INTRODUCTION A decade ago investor angst was focused on "the Y2K problem" when the very machines we created

d to make life easier were going to throw us into a new Dark Age. Of course, we moved into the century and those fears fizzled faster than Windows Vista. A little more than a decade later, investors are starting to fear something else, something just as ominous but this time, far more likely: the prospect of runaway inflation. It has been a decade in which excess money and speculation created an economic collapse unlike any seen since the Great Depression. That solution to this problem has been you guessed iteven more money. The truth of the matter is that creating excess money today is much easier than printing paper notes. It can be done with the touch of a keystroke. Rather than print money, the Federal Reserve buys assets - usually government bonds, mortgagebacked securities - from banks or on the open market. There are thus more dollars sloshing around in the economy. So where does the money to buy these assets come from in the first place? According to John Stepek, the editor of Moneyweek, that's where you get the aspect of printing money: The central bank just creates it out of nowhere. The Call of Easy Money "At sea once more we had to pass the Sirens, whose sweet singing lures sailors to their doom. I had stopped up the ears of my crew with wax, and I alone listened while lashed to the mast, powerless to steer toward shipwreck, wrote Homer. Legends are appealing in part because they reflect our inner longings. Few legends have persisted as long as the Odyssey.

In the Odyssey, our hero Ulysses sails home after a long and brutal war against the Trojans. Along the way he faces overwhelming obstacles. One hurdle is to sail his ship past an island of magical mermaids, the sirens, and their false promise of paradise. The "sweet singing" of these sirens would lure mariners closer and closer to the island and its deadly rocks. But Ulysses got lucky. The goddess Circe warned him about the sirens. She told him that he must not listen to their seductive song. Ulysses ordered his men to plug their ears with wax so that they could resist the sirens' singing and continue on their voyage. A Sweet Song of a Different Kind But today it's not so easy for central bankers and politicians to resist the siren song of reflation and its seductive - yet ultimately destructive - power. If only we investors could stuff wax in our ears and continue on our way! But that's not how it works; the siren song of reflation lures entire nations onto the rocky shoals of monetary destruction. As those with the power of the printing press see it, if wealth is not generated by the economy, it can always be printed. At first, conditions usually improve. But as more and more money is created, the closer a country draws towards calamity. Lyndon Johnson's Great Society is a good example. It promised to wipe out poverty; never mind that the United States had an expensive war going on in Southeast Asia. On the table was a reverse income tax. Policies where every person could enjoy a thriving lifestyle - basically sharing in the fruit of wealth whether or not he or she helped earn it. The Keynesians in Washington believed that by increasing money they could actually generate wealth. They were relentless in their pursuit of full employment and rising payrolls. And it worked. All that new money delivered a robust economy, full employment, a rising stock market and a big jump in the standard of living. Johnson must have scoffed at Kennedy's Camelot. He would deliver Utopia! But while America was smug about its monetary situation, foreigners began to worry. After all, the dollar is the world's reserve currency. And as more dollars were created, the value of each dollar began to fall. In the 1970s Europe began redeeming U.S. dollars for gold. That forced America off the gold exchange once and for all. That frustrated OPEC because its crude oil reserves were being sold off for devalued dollars. The net result is that what had been a largely symbolic cartel became a powerful organization which would inflict not one, but two oil crisis. Domestic pressures were also building in the 1970s. Prices spiralled at the gas pump and at the grocery store. Commodity prices were soaring and unions were demanding higher wages. Meanwhile, stock and bond prices fell.

The Non-Solution After this decade-long malaise, along came President Reagan and a central banker named Paul Volcker. They were determined to arrest the cycle. And their tough monetary policy did. But in recent years Washington is quick to pull out the monetary pump whenever times get tough. Today, the feds are increasing the amount of dollars like there is no tomorrow. And at this rate, there might not be. Of course, Wall Street steadfastly argues that inflation is under control. It backs up its argument by parading the government's measure of inflation. Yet the truth is quite different today. Over the past three decades the dollar's purchasing power has steadily declined. And the signs suggest this trend is accelerating. An Old Problem, a Tried & True Solution Regardless of the method, inflation has been around as long as there have been societies. It is a built-in desire to have something for nothing. It is also a manifestation of our natural inclination to rationalize, or to convert a wish into a belief. In fact the tendency to inflate the money supply is rooted in our nature, similar to greed, fear and lust. Monetary stability, once established, will always be adulterated by opportunistic politicians. In fact, inflation has been around as long as there has been money. More money, of course, does not mean greater wealth. Inflation is an economic Band-Aid. It is applied by governments that dont have the courage to accept remedies that would cause a recession, or in extreme cases, a depression. Instead, governments almost always opt to prop up a soft economy by creating ever greater amounts of money. Since the time lag is considerable between the commencement of inflation and economic collapse, the politicians in power are not inclined to worry about the future. Their main aim is generally a pleasant present and re-election. When John Maynard Keynes, an advocate of deficit spending, was reminded that someday we would have to pay the enormous debt, his reply was, Someday we will all be dead. Well, those of you reading this report arent dead, and like the rest of the living you face some tough choices. For example, where is the best place to store and invest your wealth? The aim of this Special Report is to answer that question, and to explain how there is still plenty of life left in an ancient investment known as the Midas metal. In the conclusion of the Special Report, you'll find a comprehensive Gold Price Forecast including opinions from the top banks, analysts and investing minds in the world. First, let's take a glimpse into the rich history of goldand its legendary potential to amass fortunes.

CHAPTER 1 HISTORY OF MONEY & GOLD The history of money is one of unceasing conflict between the interests of debtors, who seek to enlarge the quantity of moneyand the interests of creditors, who seek to maintain or increase the value of money by limiting its supply. Glyn Davies, A History of Money: From Ancient Times to the Present Day Inflation is an expression of the universal desire to have something for nothing and of the power of politicians to fulfill that desire simply by printing money. It is also a manifestation of our natural inclination to rationalize, or to convert a wish into a belief. Thus, the tendency to inflate the money supply is rooted in our nature, similar to greed, fear and lust. Monetary stability, once established, will always be adulterated by opportunistic politicians. In fact inflation has been around as long as there has been money. More money, however, does not equal greater wealth. Inflation is an economic Band-Aid. It is applied by governments that dont have the courage to accept remedies that would cause a recession, or in extreme cases, depression. Instead governments almost always opt to prop up a soft economy by creating ever greater amounts of money. Since the time lag is considerable between the commencement of inflation and economic collapse, the politicians in power are not inclined to worry about the future. Their main aim is generally a pleasant present and re-election, regardless of the impact to upcoming generations. Deferring the bad effects into the future is just too easy an out for them not to take it. Destroyer of Towers Money was used by the Babylonians at least 3,000 years ago. With the implementation of hard money and budding trade and commerce, Babylonia became the center of world power and wealth; a city of gold. It is interesting that while Babylon attained prominence with a stable currency, it attained grandeur after it began to debase its money. But eventually inflation brought down its tower. King Nebuchadnezzar devised a scheme where he leveraged the kingdoms gold to create much greater wealth. He issued receipts (IOUs) and loaned out at interest the great wealth from Babylons treasury. The monetary stimulation doubled and then tripled the empires wealth, producing the worlds first economic boom. But as the debt swelled, so did the claims on Babylons wealth. Foreign claims from imports rose as well as domestic claims, exceeding the treasurys gold. Still the IOUs circulated. After a time, the swollen volume of debt caused people to demand more currency for their goods and labor. Inflation was in full swing. Even as it took more money to buy the same goods, Babylonians remained undaunted. The treasury had lots of silver, and adroitly King Merodach-baladan extracted himself from the situation by declaring the value of silver equal to gold.

For a period, Babylon advanced on a currency of silver equivalent to gold. But an uneasy feeling that this situation was not quite right caused people to demand silver faster than they had demanded gold. Soon there was no silver. The next step was to declare that copper had a value equal to silver. This didnt work very long because copper was clearly in far greater supply than silver. Money began losing its value, and confidence began to fall. Babylons wealth had been the foundation for its society. The economic crisis led to a civil war. The empire drowned beneath a tidal wave of debt. Five hundred years later, the city-states of Greece were issuing metallic coins, the silver obol. The first historical record of monetary inflation soon followed. After Sparta captured the Athenian silver mines around 400 B.C., Athens was faced with a grave shortage of coins. Over the next couple of decades, Athens issued bronze coins with a thin plating of silver. The shortage was made even worse as citizens hoarded the old coins and spent the new. It was the worlds first experience of what has become known as Greshams Law: Bad money drives out good money. Imperial Overstretch It was the emperors of Rome who used hard money to build the greatest political and military dynasty the world had ever seen. Romes wealth rose to glorious heights through bloody conquest and little real commerce. In his book, The History of Money, Jack Weatherford explains: Romes fame and glory came from the military and from conquest, and their riches, too, derived much more from the achievements of the army than from those of the merchants. As long as Romes legions conquered new lands, the empire thrived. But each new occupation required ever greater resources. Around 130 B.C., Rome conquered the kingdom of Pergamum. In a few years, Romes spending doubled from 25 million denarri (a Roman silver coin) to 50 million. By 63 B.C., the budget grew to 75 million denarri, and spending was beginning to spin out. Vast strategic ambitions and pork-barrel spending were beginning to sap the economic vitality from the Empire. By the time of Augustus, with Rome at its apex, spending rose to an astonishing 250 million denarri or 10 times what it had been 60 years earlier. But even Rome could not surmount the Law of Diminishing Returns. By the time the Empire reached the British Isles, the cost of its army vastly exceeded the booty it was repatriating. Yet spending continued to climb even as revenues declined. A string of emperors found a short-term solution. Since the majority of emperors were murdered after only a few years, the new emperors, one after another, collected coins in circulation and re-minted them with new money with less silver in it. During his reign, Nero reduced the silver content in the denarri by 90 percent! Two hundred years later, there was no longer any silver in the coin at all. Rome almost spent its entire reserves to prop

up the government. Confidence in the money began to disintegrate. The Roman Empire imploded, crushed beneath its weighty ambitions and a mountain of debt. In The Outline of History, H.G. Wells wrote: Money was young in the human experience and wild. It fluctuated greatly. It was now abundant and now scarce. Men made sly and crude schemes to corner it, to hoard it, to send up prices by releasing hoarded metals. Wells wrote this in 1920, at a time when the world was enjoying remarkable monetary stability. The Gold Standard was proving to be an outstanding regulator of monetary expansion and inflation. Since money was backed by gold, money could only grow at a rate equalling new gold reserves. Typically this was less than 1 percent a year (although there were some booms in gold production that greatly exceeded this number). Gold was an instrument that took away the Great Powers ability to devalue their currencies for political expediency. As the 20th century progressed, big governments bold ambitions decided that the Gold Standard was unacceptable. CHAPTER 2 The Dollar of the Damned Neither a State nor a bank ever has had the unrestricted power of issuing paper money, without abusing that power.... ...Through the Victorian era; the Gold Standard imposed the needed discipline on politicians. David Ricardo, a 19th century economist who lived during a period where purchasing power was stable. Between 1880 and 1910 a 3-decade span the U.S. dollar lost just 4 percent of its purchasing power. Compare that to what has happened over the past 60 years. From 1950 to 2012, the greenback lost more than 90 percent of its purchasing power. In other words, what you could buy for $1.00 in 1950 costs almost $9.50 today. In Gold We Trust For the average American, the Gold Standard disappeared in 1934. That was when an ordinary citizen could no longer walk into a bank and exchange his U.S. greenbacks for gold bullion. Up until then, the amount of money that could be created was determined by the rate at which aboveground gold supplies grew. Typically this rate ran around one percent a year, far too little for the ambitious plans of President Franklin Delano Roosevelt, who was bent on spending the country out of a depression. On March 9, 1933, almost 20 years after the Federal Reserve was created, President Roosevelt invoked Executive Order 6102, making it unlawful for Americans to hold gold coins, gold bullion or gold certificates. In January, 1934 the day after Congress passed the Act FDR demonstrated that the one who owns the gold really does make the rules. In one fell swoop, the president devalued the dollar from $20.67 to $35.00 per one troy ounce of gold or 40.94 percent. The Treasury then owned all of the nations gold and saw the value of their bullion holdings increased by $2.81 billion in a single day.

Another Gold Standard of sorts was adopted at Bretton Woods in July 1944. The price remained at $35 per ounce. Thus the dollar was made the worlds first world reserve currency. And while Americans had lost their right to redeem their dollars for bullion, the international community had not. For the next 20 years, the dollar was really good as gold, and the U.S. governments gold horde actually grew, as nations were more than content to trade their gold away for dollars. In the mid-1960s, America was at its apex, making up a greater percent of the worlds GDP than it ever had or ever would. The nations stock markets were also approaching the end of a 20-year bull market. Few realized it, but America was soon sliding towards relative decline, just the latest superpower to be hamstrung by growing inflation. Americas Love of Guns & Butter Economics 101 teaches us that governments could either choose an economy of guns or butter. Apparently this was a lesson never taught to President Lyndon Johnson. He wanted both, using the guns to fight a war against Communism in Vietnam while spreading money like butter across the domestic front to win his self-proclaimed battle against poverty.

To be fair, the dollar was already coming under stress even before Johnson was in the White House. By the beginning of the 1960s, the $35-to-1 ounce gold ratio was becoming difficult to sustain.

Gold demand rose, creating a drawdown on Americas gold reserves. The root of it all was a growing trade deficit that the U.S. owed to the rest of the world.

As they moved into Washington in 1961, the Kennedy administration knew Americas Gold Standard was in trouble. In January 1961, Undersecretary of the Treasury Robert Rossa suggested that the U.S. and Europe pool their gold to prevent a private marketplace for gold where the price would exceed the mandated price of $35 per ounce.

The Central Banks of the U.S., Britain, West Germany, France, Switzerland, Italy, Belgium and the Netherlands acted on Rossas suggestion, setting up the London Gold Pool in early 1961.

The gold pool didnt last the decade. French President Charles de Gaulle reneged on the deal and began to redeem dollars for gold instead of U.S. Treasury IOUs. The drain on U.S. gold became severe.

The London Gold Pool ceased operations in April 1968. But the demand for U.S. gold was just warming up.

The 1960s marked a gigantic increase in federal spending. President Johnsons two-front war was being fought at a prohibitive cost. In 1968, for the first time since 1893, the United States ran a deficit in its balance of trade. In 1960 federal government spending totalled just over 20 percent of Americas Gross National Product (GNP).

By 1970, after the Vietnam build-up and President Johnsons attempt to create his Great Society, federal spending totalled almost 40 percent of Americas GDP. Federal debt, which had totalled less than $300 billion in 1960, broke past $600 billion in 1975. That meant that in just 15 years from 1960 to 1975 the United States government had accumulated as much debt as the Republic had taken on during the previous 184 years.

By the end of the 1960s, the U.S. faced the stark choice of eliminating their trade deficits or revaluing the dollar downwards against gold to reflect the actual situation. President Nixon decided to do neither.

Instead, he repudiated the international obligation of the U.S. to redeem its dollar in gold, just as President Roosevelt has repudiated the domestic obligation in 1933.

On August 15, 1971, President Nixon cut the final link between gold and the dollar. Other nations could no longer redeem rapidly depreciating greenbacks for bullion. The result was inevitable.

In February 1973, the worlds currencies floated. By the end of 1974, gold had soared from $35 to $195 per ounce.

The dollar was still the strongest of the currency in the world in 1971. And its issuer could suddenly pump dollars with constraint. It was a period when red flags were being raised for paper investors, few of whom paid any notice. The majority would pay a steep price for their ignorance. Over the next decade, they suffered through the worst bear market in stocks since the Great Depression and the worst bond market of the 20th century.

CHAPTER 3 A Rerun of "That Seventies Show"

In 1966, one year after the U.S. government eliminated silver from quarters and dimes, the price of silver was $1.30 per ounce, the same price that silver had traded at in 1919.

The stability in the price of silver to a large part reflected the sustained purchasing power to the greenback throughout the first two-thirds of the 20th century. But inflation would change everything.

Between 1970 and 1981, M2 money supply tripled! A record amount of liquidity was being injected into the economy each year. But all this money wasnt helping an economy that was just limping along.

From the beginning of 1971 to the end of 1979, GDP rose by just one-third from $3.9 trillion to $5.2 trillion (in constant 1996 dollars).

As the amount of money in the economy vastly exceeded the goods and services being produced, inflation was inevitable. Consumer prices during the decade rose by a staggering 6.5 percent per year. By 1980, that 1970 dollar you had tucked away in your mattress would buy you just 52 cents worth of goods and services. Inflation Is a Stock & Bond Killer

Dollar stability and the post-war economic boom fueled a bull market in stocks. In January 1950, the Dow Jones Industrial Average was under 200. In January 1966, it breached 1000 for the first time. Over the next few years, the price of silver began to stir while the Dow moved sideways, twice testing, but never again breaking above the magic 1000 point level.

When Nixon cut the final tether to the Gold Standard in August 1971, the Dow stood at 900. Through the next decade, the Dow was a victim to two bear markets. In April 1980, the Dow was trading at 759.

That might not seem too bad compared to its 1966 apex, but factor in inflation and the 1980 Dow, measured in 1966 terms, was really trading at $329. In real terms the Dow had lost two-thirds of its value over a 14-year span. Clearly, Big Board stocks offered no protection from inflation.

Bond investors were in almost as big a fix. In the late 70s, prices on 30-year Treasury bonds fell more than 25 percent as the yields-to-maturity on the bellwether 30-year Treasury bond climbed from a rate of 7.75 percent in 1977 to 14.7 percent in 1981.

During that same period, hard assets were undergoing an incredible bull market. As confidence in the dollar weakened so did the U.S. economy. This convinced Fed chief Arthur Burns to pump even more money into the economy. The cycle ran round and round until the annual rate was running at double-digit rates. People began switching dollars as quickly as they could, gobbling up real assets. No real asset appreciated more than precious metals.

Inflation had certainly grabbed the United States and would not let go. In 1966, the Consumer Price Index rose by 1.9 percent. In 1970, it rose by 5.7 percent and 1979; it reached a startling 13.3 percent. At the 1979 rate, prices would double and the dollars value would be halved every 51/2 years.

While most Americans were losing their shirt in the stock and bond markets, a select few were becoming incredibly rich. Their secret was to invest in physical gold and, better yet, gold stocks.

CHAPTER 4 Americas Monster Debt Problem

Thirty years ago, federal debt totaled less than $1 trillion. It is now more than $16 trillion. That is more than double what it was in 2002 and more than four times more than it was in 1990. Meanwhile new budget projections show that the coming decade will put federal debt around $26 trillion!

That is an incredible number; a figure most any reasonable person would admit cant be paid at least not paid in kind. By that I mean, not paid back in equal value. The Monetization of Dollars

The truth of the matter is that the federal government can do two things with its $16 to $26 trillion debt. It can either default on it or it can monetize it.

Defaulting on debt is a painful process even for small nations. And those nations have institutions like the IMF (to a large extent fronted by the United States), to help them recover. If the U.S. defaulted not only would it not have other nations to help it recover, it would throw them into a depression one probably even worse than the Great Depression which at least had a gold-backed dollar to fall back on. So the U.S. defaulting on its debt is pretty much out of the question. That leaves monetization.

Monetization is simply paying off old debt with newly printed dollars. At some point later a nation pays of its debts with fresh money. But here's the rub: If the government has been borrowing money that is not backed by anything other than the good graces of the Fed, then it is free to pay back depreciated dollars. And the more money the government borrows, the greater the likelihood of cheap dollars coming back to the lender.

This isnt something the United States just started doing. Its been going on since the 1960s. Consider the investor that bought a $100,000 30-year Treasury bond in 1979. When that Treasury bond matured, it had the purchasing power of $29,500! Thats right, the hundred grand you lent during the dying days of disco would buy you less than one-third of the goods and services you could have bought then. The comforting thing for those bond holders is that they were earning more than 12 percent per year compounded more than enough to make up for the devaluation.

You see, back then investors insisted on getting a return that would compensate their risk. Meanwhile, in 1979 Fed Chairman Volcker decided the U.S. could not continue to pay such exorbitant rates so the Fed squeezed the excesses out of the economy. Today, as we have seen, nobody is squeezing anything. And if you want to buy a 30-year T-bond today you get a less than 3 percent return.

Now the only reason that Washington can get away with selling such risk for such a miserly return is two-fold:

1. Nations like China, India, Japan and Germany dont have another currency to put their surpluses into.

2. The deflation fears from 2008 still linger, so rather than put money into real estate or real assets, trillions of dollars are being invested in U.S. Treasuries.

But disgruntlement among lenders is growing quickly namely China. And that is very bad news indeed, because to a large degree China and other nations have been supporting Americas 20-year old Ponzi debt scheme.

Twenty five years ago, the federal deficit and U.S. Treasury debt stood at about 10 percent of where they stand now. More importantly, and Reagans economic advisors loved to point this out America owed this money to itself. U.S. corporations and individual investors owned 90 percent of all outstanding Treasury instruments. Today foreign nations hold almost one third of all T-debt. And the biggest holder of all is China.

At last count, China alone owns more than $1.1 trillion in U.S. Treasuries. If Washington gets its hopes and needs met, China will own even more within the next two years. But indications already are that China is beginning to balk about buying more T-debt.

CHAPTER 5 Gold Continues to Surge Markets on Wave of New Money

Gold prices have hit new record highs in 2011, breaking above $1,900 per ounce an important breach of a psychologically crucial benchmark. Although gold took a breather in subsequent months, its now back on the rise-and many experts are still betting on a continuation of the bonanza.

It is interesting is that China is to a large degree driving this bull market. In fact in 2007, China became the worlds largest gold producing nation, supplanting South Africa and some analysts believe their purchases in 2012 could nearly double their "official" reserves of 1,054.1 tons. It is ironic that once staunch Communists who were willing to die for their belief in Marx, Lenin and Mao are buying the Midas metal. Then again it was Lenin that said, Sell them enough rope and capitalists will hang themselves."

Of course the West isnt stocking up on rope. It is however stockpiling paper the monetary kind. With endless streams of quantitative easing by the Federal Reserve, deflation that bugaboo that had so many in the markets afraid just a few months ago has been turned on its head. Inflation, or the creation of excess money, is clearly what is at hand.

In the 1930s all measures of Americas money supply fell. But this time around, the U.S. Treasury is creating dollars at a record pace. That is a problem for paper assets, and has proved to be a boon for gold.

If the current rate of growth continues, the U.S. money supply will double again in less than a decade. With so many new dollars being created, that means each individual dollar buys less.

Consider what has happened to the dollar since 1980 when the last bull market in gold ended. According to the governments Consumer Price Index (which was massaged like crazy to make things look better than they are) you now need more than $2.00 to buy what $1.00 would buy you back then.

All the cash granny had stashed in her mattress is now worth half as much as it was worth in the early 1980s. And pretty soon it may be worth less, perhaps much less.

In the last decade the dollar has lost more than 20 percent of its purchasing power.

Amidst all the fear of Y2K, gold was for the most part in disrepute. Machines may end us, but certainly not us. At the time gold was trading for less than $270 per ounce. Yet the Midas metal was beginning to stir. It climbed off of its $242 modern-day low and volume was beginning to pick up. Someone, somewhere, was buying gold. And they were doing it because Washington was just starting to jack up its printing presses.

During the late Clinton years, the money supply was growing by more than 7 percent.

Meanwhile, the above ground gold supplies were only increasing by 1 to 2 percent, and South Africa, the worlds biggest producer, was seeing its output fall. The Gold Bull was quietly biding his time. The China Syndrome

Fast-forward to 2012. Americas debt stands at a whopping $16 trillion. Of that China owns more than $1.1 trillion worth. This year alone, China will be asked to buy tens of billions of dollars in additional U.S. Treasury IOUs. But the Communists are beginning to balk.

In 2010 Premier Wen again publicly stated that he is worried about the ability of the U.S. to pay back its huge debts to China. According to Bloomberg, Wen has been asking for assurances from the U.S. that the debt is safe.

It is hard to see what assurances the Obama administration can provide, given its mandate to inject the U.S. economy with unprecedented amounts of liquidity.

So here is the rub. This year, after you add up every last ounce of gold mined, the world will have added $80 billion worth. If China were to convert just 10 percent of its Treasury debt into bullion, it would buy up one years worth of world gold production! That would create a monster bull market for bullion.

And even if China does not become an outright seller of U.S. debt instruments, but instead diverts a small percentage of its purchases into bullion instead of Treasuries, it will push gold well beyond $1,700 per ounce and perhaps as high at $2,000 per ounce. The Power of Gold

Humankind's feverish attachment to gold shouldn't have survived the modern world, wrote National Geographic in its February 2009 issue. The magazine then begrudgingly admits that the Midas metal has done exactly that.

Few cultures still believe that gold can give eternal life, and every country in the world the United States was last, in 1971 has done away with the gold standard, which John Maynard Keynes famously derided as a barbarous relic.

Aside from extravagance, gold is also reprising its role as a safe haven in perilous times. Gold's recent surge, sparked in part by the terrorist attack on 9/11, has been amplified by the slide of the U.S. dollar and jitters over a looming global recession. In 2007 demand outstripped mine production by 59 percent," adds National Geographic.

In the words of Peter L. Bernstein, author of The Power of Gold, "Gold has always had a kind of magic."

That gold protects and enriches bullion investors in good times and bad is not magical, but rather a fundamental fact.

CHAPTER 6 Four Ways to Invest in Gold including the Best Way

There is certainly no shortage of choices when it comes to investing in gold. Below are listed four different instruments. As you read down the list, you will see that as you go down the list, you get to instruments which offer more risk, but also much greater rewards.

1. Physical Ownership Bullion is the ultimate financial lifeboat. Throughout the ages, princes and paupers have used it as money and turned to it for security. And it has withstood every test: war, revolution, hyper-inflation and depression. Precious metals are a hard asset, not subject to the promise or recall from any bank or pontiff, and it is universally accepted.

The best way to own physical gold is in coin form, preferably 1-ounce South African Krugerrands, Canadian Maple Leafs or American Eagles. But please keep in mind that mark-ups on physical gold are steep and it nets you a negative return because you have to pay for storage. Also storage of gold can be problematic in terms of its security.

However, if you are interested in learning more about physical precious metals, contact Kitco at 1877-77-KITCO or visit them at: http://www.kitco.com/.

2. Precious-Metal Mutual Funds or ETFs If you dont want to own physical gold, silver or platinum, and you dont have the time or the inclination to study individual stocks, a mutual fund or exchange traded fund (ETF) is a terrific way to go. With mutual funds, a pillar to success is the funds management. Look for a fund that has a manager that avoids companies with a large forward hedge position on future production.

3. Senior Exploration Stocks In a bull market, senior gold stocks are a terrific investment. They offer solid returns and let you sleep easy. The reason is pretty straightforward. Senior golds have the best management, technology and reserves. But just as a $10 a barrel increase in the price of crude doesnt have a large impact on the price of a multinational oil company, neither does a jump in gold prices manifest itself on blue-chip producers the way it does on junior golds.

Also something to keep in mind about senior gold companies is that several of them hedge future production (they lock in future sales at fixed prices). These companies dont benefit from sharp increases in gold prices to the extent that un-hedged companies do.

3. Precious Metal Company ADRs Huge fortunes were made in the 1970s and early 1980s by investors that bought the American Depositary Receipts (ADRs) of South African gold companies.

An ADR is a certificate held by U.S. banks and represents a specific number of shares of a foreign stock. ADRs are traded on U.S. stock exchanges, are widely available and have a dollar-denominated price. And just like stocks, ADRs pay dividends.

4. Junior Exploration Stocks Junior precious-metal mining stocks tend to be a make or break investments. The profits from junior stocks can be so big that when you hit it right, two thoughts pop to mind (1) my God, Ive made a ton of money, and (2) how much tax do I have to pay?

Most juniors are pure exploration plays. And more often than not, they come up empty-handed.

As a result, junior golds are for sophisticated investors. You should find a broker or advisor that understands that market and who can partner with you in such an investment.

It is not unusual to see explosive growth in junior golds. In the past few years, stocks like Allied Nevada Gold Corp (AMEX:ANV) have gone from less than $5 per share to more than $35 per share, while Vista Gold Corp (AMEX:VGZ) spiked from $1.30 to more than $4. Savvy investors should keep in mind, of course, that there are risks in these small, high-fliers big gains may also imply big losses.

CHAPTER SEVEN Five Advantages Gold Stocks Have Over Bullion

There are several advantages gold equities have over physical gold. They are:

1. Threat of confiscation It might be a small threat, but it did happen under President Roosevelt in 1931 when he made it illegal for Americans to own gold. As a result, gold was seized from the American public.

However, investors that held shares in gold stocks were untouched by Big Brother. And this is of key note, people that owned gold stocks were in a handful of stock sectors that actually rose during the Great Depression. You read that correctly: While the Dow Industrial average lost more than 80 percent of its value, gold stocks climbed throughout the 1930s.

2. The cost and hassle of physical gold Gold is not an easy asset to own. First you have to have a place to put it. Also you have to have a way to transport it. That in itself is not all that easy because gold is very dense. As a result it is very heavy. Finally, the storage question can be a nightmare. Some people own and operate big heavy home safes. Others use a bank safety deposit box.

3. Physical gold is not liquid If you have bullion stored either at home or at your bank you have to transport it to a precious metals dealer. That takes time and depending on how much gold you own, considerable energy. So while you can call your stock broker and execute a buy or sell order on a gold stock in seconds, it might take you hours or even days to buy or sell physical gold.

4. The costly commissions of physical gold Bullion carries expensive commission. They range as high as 10 to 15 percent on both the buy and sell side. That kind of commission is almost 10 times greater than the commission you would pay your stock broker and it can make a big difference. Say you buy gold and pay a 12 percent commission. You hold on the Midas metal until its price doubles and then sell it again at a 12 percent commission. Have you doubled your money? Not even close. After commissions, you have lost nearly a quarter of your profits.

5. The leverage in gold stocks Gold stock investing offers greater leverage than investing in physical gold because of the operating leverage of the mining company. Leverage is very important in gold stock investing because it allows corporate earnings to be multiplied, and this will increase the price of gold stock.

Typically rising bullion prices are the leading indicator for higher gold stock prices. This is what we seem to be seeing as 2011 unfolds.

Although gold has been making a series of new nominal highs, not all gold stocks have joined the party. In fact, the HUI Gold Bugs Index is not far above its 2008 high, despite the physical metal having made several record highs over the past few months.

The chart below shows the action in the HUI over the past five years, and clearly illustrates the volatility and leverage offered by gold stocks versus the underlying metal.

It indicates that many gold stocks have yet to catch up with the raging bull market in bullion. When this happens, gold stocks will vastly out-perform physical gold.

CONCLUSION Why Gold Still Has Room to Run

Moving into 2012 the price of gold isn't back at its record highs, but has recovered into the $1700s once again. That is up nearly six-fold from when the bull market began a decade ago. Yet by some measures, gold remains relatively cheap.

When measured in constant dollars (which account for inflation) the price of gold would have to hit $2,400 just to touch its real high hit in early 1980. And dont forget, since 1980 above ground gold supplies have grown by 1 to 2 percent per year. Meanwhile the number of dollars the paper money that is the worlds reserve currency has grown at an annual compounded rate of more than 7 percent. The bottom line is that even at todays prices, given an ocean of dollars and just a tiny stream of new gold supplies, bullion prices could be headed higher still.

More than anything, this bull market has and will continue to be driven by China.

According to currency strategist Steven Barrow at Standard Bank, China could be more significant for global liquidity than the United States, too.

Because the Fed's asset pile is nothing next to the People's Bank's hoard of cash, he says. So "the Fed's grip on the [easy-money] punchbowl is not as firm as the market might think," said Barrow.

What does it all mean? The fact that China's foreign reserves are at least 50 percent held in US Treasuries, dollars and government-backed agency bonds and given that gold has risen about fivefold vs. the greenback inside 10 years, China brings unprecedented influence to the bullion market.

Since the start of 2000, China's official gold reserves have grown by 167 percent to 1,054 tonnes, now the world's fifth largest central-bank hoard. With its announced annual mined production at 345 tonnes in 2010 and around 355 tonnes in 2011, there could well be another 600 to 650 tonnes or perhaps more (moved into "unofficial" reserves), since that last announcement. Continuing to absorb its own gold at that rate would mean China's reserves would effectively be doubled by end 2011 to some 2,000 tonnes.

That contrasts with the US Treasury sitting pat at 8,133 tonnes (the world's largest single hoard), and the Euro countries having sold down to 10,000 tonnes. Chinas Central Bank Gold Agreement is heavily adding to its official holdings. Consider the following:

In 1981 China had 395 tonnes. End-2001 that moved to 500.8 tonnes. End-2002 it rose to 600 tonnes. April 2009 saw China announce it held 1054 tonnes. China imported 209 tons in the first ten months of 2010, up almost 500% from the total brought in the previous year. And in the first half of 2012 alone, China is estimated to have imported more than 500 tons.

According to Bullion Vault, Chinese households made likely gold purchases in 2010 at the equivalent of almost 1.7% over twice the level of five years ago. Perhaps even more astonishingly, according to Bullion Vault, private Chinese consumers bought as much gold in the last two-and-a-half-years as the People's Bank of China owns in total.

"Since nabbing the No.2 spot in terms of private demand in 2005, [China] has only grown hungrier for gold bullion, despite becoming the worlds No.1 mining-producer nation, too," Forbes recently said. And according to the World Gold Councils Gold Demand Trends, "Investment demand continues to grow: Q2 2012 demand was 38% above the 5-year quarterly average of 37 tonnes...and interest in gold bars and coins emains fundamentally strong, as evidenced by an increase in the number of smaller, regional banks that are starting to promote physical gold products."

Considering that gold taxes were only relaxed in 2002, and investment was allowed only from 2005, that is a lot of gold falling into Chinese hands.

It is estimated that private mainland gold demand now equals some 2 percent of China's famously massive household savings, up from 1 percent ten years ago. In contrast with consumption spending, private Chinese gold demand has risen 26% annually by volume in the last decade. In the 24 months between June 2010 and June 2012 alone, according to WGC data, private households bought more gold (1530 tonnes) than the central bank reports in its entire hoard (1054 tonnes). A Game of Numbers

The future for gold in 2012 and beyond comes down to two things and they are both huge. The whopping amount of money in the system growing by trillions of fresh Fed bailout dollars and surging demand from 1.3 billion Chinese who continue to want to divest out of dollars. All of which sets the stage for much higher gold prices.

If it is good enough for more than 2 billion Indians and Chinese; it is good enough for us. All that demand, coupled with a sickly dollar, has the power to push gold above $1,800 in 2013 and eventually over the $2,000 per ounce mark.

That will mean a windfall for bullion investors, especially those buying young, ripening junior gold companies. Their power to multiply profits is something even the good King Midas would appreciate.

GOLD PRICE FORECASTS

BANKS FORECASTS

MORGAN STANLEY (MAY 2012)

Morgan Stanley projects a 2013 average year price of $2,175 per ounce. "Investor demand for gold as a safe haven is likely to keep gold prices elevated. A low interest rate environment, unconventional monetary policies in the U.S. and Europe, and political tensions in the Middle East will also boost prices."

GOLDMAN SACHS (SEPT. 2012)

Goldman Sachs updated its forecast on the gold price to US$ 1,940 by mid-2013.

SOCIETE GENERALE (JUNE 2012)

Keep an eye on QE3. In a research note by Societe Generale, analysts wrote, "Gold prices are highly sensitive to the evolution of the monetary base (M0) which expands during quantitative easing. During QE1 and QE2, gold prices increased 36% and 21% respectively." The bank projects the price of gold to exceed $1800 by year end.

CITI (SEPT. 2012)

One Citi precious metals analyst is on record for prices hitting $2,500 in the first quarter of 2013. "As a consequence we look to the bull trend replicating the percentage move (low to high) seen up to Dec. 21, 1979, which would suggest an ultimate peak closer to $3,400-3,500," he said.

UBS (SEPT. 2012)

UBS raised its three-month estimate to $1,850 from $1,750 an ounce.

BNP PARIBAS (JULY 2012)

BNP Paribas forecasts that gold will average $1800 in the fourth quarter of 2012, and sees prices continuing to rise into 2013, as the effects of QE3 and additional monetary accommodation, whether in the U.S. or other countries, continue to have a positive effect on gold-with a reach above $1900, possibly touching $2000 in 2013.

DEUTSCHE BANK (JULY 2012)

Gold prices to reach its all time high of $2000 an ounce in the first quarter (Q1) of 2013, according to Deutsche Banks precious metal forecast for next year.

CREDIT SUISSE (SEPT. 2012)

Credit Suisse recently raised its three-month and twelve-month gold forecasts, citing an improved technical outlook for the precious metal. The bank raised its three-month forecast for gold to $1,775 a troy ounce from $1,650/oz previously, and its twelve-month forecast to $1,850/oz from $1,650/oz.

CIBC (SEPT. 2012)

In a recent report, CIBC said, "We continue to believe that 2013 will be the bigger year for gold and gold equities, as both typically post stronger performance post a US Federal election." The firm's gold price target for 2013 is $2,000.

MERRILL LYNCH (AUG. 2012)

Merrill Lynch reported, "We think that $2,000 an ounce is sort of the right number...probably we will touch $2,000 an ounce sometime next year."

COMMERZBANK (SEPT. 2012)

Anticipation of more stimulus measures around the globe has pushed Commerzbank to call for gold above $1,900 an ounce in early 2013 at the latest.

EXPERTS AND ANALYSTS FORECASTS

THOMPSON REUTERS GFMS (SEPT. 2012)

Thompson Reuters GMFS says, "Net speculative positions are far from excessive, this is still plenty of room for a major increase in investor inflows, which could see gold challenge the $1,800 mark before December.

ERSTE GROUP (SEPT. 2012)

Using its findings from the gold bull market between 1970 and 1980 when 80% of golds record run popped in the last 20% of the trend, the Erste Group sees gold at $8,300 by the spring of 2015.

BLANCHARD AND COMPANY (SEPT. 2012)

Blanchard and Company see gold attaining the $1,800 per ounce level in the next 30-60 days, with higher prices possible by the end of the year.

JEFFREY NICHOLS (SEPT. 2012)

"Either way gold goes in the next few weeks and months, it is crucial to remember that the factors, forces, trends, and developments that have underpinned the 11-year old bull market in gold are likely to continue for at least several more years." His price target is $2,000-$3,000

JAMIE SOKAISKY, BARRICK GOLD CEO (SEPT. 2012)

Jamie Sokalsky, Barrick Gold CEO (Sept. 2012) "The gold price could definitely surpass previous highs, go above $2,000 and even higher within the next year. So very optimistic about further increases in the gold price."

ABERDEEN ASSET MANAGEMENT (AUG. 2012)

The price of gold could hit $2,000 a troy ounce over the next year, Aberdeen Asset Management has predicted, as investors look for a safe haven for their money.

EXTENSIVE SUMMARY OF 140 ANALYSTS GOLD PRICE FORECASTS

While gold is around $1,700/oz in late 2012, 140 analysts are on record saying it will reach at least $2,500/oz in the not too distant future-and 100 of them even predict gold price of over $5,000/oz.

Those who bought gold in 2009 have so far made a dollar profit of up to 113% ($813 to $1,730). Gold's appreciation in Euros is similarly impressivegold gained 119% since January 2009 (612 to 1340). The same applies to the British pound, where we have witnessed a plus of 95% (551 to 1076). While gold is bouncing around $1,700 per ounce, many analysts think that the rally in gold (or the decline of the major currencies' value) is nowhere near its end and forecast gold prices of $2,500 and more in the years to come.

140 analysts maintain that gold will eventually reach a parabolic peak price of at least $3,000/ozt. before the bubble bursts of which 100 see gold reaching at least $5,000/ozt., 17 predict a parabolic peak price of as much as $10,000 per troy ounce, of which 12 are on record as saying gold could go even higher than that. Take a look here at who is projecting what, by when and why.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) has identified below the analysts by name with their price projections and time frame. Please note that this complete paragraph, and a link back to the original article*, must be included in any article posting or re-posting to avoid copyright infringement. Link to original article: http://www.munknee.com/2011/10/is-gold-on-its-way-to-3000-5000-10000-or-even-higher-theseanalysts-think-so/ 8 Analysts See Gold Reaching These Lofty Prices in 2012

1. Arnold Bock: $10,000

See forecast See forecast

2. Porter Stansberry: $10,000 3. Taran Marwah: $6,000+ 4. Goldrunner: $3,500+

See forecast

See forecast See forecast

5. Mary Anne and Pamela Aden: $2,000 - $3,000 6. Bob Chapman: $2,500 - $3,000 7. Ian McAvity: $2,500 - $3,000 See forecast See forecast

8. Kurtis Hemmerling: $2,500 - $3,000

See forecast

12 Analysts See Gold Price Going to +$10,000

1. DoctoRX: $20,000 (by 2020) 2. Mike Maloney: $15,000

See forecast

See forecast See forecast

3. Ben Davies: $10,000 - $15,000 4. Howard Katz: $14,000 5. Jeffrey Lewis: $7,000 - $14,000 6. Jim Sinclair: $12,455

See forecast

See forecast See forecast See forecast

7. Goldrunner: $10,000 - $12,000

8. Martin Armstrong: $5,000 - $12,000 (by 2015/16) 9. Robin Griffiths: $3,000 - $12,000 (by 2015) 10. Jim Rickards: $4,000 - $11,000 11. Roland Watson: $10,800 12. Dylan Grice: $10,167 See forecast

See forecast

See forecast

51 Analysts See Gold Price Going Over $5,000 to as High as $10,000 1. Arnold Bock: $10,000 (by 2012) 2. Arnold Bock: $10,000 (by 2012) 3. Peter George: $10,000 (by 2015) 4. Nick Barisheff: $10,000 (by 2016) 5. Tom Fischer: $10,000 See forecast See forecast See forecast See forecast

See forecast See forecast See forecast See forecast

6. Shayne McGuire: $10,000 7. Eric Hommelberg: $10,000

8. Marc Faber: $6,000 - $10,000 9. David Petch: $6,000 - $10,000

10. Gerald Celente: $6,000 - $10,000 11. Egon von Greyerz: $6,000 - $10,000

See forecast See forecast

12. Peter Schiff: $5,000 - $10,000 (in 5 to 10 years) 13. Peter Millar: $5,000 - $10,000 14. Ron Paul: $5,000 - $10,000 See forecast

See forecast

See forecast

15. Roger Wiegand: $5,000 - $10,000 16. Alf Field: $4,250 - $10,000 See forecast See forecast

17. Jeff Nielson: $3,000 - $10,000 18. Dennis van Ek: $9,000 (by 2015) 19. Dominic Frisby: $8,000 20. Paul Brodsky: $8,000 21. James Turk: $8,000 (by 2015) 22. Joseph Russo: $7,000 - $8,000

See forecast See forecast See forecast

23. Bob Chapman: $7,000 ($2,500 - $3,000) 24. Tim Guinness: $7,500 (by 2015) 25. Michael Rozeff: $2,865 - $7,151 26. Jim Willie: $7,000 See forecast See forecast

See forecast See forecast

27. Greg McCoach: $6,500

28. Chris Mack: $6,241.64 (by 2015) 29. Chuck DiFalco: $6,214 (by 2018) 30. Jeff Clark: $6,214 31. Urs Gmuer: $6,200 See forecast See forecast

See forecast See forecast

32. Aubie Baltin: $6,200 (by 2017) 33. Murray Sabrin: $6,153 34. Adam Hamilton: $6,000+

See forecast

See forecast See forecast

35. Samuel "Bud" Kress: $6,000 (by 2014) 36. Robert Kientz: $6,000 37. Harry Schultz: $6,000 38. John Bougearel: $6,000 See forecast See forecast See forecast

39. David Tice: $5,000 - $6,000

See forecast See forecast See forecast

40. Laurence Hunt: $5,000 - $6,000 (by 2019) 41. Taran Marwah: $6,000+ (by Dec. 2012) 42. Rob Lutts: $3,000 - $6,000 See forecast

43. Martin Hutchinson: $3,100 - $5,700 44. Stephen Leeb: $5,500 (by 2015) 45. Louise Yamada: $5,200

See forecast

See forecast

See forecast See forecast See forecast

46. Jeremy Charlesworth: $5,000+ 47. Przemyslaw Radomski: $5,000+ 48. Jason Hamlin: $5,000+

See forecast See forecast

49. David McAlvany: $5,000+ 50. Pat Gorman: $5,000+

See forecast See forecast

51. Mark Leibovit: $3,600 - $5,000+

37 Analysts Believe Gold Price Could Go As High As $5,000 1. David Rosenberg: $5,000 2. James West: $5,000 3. Doug Casey: $5,000 4. Peter Cooper: $5,000 See forecast

See forecast See forecast See forecast See forecast

5. Robert McEwen: $5,000 (by 2012 - 2014) 6. Peter Krauth: $5,000 See forecast

7. Tim Iacono: $5,000 (by 2017) 8. Christopher Wyke: $5,000 9. Frank Barbera: $5,000 10. John Lee: $5,000 11. Barry Dawes: $5,000 12. Bob Lenzer: $5,000 (by 2015)

See forecast

See forecast

13. Steve Betts: $5,000

See forecast

14. Stewart Thomson: $5,000 15. Charles Morris: $5,000 (by 2015) 16. George Maniere: $5,000 (by 2015) 17. Marvin Clark: $5,000 (by 2015) 18. Eric Sprott: $5,000 See forecast

See forecast

See forecast

19. Nathan Narusis: $5,000 20. David McAlvany: : $5,000 See forecast See forecast

21. Standard Chartered: $5,000 (by 2020) 22. Bud Conrad: $4,000 - $5,000 23. Paul Mylchreest: $4,000 - $5,000 24. Pierre Lassonde: $4,000 - $5,000

See forecast See forecast See forecast

25. Willem Middelkoop: $4,000 - $5,000 26. James Dines: $3,000 - $5,000 27. Bill Murphy: $3,000 - $5,000 28. Bill Bonner: $3,000 - $5,000

See forecast

See forecast See forecast See forecast See forecast

29. Peter Degraaf: $2,500 - $5,000 30. Eric Janszen: $2,500 - $5,000

31. Larry Jeddeloh: $2,300 - $5,000 (by 2013) 32. Larry Edelson: $2,300 - $5,000 (by 2015) 33. Luke Burgess: $2,000 - $5,000

See forecast See forecast

34. Robert Lloyd-George: $5,000 (by 2014) 35. Heath Jansen: $2,500 - $5,000 36. Jeff Nichols: $2,000 - $5,000 37. Julian Jessop: $1,840 - $5,000

See forecast See forecast See forecast

40 Analysts Believe Gold Will Increase to Between $3,000 and $4,999

1. David Moenning: $4,525 2. Larry Reaugh: $4,000+ 3. Oliver Velez: $4,000+ 4. Ernest Kepper: $4,000 5. Mike Knowles: $4,000

See forecast See forecast

See forecast See forecast See forecast

6. Ian Gordon/Christopher Funston: $4,000 7. Barry Elias: $4,000 (by 2020) See forecast

8. Lindsey Williams: $3,000 - $4,000 (by 2012) 9. Jay Taylor: $3,000 - $4,000 See forecast

10. Christian Barnard: $2,500 - $4,000 11. John Paulson: $2,400 - $4,000 12. Paul Tustain: $3,844 13. Myles Zyblock: $3,800 See forecast

See forecast See forecast See forecast

14. Eric Roseman: $2,500 - $3,500 (by 2015) 15. Christopher Wood: $3,360 16. Peter Leeds: $3,200 See forecast

17. Franklin Sanders: $3,130 18. John Henderson: $3,000+ (by 2015 - 17) 19. Michael Berry: $3,000+ (by 2015) 20. Hans Goetti: $3,000 21. Michael Yorba: $3,000 22. David Urban: $3,000 See forecast See forecast See forecast See forecast See forecast

23. Mitchell Langbert: $3,000 24. Brett Arends: $3,000

25. Ambrose Evans-Pritchard: $3,000 26. John Williams: $3,000 27. Byron King: $3,000

See forecast

See forecast

See forecast

28. Chris Weber: $3,000 (by 2020) 29. Mark OByrne: $3,000 30. Kevin Kerr: $3,000 31. Frank Holmes: $3,000

See forecast

See forecast See forecast See forecast

32. Shamik Bhose: $3,000 (by 2014) 33. Ani Markova: $3,000 (by 2013/14) 34. John Embry: $3,000 See forecast

35. Michael Lombardi: $3,000 36. Eric Bolling: $3,000 See forecast See forecast

37. Phillip Richards: $3,000 38. John Ing: $3,000 39. Chris Laird: $3,000

See forecast See forecast See forecast

40. Michael Brush: $3,000

8 Analysts Believe Price of Gold Will Go to Between $2,500 and $3,000 1. Kurtis Hemmerling: $2,500 - $3,000 (by 2012) 2. Ian McAvity: $2,500 - $3,000 (by 2012) See forecast

See forecast See forecast

3. Mary Anne and Pamela Aden: $2,000 - $3,000 (by February 2012) 4. Graham French: $2,000 - $3,000 See forecast

5. Bank of America Merrill Lynch: $2,000 - $3,000 6. Joe Foster: $2,000 - $3,000 (by 2019) 7. David Morgan: $2,900 8. Sascha Opel: $2,500+ Sincerely, See forecast See forecast

Elliott Dobbs

Publisher

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