckoned.

These are dangerous times in the gold market, as emotional irrationality reigns supreme in establishing price levels. Leonard Kaplan, Prospector Asset Management, lkaplan@prospectorasset.com

In the past few days I have received a ton of email from investors crying about the volatility of the gold price & gold stocks. What is that old saying? If you can't take the heat get out of the kitchen! Personally, I believe a lot of folks who have been in this market need to get out. The long term fundamentals are great for gold but there is going to be extreme volatility with or without a war in Iraq. Let's listen to more of what Leonard has to say. I like ole' Leonard because he tells it like it is! Editor

...but, in truth, the future price of gold depends strictly upon the upcoming headlines and the news. At the end of the day, I would rather trade fundamentals than trade emotion or investor psychology, as it is a whole lot less risky. ... HOPE is a very dangerous thing. Traders, investors, and speculators must concentrate on the hard numbers and not the hype, or Hope. It seems that the important participants in this market, the commercial/industrial users along with the professional traders, are mostly"on hold". ... Again, all depends on the news. But, even if the upcoming news events are very positive for the world, I do not see gold collapsing in price. Gold remains in a long-term secular bull market and, should we see a dip in price, it should be bought. All that we can argue about is what the bottom could be, and I see it somewhere between $325 and $335, even in the worst case.

Tell it like it is, Leonard!!! Let's listen to part of that last statement once again!!!

Gold remains in a long-term secular bull market and, should we see a dip in price, it should be bought.

Leonard, what are you saying my friend? Are you sending a message to all the crying babies out there now that they should be BUYING & not crying? And let's listen to someone else who is correctly defining investor sentiment during these challenging times.

Who wants to make a major investment now? Who wants to put his money on the line...or make a major business commitment? "I think I'll wait until after the war is over..." is the standard postponement. The Daily Reckoning, 3-12-2003

It always amazes me how investor sentiment works. The majority of investors always buy on momentum when the price is rising & only the braver minority buy when prices are low. Is it any wonder the wealthy & well to do are in the minority? But let's forget the war momentarily, though that is very hard to do, & let's look at the economic realities descending down upon the financial world today.

World markets fall

World markets have tumbled on Wednesday, with European markets crashing to multi-year lows while stocks on Wall Street were also trading lower.

And Germany is now in the grips of a market downturn worse than it suffered in the Great Depression, calculations at investment bank Merrill Lynch have revealed.

"There's one word for it - carnage. It's horrible," said Richard Wright, at brokerage GNI in London.

Nobody has any confidence. Nobody wants to buy anything.

The point I am trying to get across is that there is still financial carnage out there in the world. If you are thinking of buying into gold or gold equities do not do so based on the temporary Iraq situation & how you may perceive its final outcome. Read the following excerpts on the present state of finances in Japan.

Another crisis nears in Japan Commentary: Banking system catastrophe looms

By Paul Erdman, CBS.MarketWatch.com, Last Update: 1:29 PM ET March 13, 2003

SAN FRANCISCO (CBS.MW) -- Given the current state of uncertainty that has engulfed the world's financial markets, all we need is yet another crisis.

But one is definitely brewing in Japan.

Sooner or later that nation is going to be hit by a financial crisis of major proportions. Given the facts that Japan's economy is the world's second largest, that Japan is the largest exporter of capital on earth, that the Bank of Japan owns hundreds of billions of U.S. Treasury bonds and notes, a financial crisis there could send new shock waves around the world.

The entire banking system there is tottering on the edge of catastrophe. The situation is so acute that it requires management on a day-to-day basis.

On Wednesday, the Nihon Keizai Shimbun, that country's equivalent of our Wall Street Journal and hardly a publication that has alarmist tendencies, reported: "The Bank of Japan supplied a large amount of funds to the money market today, as it did yesterday, to avoid a systemic financial crisis."

That same day it also reported that an executive of a major bank received a phone call from a close aide to Prime Minister Junichiro Koizume on Sunday who asked: "What emergency steps can the government take to avert a meltdown of the financial system should the stock market crash after the war on Iraq starts?" Paul Erdman, CBS.MarketWatch.com

Japan is the world's 2nd largest economy yet it is right on the edge of an economic catastrophe. As I have written in previous articles these are NOT normal times we are living in. Our world is resting on a pivotal edge from which a fall will occur. If the extreme volatility of the gold market is too much for your nerves to take then get out & put your money in a low yield money fund. No one ever promised that gold's rise would come smoothly & without significant temporary price corrections.

* * * * * *

I get so tired of people who have invested substantial sums of money in the gold market, but they are too cheap to spend a few lousy bucks investing in a financial investment publication. And you know who I am referring to. Yes, you. You invest thousands of dollars in a market sector, but rely on free financial advice you find at no cost over the Internet. Remember the old saying, "You get what you pay for."

A hint. A fellow called Bill Murphy has a great publication! It's called LeMetropole!

NEVER GIVE UP YOUR DREAMS

David N. Vaughn Gold Letter, Inc.
David4054@charter.net

Exercise your freedom to express your personal opinion by emailing this writer your feedback & observations.

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