Investors,

while I am in either partial or total agreement with most of what Gerbino writes in his latest article and usually enjoy most of his articles.

This one statement by him in this latest piece is totally wrong though.

/The one misleading analysis that is in print on many pro gold websites is based on taking the gold price at its very high of $850 from 1980, then adjusting it for inflation and coming up with a gold price of over $2,000 for 2008. This is a grave error. The gold price then had nothing to do with economic reality. It was a four month spike that did not reflect anything from an economic standpoint except fear and greed and speculation. It collapsed shortly afterwards./

Well the fact is that I have not read anywhere where an analyst has stated that the gold price would be over $2000 in 2008. These many analysts talk about what the price would have to be today in order to reach the 1980 NOMINAL all time gold price high. They are putting it into perspective with todays price for those who do not understand inflation. They are trying to educate those investors that beleive because gold has set a new nominal high its price is costly. It is the purchasing power of the ounce of gold that is relevent and what must be compared, not the dollar amount.

Discounting fear, greed and stating that because the price of gold going to 850 was only a temporary spike it is not justified to use this as a comparision is the actual grave error.

Fear and greed are the two most important market movers there are. They are just as prevalent in todays market as they were in the 1980's. In fact they are more prevalent IMO because in 1980 only about 5% of the people actively invested their money while today it is 50%.

Thus, since the main motivators for driving any market are still present. To state it is an ERROR, as Gerbino does, to extrapolate the past nominal high, no matter how brief it was, using the $850/ounce as the base, is in fact the grave mistake. The price of gold will at some point in the future get to be just as overvalued as it was according to Gerbino in the 1980's. This is because the market forces of fear and greed are just as in play now as they were back then, if not more so. Therefore in order to compare nominal highs from past to present one still has to use the $850 bench mark set in 1980. It was actually $875 also.

Very rarely from a pure economic standpoint is any security fairly valued. In fact for the most part the only time it is fairly valued is when it crosses over from being undervalued to overvalued.

Myself being a fundamentalist investor who knows that all markets are ulimately driven by supply and demand would also dispute that $850 gold in 1980 was overvalued.

$850 gold was just a product of an insufficient supply meeting a huge demand. The price would have continued higher as long as this imbalance existed.

The fact that it did not was simply because the US government dumped huge amounts of bullion on the open market in order to suppress the price. While at the same time they jacked interest rates up to 20% on their US bonds in order to give investors a nice safe place to park there money while still making a huge inflation adjusted profit, guarenteed. Thus investors flocked out of the gold market, parked all there excess greenbacks back into the bond market and thus the supply, demand equilibrium in the gold market was restored.

The US then changed the way they calculate the inflation rate in order to make it appear that it was accually much lower than it was. This was done by such trickery as hedonistic adjustments to actual prices, product substitution and other totally fraudulent statistical manipulations. This was done in order to make sure that investors attention stayed tuned away from the gold market and inflation while the US government continued to inflate. The way the US government calculates inflation has been changed 3 more times since then, always to reflect a lower inflation rate.

/The gold price adjusted for inflation from 1789 (when our Founding Fathers were in control) to 1980 should have been around $360 based on wholesale price increases. Adjusting the gold price since then based on inflation to 2008, (using an untrustworthy CPI index from the Bureau of Labor Statistics from 1979 of 72.6 to February of 2008 of 211.7 the increase in prices is 191.6%) one comes up with $1,050 as a reasonable current price for gold. This price to me is reasonable and leads one to the conclusion that owning mining stocks that can produce gold for less than $400-450 an ounce in the coming years has to be a smart way to think./

Well I find it very amusing that Gerbino would use the CPI, which he himself describes as an untrustworthy index, as a gauge to compare faux paper money with that of real money, gold.

The real definition of inflation is the rate at which the physical money supply increases at. Not the consumer price index which is a laging inflation indicator and just a symptom of actual monetary inflation. Monetary inflation is the excess production of physical money put into circulation above that which production of goods and services increases at. This is the real definition of inflation and is why the central banks try to always focus peoples attention on the CPI rather then how much excess money they are printing. This is why the US FED stoped printing their M3 report last year, because they do not want investors to know, that according to shadow stats, they have printed 18.5% more money over the last year alone. This will eventually be reflected as real inflation.

Even if Gerbino wanted to use the CPI as a gauge, then at least he should have used a trustworthy one, such as was used in 1980 before they changed it. Shadow stats uses this guage and according to them the real inflation adjusted rate for gold would have to be aprox $6200 per ounce to reach the old nominal high of $875 set back in 1980

Using Gerbino $360 per ounce as an supposed economic reality for gold in 1980. Applying the real CPI rate of inflation as calculated by shadow stats, then one comes up with a $2,551 per ounce realistic price of gold for today, not $1050.

If one really wants to use economic reality and make gold fully convertible back to the $US dollar as it used to be. Then gold would have be worth somewhere in the ballpark of $35,000 per ounce. This does not include all the other paper currencies that are floating around the world that are also no longer backed by anything physical.

No time in prior history has the worlds major currencies not been backed by gold or silver let alone all the worlds currencies.

Why was this done, because after WWll the US as the last man standing had a mojority of the worlds gold in it's vaults. They got it as payment for war material produced because at the time they would not accept any other nations worthless paper promises.

Under the Bretton Woods agreement shoved down the throats of the worlds nations by the US after WWll. The US dollar would become the worlds reserve currency which would be backed by the gold they had in their vaults at a rate of $35 per ounce. The rest of the major currencies would be peged to the US dollar and thus also be on a gold standard.

This gave the US an incredible advantage over the rest of the world in all manner of trade. He that controls the money supply makes the rules. Thus when the US reneged on its duty to make its currency convertable to gold bullion at a rate of $35 per ounce in 1972 and closed their gold window, the whole world come off the gold standard.

Today it costs the US $0.04 to make a federal reserve note. It does not matter whether it is a $1.00 note or a $100.00 note, it costs the same. It cost the FED only $.04 cents, yet they demand at least 1 dollar in return plus interest. This, people have to earn in the form of goods and services produced. What a scam, thus it is no wonder that all faux currencies without an exception have gone worthless. The $US is experiencing that fate now as all other Faux currencies in the past have.

Faux currency is nothing but a grand scimming operation, set up by a bunch of corrupt bankers and politicians, that sucks the wealth and productivity of a nation and in the case of today the world. It transfers this wealth to those who set up the system and to those who realize this and protect themselves accordingly.

Regards,

F.F.