1. DOLLAR DECLINE:

Gold is bought and sold in U.S. dollars, so any decline in the value of the dollar causes the price of gold to rise. The U.S. dollar is the world’s reserve currency the primary medium for international transactions, the currency in which the worth of commodities and equities are calculated, and the currency primarily held as reserves by the world’s central banks. The U.S. Dollar has lost over 96% of its purchasing power since the inception of The Federal Reserve in 1913. Ironically, 1913 was the first year of income tax. The dollar is losing its status as the world’s reserve currency sooner than anticipated. China has signed currency swap agreements with an array of nations – including: Argentina, Brazil, Russia, South Korea, Indonesia, Malaysia, Taiwan, Belarus, Hong Kong and others that are only too willing to move away from the U.S. dollar.

2. INFLATION:

Gold is renowned as a hedge against inflation. When inflation goes up, the price of gold goes up along with it. Since the end of World War II, the five years in which U.S. inflation was at its highest were 1946, 1974, 1975, 1979, and 1980. During those five years, the average real return on stocks, as measured by the Dow, was -12%; the average real return on gold was 130%. Gold is considered a store of value and always maintains its purchasing power.

3. PORTFOLIO DIVERSIFICATION:

Portfolio diversification is finding investments that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments.

4. SUPPLY AND DEMAND:

Demand is outpacing supply across the board. Since the beginning of the decade, total investment demand has soared from only 4% of overall gold demand in 2000 to a record 45% in 2009. Despite gold prices surging from a low of $252 per ounce in 1999 to over $1,400 recently, mine production has been eroding for nearly a decade. In 2009 China became the world’s second largest consumer of Gold and Central Banks around the world became net buyers not sellers of Gold. Chinese demand is expected to double in the next few years and with only an estimated 45,000 tonnes left in the earth, expect major supply problems. China will deplete their in ground supply within five years and will even be a bigger player in the market.

5. MARKET MANIPULATION:

Everyday more members of the financial markets realize that western governments, central banks and their bullion bank surrogates continue to control the price of Gold. The work of The Gold Anti-Trust Action Committee (GATA) which have been incredibly accurate the last ten years is finally being recognized after years of ridicule. Remember Bill Murphy of GATA exposed JP Morgan and HSBC and their large concentrated short positions in the Silver market. The extent of the suppression is so great that it virtually guarantees a far greater upward movement in the Gold price.

6. OUTLOOK:

The fundamentals for Gold are impeccable, the long term technical picture is exceptional and Gold remains very inexpensive compared to every other alternative. Gold closed out an unprecedented tenth annual gain and up almost 30% in 2010. Central Banks continue to dilute the money supply and Gold always acts inversely to this. The Federal Reserve has “shown their cards”. They will continue to debase The U.S. Dollar through “quantitative easing” trying to stimulate the U.S. economy. Continuing erosion of fiat currencies will drive gold steadily higher and If the United States and other fiat nations are forced back on a Gold Standard which may be required to finance the burgeoning global debt, we expect Gold to trade at several multiples of the current prices.

Gold is Money, Everything Else is Credit.
John “Jack” Pierpoint (JP) Morgan 1912