By: John Mackenzie | Wed, May 25, 2005
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Convention is dead, the sooner the Gold community awakens to this the better.

I received this darling 'senticator' early this morning from a New York Gold show attendee and subscriber:

"spoke to the 'experts' the party line ranged from:

'take your time buying put your bids in 20% lower'


'the party is about to end & we were about to fall of a cliff and soon.'

James Dines told the crowd to wait and see what happens before buying because the metal complex is breaking down.

The only one with stones was Doug Casey who said to buy and get in position for the 'mania' stage.

Interestingly, the last 2 Casey buy alerts did not cause any action in the stocks recommended. Just a few months ago those buy alerts would cause 20-100% price moves and 5-10 the normal volume."

Presently we are fully invested and see a period of congestion around 186 on the HUI.

A few more solid weeks of chopping around and then a healthy break away beginning to the third wave of this speculative frenzy in GOLD & Gold Shares.

We believe the 50% retracement ($552) of the entire bear market will be achieved over the next 6 to 12 months and then some.

Extended Price objectives for GOLD are as follows:




Extended Price objectives for the HUI are as follows:




These are minimum targets for both GOLD and the HUI over the coming 15 months, thereafter targets are significantly higher.

At present, we are LONG & STRONG and believe those waiting for decidedly lower prices are going to be left behind. The 120 - 150 for the HUI appears to be in the offing for the patient, but is it? We believe it is NOT.

'Price stability' is the Federal Reserve's latent cover; they well know supply/demand constraints for crude oil will drive the price of crude oil much higher. It has very little to do with the supply of money. Crude Oil is the one thing the Fed can barely contain; the thorn in their side and the very root of economic instability.

Crude Oil is price inelastic. This relationship basically infers that a reduction in price usually leads to an increase in the quantity for demand; this additional expense reduces spending in other areas.

In others, the cheaper crude oil becomes, the greater the demand. This is precisely why I suggested the Federal Reserve was using crude oil as a monetary tool. The strategy has been containment or 'intervention' within forward supply contracts to contain its price. As well, you can rest assured the large increase in Strategic Petroleum Reserves (SPR) under the present administration from 550 million barrels to 1.4 billion barrels affords a far higher degree of price control when needed. Demand is presently ~17.2 million barrels per day and not the ~22 million barrels per day quoted.

The SPR is being used to manage price when volatility increases.

High crude oil prices are here for good and this is bad news for the economy, the broad markets and consumers.

We are entering an era of perpetual price inflation for crude oil.

Which means we have begun the era of perpetual PRICE INFLATION.

Rapid economic growth in China, India and the Far East is why Global oil consumption has caught up with crude oil output. Fuel prices are going to remain high and not plateau for any length of time until it makes economic sense to begin developing new fields. This means far higher crude oil prices in our futures.

The price of diesel has recently surpassed unleaded gasoline in many regions of the world. China is an enormous consumer of diesel fuels for electricity generators, causing many regional shortages to develop. A high oil price brings with it many problems. It has a dampening effect on economic growth and affects consumer sentiment and spending.

High oil price erode confidence as additional money must be spent to achieve what many perceive to be a birthright in the United States. Higher fuel prices increase the transport costs of manufactured items, and can erode retail profit margins.

Higher prices are passed on to consumers as the cost push of higher prices cascades throughout the economy. There is very little economic activity that occurs outside of a dependence upon crude oil.

As it was in the 1970's during oil shock 1, price will be the rationing mechanism.

There are no real viable short term alternatives to cheap and plentiful, near surface crude oil. The Cheney Energy Advisory 'Task Force' has a plethora of brilliant ideas. For instance, the believe phasing out the $2,000 tax credit for hybrid vehicles, but keeping the $25,000 tax write off for Hummer or any other large gas guzzling SUV. This is policy, not strategy. It clearly favors the administrations ties to domestic 'Big Oil' conglomerates.

President Bush's message track speaks to environmentally responsible exploration and diversifying our energy supply by developing alternative sources of energy. 70 percent of Americans support a dramatic increase in government spending on renewable energy sources, yet the administration merely pays lip service to the idea while cutting alternative energy programs and subsidizing oil companies.

Policy may be designed to starve us all as it is difficult to fathom any basis for intelligent strategy from Vice President Dick Cheney's secret energy task force.

While Exxon Mobil reports the highest quarterly profit ever @ $8.42 billion and declining discoveries; many firms are reporting disappearing reserves. Royal Dutch Shell has admitted it overstated reserves by 20 percent in 2004.

We are now positioning to invade Iran and secure the bulk of the globes oil reserves within a small corner of the globe as our 'American way of life is non-negotiable' according to task master VP Dick Cheney. Welcome to the new world odor whereby the means justify the ends.

If only Americans understood how damaging the present policy is to our very futures. This remains as sad as it is pathetic. Interest rates are going to normalize, meaning they are heading far higher. Protect yourselves as the Federal Reserve is not about to stop printing worthless confetti, they're going to expand it wholesale and continue to hike rates for appearances to maintain flows. A piss poor policy designed to ruin us all, the strategy is up to you, no one else is looking out for you and yours.

Get GOLD, it is only going to go higher the rest of our natural lives.


Author: John Mackenzie

John Mackenzie

John Mackenzie manages private capital.

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