Weekly Markets

Precious Metals

Gold, for the week, was up by $1.30 or 0.31% to $425.30 per ounce.
Silver was up by 7 cents or 1.01% to $6.97 per ounce.
July platinum closed at $862.80 an ounce, down $4.80, while June palladium turned lower after early gains, finishing off $1.70 at $201.85 an ounce.

Dennis Gartman, economist and publisher of the widely followed Gartman Newsletter which is closely monitored and respected by large hedge funds and institutions said that it was "...perhaps even probable ... then the investor class around the word may shun both the US dollar and the EUR and turn to gold. As much as we dislike the gold bugs, we shall admit that for once they may be right."

Gold in Euro terms is up some 30% since 2000 however it has been largely static for the last two years trading in a narrow band between EUR300 and EUR350. Importantly in euro terms, gold prices are up 2.7 percent this year while in dollar terms gold is down 2.3 percent. Last year, the opposite was true, with gold priced in euros down 2.1 percent against a 5.4 percent rise in dollar terms. "Gold is beginning to appreciate in terms of foreign currencies," said Adrian Day, president of Annapolis, Maryland- based Adrian Day's Asset Management, which has $86 million in assets. "The next few weeks could see a strong rebound in gold." Many commodity analysts believe the next stage of a multi year bull market in gold will mean gold rising in all currencies and not just the dollar. It is believed this will begin once gold takes out the strong resistance experienced at EUR350 per ounce.

Hedge-fund managers and other large speculators increased their net-long position in New York gold futures by 11 percent in the week ended March 29, the U.S. Commodity Futures Trading Commission said. Speculative long positions, or bets prices will rise, outnumbered short positions by 101,521 contracts.

The continuing move of oil to record levels is being watched by markets as there has always been a tight correlation between the price of oil and gold. "If oil can double, I think gold can double as well." said Patrick Chidley, an analyst in New York at South Africa-based brokerage Barnard Jacobs Mellet LLC. "Gold always has been an inflation hedge because it has limited supply, and going forward, if costs go up, then the gold price has to go up, too."

Gold bullion offers investors and savers an ideal and safer way of partaking in the commodities boom. Most commodity analysts believe gold, silver, platinum and the rest of the commodity complex are now in a multi year bull market. Commodity futures and equities are the other ways to gain exposure to commodities but they are far more speculative.

Futures involve leverage and are short term speculations which can be very risky as commodities can be volatile and even in a long term multi year bull market there can be very sharp and steep corrections which can create large financial losses. Precious metal equities, like futures, also have added risk - acts of God, country and geopolitical risk of where the mines are located, environmental risk, accounting risk, management risk and geological risk - the overestimating of the quantity or quality of gold bullion in a particular gold mine or gold prospect.

Gold unlike other commodities is also a monetary asset and still used by Central Banks around the world as an important part of their monetary reserves in order to maintain faith and confidence in their fiat paper currencies which since the end of the Gold Standard are no longer backed by anything accept politicians and Central Bankers promises.

See:
The trouble with paper money - The Economist
Is the USD's Role as the World's Reserve Currency Drawing to a Close?- The Economist
All that glisters - Buttonwood, The Economist
The US National Debt - Bureau of Public Debt, US Treasury

Gold is an important asset class because it is not a paper derivative, an IOU, a promissory note or promise to pay unlike futures, equities and even currencies. There is no third party risk or liability and it is not dependent of the performance of any individual, company, corporation or government.

Gold is like property a hard tangible asset but unlike property it is not dependent on large and increasing levels of debt and affected by rising interest rates. Quite the opposite in a rising interest rate inflationary environment gold outperforms other asset classes. Also unlike property it is a finite resource. More houses can be built and are being built globally to meet demand. Although alchemists have tried for centuries you cannot create, build or print more gold.

Gold bullion is the only asset class which performs well in all 'flationary' macroeconomic conditions - whether it be deflation, inflation, hyperinflation, stagflation, inflation of essential goods (food and fuel) and deflation of assets.

That is why prudent investors have a properly diversified portfolio with at least a 5% allocation to gold bullion as the safe haven or financial insurance component of a portfolio.

Jim Power, Chief Economist of Friends First believes gold is the asset class of the moment. "I teach Financial Management on a part-time basis in Dublin City University and a central tenet of what I teach concerns the virtues of portfolio diversification. I am a firm believer and have argued in numerous presentations on the topic of Property v Equities that it is not a case of either/or, but a case of both. I would be a big fan of holding gold as part of a diversified portfolio and would feel more confident about it than any other asset class at the moment."

Oil

Goldman Sachs predicts $105 oil price; IEA call for Emergency Oil Plan

This week, benchmark New York crude oil prices, which fell as low as $52.50 a barrel on Wednesday, were trading $3 a barrel higher on Thursday. Prices were quoted at $55.80 a barrel in early New York trade on Friday. On Thursday, gasoline and heating oil futures prices increased to record highs in the US.

Goldman Sachs caused concern in energy markets and the wider markets with a report saying that oil markets have entered a "super-spike" period where prices could rise as high as $105 a barrel.

Goldman Sachs, one of the world's more influential commodity, metal and energy traders, says the current crude oil market appears to be similar to that seen in the 1970s. The decade of rocketing crude oil prices, marked by the Yon Kippur war and the Iranian revolution, forced the world economy into recession, triggering years of declining oil demand. However, supply growth continued at a robust pace, raising spare capacity that eventually stabilised oil markets at lower prices. This, says Goldman Sachs, is a phase that has just ended and we are about to experience the low growth high inflation stagflation of the 1970's.

During the 1970's, oil prices spiked dramatically - rising from roughly $10 a barrel (in today's money) in 1970 to $80 by 1980 - following the Russian invasion of Afghanistan, the revolution in Iran and wider instability in the Middle East. The price of gold is very closely correlated to the price of oil. In the 1970's the price of gold went from $35 per ounce in 1971 to $890 per ounce in 1980 or an increase of some 3000%. For gold to get back to the inflation adjusted level it was at in 1980 it would have to rise to some $1,600 per ounce.

The Financial Times reported how the IEA (International Energy Agency) is to call for an emergency oil plan"Oil importing countries should implement emergency oil-saving policies if supplies fall by as little as 1m-2m barrels a day", the International Energy Agency will warn next month. http://news.ft.com/cms/s/452bb98a-a24b-11d9-8483-00000e2511c8.html

The figure is much lower than the official trigger of 7 per cent of global oil supply - equivalent to 6m b/d - agreed in the treaty that founded the energy watchdog for industrialised countries after the oil crisis of the 1970s. A fall in supply of just 1m-2m b/d would be equivalent to the disruptions during the 2003 Iraq war or the 2002 oil industry strike in Venezuela." They propose drastic cutbacks in car use to halt continuing oil-supply problems.

The International Energy Agency is the energy forum for 26 industrialised countries. IEA Member governments are committed to taking joint measures to meet oil supply emergencies. They also have agreed to share energy information, to co-ordinate their energy policies and to co-operate in the development of rational energy programmes. These provisions are embodied in the Agreement on an International Energy Program, which established the Agency in 1974.

Car-pooling, telecommuting and even corrections to tyre pressures are suggested as is cutting public-transport costs by 100% thereby making public transport free to use. Also mooted are a shortening of the working week to 4 days a week to the most hardline emergency proposals in the form of drastic speed restrictions and compulsory driving bans. Bans could be one day in every 10 days or 10% or more stringently on cars with odd or even number plates. They would be banned from the roads on corresponding odd or even days of the month (50%). Even outright police-enforced driving bans for citizens are a possibility. However, they admit these measures would be difficult to police and enforce: "Restrictive policies such as this can be relatively difficult to implement and thus may come at higher political costs."

The strikes in Venezuela resulted in a fall in all supply of 1 million to 2 million barrels per day. Thus, it would seem likely that any war with Iran might result in some of these measures being implemented. Further problems in Nigeria, Venezuela, Russia or the Middle East in general could create a similar supply shock.

Lehman Brothers Inc. were quoted during the week on Bloomberg regarding 'peak oil'. They say oil prices will rise through 2008 and stay high thereafter as demand increases and concern mounts that global production is nearing its peak. Matthew Simmons is the CEO of Simmons & Co. International, the worlds largest energy investment banking firm. He is a key energy adviser to the Bush Administration and his analysis of the state of the world oil stocks led him to recently tell the BBC that "Peaking is at hand, not years away. If I'm right, the unforeseen consequences are devastating."

Simmons has written a new book being released in May , 'Twilight In The Desert: The Coming Saudi Oil Shock And The World Economy'. In it he says that the Saudis are over inflating their reserves. By their own admission, the Ghawar Field, the king of all kings and largest oil reserve ever discovered in the world, is only producing about 5 million of their 8 to 9 million barrels a day of oil. The US' oil production peaked in 1970-1 and Simmons believes that we are soon to experience peak oil globally and even in the world's largest producer Saudi Arabia.

The factual basis of the book is over 200 technical papers published over the last 20 years which individually detail problems with particular wells or particular fields, but which collectively demonstrate that the entire Saudi oil system is "old and fraying." Based on his analysis, Mr. Simmons asserts that sudden and sharp oil production declines could happen at any time. Even under the most optimistic scenario, Saudi Arabia may be able to maintain current rates of production for several years, but will not be able to increase production enough to meet the expected increase in world demand. Eventually, the reckoning day will come and the world economy will be confronted with a major shock.

The US government and Congress have acknowledged the reality of peak oil. Conservative Congressman Roscoe Bartlett, Chairman of the Projection Forces Subcommittee of the Armed Services Committee, gave an hour long presentation on Peak Oil to the US Congress on March 14th 2005. He said that "we are not sure exactly when that peak will come in oil production, some say it is peaking right now, some say it will peak in 10 years, the amount of oil we get out of the ground will exceed the demand; but what is clear is that at some point in this century, world oil production will peak and then begin to decline. There is uncertainty about the date because many countries that produce oil do not provide credible data on how big their reserves are. But more uncertainty calls for more caution." http://thomas.loc.gov/cgi-bin/query/D?r109:1:./temp/~r109BtVnlj::

The Department of Energy characterized the need for action in a February 2005 report that stated, "World oil peaking represents a problem like none other. The political, economic, and social stakes are enormous. Prudent risk management demands urgent attention and early action." Hopefully, leaders around the world will heed the Department of Energy's advice and take steps to avoid this potential crisis. Investors should also factor this information into their investment strategy.

Other Commodities

Reuters Commodities Research Bureau's Index rose 1.6% to 311.88 from 306.88 last Friday.
The CRB is up 9.8% already this year. Since hitting a low of 182.83 in October 2001 it is up nearly 70%.

The Reuters CRB Index (the 17 basic components include hard tangible assets such as Metals, Textiles and Fibers, Livestock and Products, Fats and Oils, Raw Industrials, Foodstuffs). One of the CRB index's greatest strengths is the fact that there is an equal weighting of all of its 17 components. This weighting assures that no price increase in any single commodity, like oil, can significantly skew the entire index. Significant moves in the CRB are only possible when the majority of its component commodities are moving in unison with a particular primary trend. The most important commodities - gold, oil, and silver only account for 3/17th of the entire index.

The Goldman Sachs Commodities Index surged 4.5% to a new record high. The GSCI is a world production-weighted commodity index which next year will be composed of 24 liquid exchange traded futures contracts. The GSCI includes energy, industrial metals, precious metals, agricultural and livestock products. It is up an impressive 26.2% year to date.

Bloomberg's Claudia Carpenter reported on commodities out performance of other asset classes in the first quarter. "Commodities prices had their second-biggest quarterly gain since 1988 as oil jumped to a record $57.60 a barrel, copper touched a 16-year high and coffee, soybeans and cotton rose 15 percent or more. Surging demand for raw materials in China and accelerating economic growth in the U.S. helped send the Reuters-CRB Index of 17 commodities up 10.5 percent, the most since an 11.2 percent gain in the 2004 first quarter. The index rose to a 24-year high on March 16 and may reach a record because investors are buying commodities as alternatives to U.S. stocks and bonds. 'We're continuing to see, even with the highs reached in commodities, just a mushrooming in how many institutional investors are allocating new money,' said Robert Leary, 44, a managing director at Wilton, Connecticut-based AIG Financial Products Corp"

Europe's largest manager of pension fund assets will tell its UK clients this week that they should be investing in commodities. Barclay's Global Investors or BGI, the asset management arm of Barclays, will address the National Association of Pension Funds' conference in Edinburgh with the message that broadly traded commodities, including oil, gold and copper, offer "extremely attractive characteristics" to institutional investors.

Commodities are enjoying a bull run due to the rapidly rising oil price, global shortages in steel, copper and other commodities. Huge demand from emerging economies globally and especially Asia and constrained supply due to years of under investment in commodity producing sectors. Cash prices for copper in the US reached a 16-year high last month. Oil is at al time record highs and gold and silver recently hit 16 year record highs. The broad Goldman Sachs Commodities Index was up 17% last year and is already up another 17% this year.

Since 1970, the GSCI has delivered total returns of 13.9% annualised, higher than global equities at 11.7%."Commodities offer equity-like returns with equity-like risk but they have low - to - negative correlation with other asset classes," said Benno Meier, head of commodity strategy at BGI.

"Pension funds have bet nearly everything on equities for the past 50 years and that is no longer tenable," said Chris Hitchen, chairman of the NAPF investment council.

The best-performing fund over the past three and five years was not one backing China - although the spectacular growth there has benefited it greatly; nor is it a small companies fund, although some of the small companies in its portfolio have done well. It is JP Morgan Fleming's Natural Resources Fund, which invests in supposedly dull commodities such as copper and steel, but grew by an anything-but-dull 19 per cent last year and an inspiring 200 per cent over the past five years.

Its performance reflects a boom across the commodities market over the past five years. Oil is the example we are most familiar with, if only because we can see the impact at the petrol pump, but virtually everything, from nickel to silver and gold have been rising dramatically. Many experts think the boom is only just starting and that commodities could prove golden for investors for years to come as commodity price movements follow long term cycles. Commodity prices rose in the 1960's and 1970's. In the 1980's and 1990's they declined but many believe that since 1999 and 2000 the commodity complex has begun another multi year bull market.

Ian Henderson, who runs the JP Morgan fund, thinks we are embarking on a 'super-cycle', caused by a surge in demand and constraints in supply. 'This isn't about a bottleneck in supply. This is simply about not having enough natural resources to meet demand.'

The prime reason for the soaring demand is China, which is sucking in raw materials such as coal and oil to fuel steel and power plants - demand for copper alone is rising by 10 per cent - to support both booming exports and rising demand from its own population for cars, fridges and other resource-hungry consumer durables. Add in dramatic growth from India, plus a consumer boom here and in the US and it is easy to see why demand for basic raw materials is so healthy.

It was not always so, however: a decade ago, commodities prices were low and investors were convinced that technology stocks were the new gold. The big producers stopped investing and capacity fell. With lead times for more resources measured in years rather than weeks, it will be some time before supply catches up with demand. Graham Birch, head of natural resources at Merrill Lynch - whose World Mining and Gold and General funds have also been strong performers - says that, with stocks depleted and new capacity some way off, prices will continue rising 'to whatever level it takes to decrease demand'.

Mark Mathias, managing director of Dawnay Day Wuantum, thinks all investors should have up to 10 per cent of their portfolios in commodities, both to benefit from the likely continued strength in the market and to diversify from traditional investments such as equities and bonds.

A growing number of conventional fund managers, such as Tony Nutt at Jupiter, are increasing their exposure to commodities.

Currencies

The US dollar index was up 0.29% to 84.42.

The euro was dropped by 0.53 points or 0.41% to 129.01, and the yen was lower by 1.21 points or 1.29% ending at the close on Friday at 92.85.

The dollar was lower for the week against the Brazilian Real (2.5%), South African Rand (2%) and Icelandic Krone (2%).

Bonds

The 10-Year Treasury note yield fell 15 points or 0.15% for the week to to 4.45%.
Five-year Treasury yields dropped 17 basis points to 4.12%. The long-bond (30 year) saw its yield drop 12 basis points to 4.729% for a drop of some 3% for the week.
The spread between 2 and 30-year government yields was unchanged at 99bps.

Typical investors have difficulty understanding bonds and the bond market even though they are one of the most important markets which affect interest rates and the cost of money to all of us.

A bond is a debt investment or instrument, "with which the investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate.

The indebted entity issues investors a certificate, or bond, that states the interest rate (coupon rate) that will be paid and when the loaned funds are to be returned (maturity date). Interest on bonds is usually paid every six months (semiannually). The main types of bonds are the corporate bond, the municipal bond, the treasury bond, the, treasury note, treasury bill, and the zero-coupon bonds.

The higher rate of return the bond offers, the more risky the investment. There have been instances of companies failing to pay back the bond (default), so, to entice investors, most corporate bonds will offer a higher return than a government bond. It is important for investors to research a bond just as they would a stock or mutual fund. The bond rating will help in deciphering the default risk." http://www.investopedia.com/terms/b/bond.asp.

There has been a steady deterioration in large US corporations achieving the best credit rating - the AAA rating.

In the late seventies this number was 58. By the late 1990's that figure was down to 22.
By 2001 there were only 9 companies in the United States of America that receive the top triple-A rating.

The nine companies were as follows:
1. American International Group (recently downgraded)
2. Berkshire Hathaway
3. Bristol-Myers Squibb
4. Exxon Mobil
5. General Electric
6. Johnson & Johnson
7. Merck
8. Pfizer
9. United Parcel Service

Moody's ratings, from top to bottom, are Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C, with intermediate steps between.

Standard & Poor's scale is AAA, AA, A, BBB, BB, B, CCC, CC and C. The two agencies usually have similar ratings on companies.

Other than an elite status a 'Triple-A' rating to an organization means reduced cost for borrowing. But nowadays companies prefer to leverage their debt against their equity and take on more debt to show an increase on their return on equity.

According to Moody's Investor Service only around 6% of the debt in the 2.6 trillion investment-grade corporate bond market carries the top rating. This is down from 10% in 1990 and 25% in 1979. The reason for this is perhaps competition and a greater willingness on behalf of organisations to take on more debt. This made sense in the benign economic environment of the late 1990's with high growth, low inflation, falling commodity prices and declining interest rates. Should these benign macroeconomic fundamentals give way to a deflationary or stagflationary economic environment, which we are already seeing signs of, this debt may become problematic.

There is concern about a recent, widespread decline in ratings across the credit spectrum. The demise ranges from double-A and single-A companies to the large number of companies falling into the BBB/Baa range. This is the lowest investment-grade category, and anything rated B/Ba or lower is below investment grade, or "junk." The cost of protecting MBIA Inc.'s MBI, debt against default surged on Friday amid concerns that recent government subpoenas could turn up problems similar to those announced by American International Group this week, analysts said. MBIA insures billions of dollars of bonds against default and is one of the world's largest bond insurers. If questions arose about its financial stability, markets would be rocked, but analysts said that the chances of the company having real trouble remain quite low. MBIA said late on Wednesday that it had been subpoenaed by New York Attorney General Eliot Spitzer and the U.S. Securities and Exchange Commission to provide information pertaining to four matters, including Channel Reinsurance Ltd. of which MBIA is a partial owner. The market is nervous and there are fears that this might be an AIG or Enron type situation. The cost of protecting MBIA's double-A rated debt against default rose 15 basis points to 90 basis points on Friday, or $90,000 a year for every $10 million of debt insured in the credit derivatives market. Since Wednesday, the cost of protecting MBIA's double-A debt has jumped 80 percent. The company's shares have fallen 8 percent during that same time, closing on Friday at $52.12. Adding to concern about MBIA is the fact that it early last month said it was restating seven years of results, raising questions about other possible problems at the company. Analysts who had spoken to MBIA said the company has denied that it bought credit protection on itself, which is one area the subpoenas were looking for information on.

Another area subject to subpoena, the company's methodology for determining loss and credit reserves, is part of a broader inquiry into that segment of the bond insurance industry.

Stocks

For the week, the Dow Jones Industrial Average was down 0.37% to 10,404.40.
On a weekly basis the S&P 500 Index was up 0.13%, to 1,172.92.
The Nasdaq was down 0.31% for the week and closed at 1984.81.
The Nasdaq has now closed below the psychologically important 2000 mark and below it's 200 moving day average for the second week in a row. It is at it's lowest level so far this year.

The Dow and S&P closed at new 2 month lows while the Nasdaq is at 5 month lows.
For the year, the Dow is lower by 3.5% and the Nasdaq is lower by 8.8%.

The American International Group AIG affair rumbles on is looking murkier and murkier. The stock was down more than 8% on Friday and more than 30% in the last two months. Much of the world's press seems to be fixating on a side issue. Namely Warren Buffet's possible involvement in the affair. This is a side issue.

Jim Kramer, market commentator and host of 'Kudlow and Kramer' on CNBC warned that there were eerie parallels of Enron. Already many opaque and murky transactions have been unearthed in the world's largest insurer. These opaque transactions may be a pandora's box and there were rumours of thousands of documents being shredded. Initially it was some 10 transactions and now this has risen to more than 20 and there may be many other financial irregularities yet to be disclosed or uncovered. Kramer even mentioned the possibility of the insolvency or bankruptcy of AIG. The company insists insolvency is not an issue. As did Enron and Worldcom. Elliot Spitzer and the SEC may fear indicting the company itself as this would likely result in the 'death penalty' and the stock going to zero as happened to Arthur Anderson when they were found to have shredded documents in the Enron affair.

Many stock analysts have continued to keep buy ratings on AIG's stock but would not be interviewed or comment on the reasons for their continued buy rating. Some of those that did comment said that they did not understand the stock. One would have thought not understanding a stock or a company would merit caution and possibly a few hold or sell ratings.While General Motors GM and Fannie Mae FNM, or the Federal National Mortgage Association, did not continue their terrible stock market performance of the previous week neither experienced a rally and all were down sharply on Friday.

General Motors and Fordd announced a further drop in sales for the month of March for 1% and 1.7% respectively.

Nissan and Toyota continue to gain market share especially in the increasingly important fuel efficient vehicle sector.

Freddie Mac FRE plunged nearly 4% on Friday alone. Freddie Mac, the government-sponsored finance firm is involved in a massive accounting scandal. It said Thursday that its earnings plunged more than 40 percent last year, hurt by a substantial loss on derivative contracts.

The FBI has joined the government investigation of accounting errors totalling hundreds of millions of dollars at Delphi Corp., DPH the world's largest auto supplier. Delphi shares slipped in early trading. Delphi also has struggled because of high steel prices and production cuts at GM. Its shares fell 16 cents, or 3.6 percent, to close at $4.32 in Friday trading on the New York Stock Exchange. The stock reached a 12-month high of $11.01 on June 23, 2004 and a 12-month low of $4.15 on March 21.Shares of MBIA Inc., the world's biggest bond insurer, fell by the most in 2 1/2 years after New York Attorney General Eliot Spitzer and the Securities and Exchange Commission sought new information about the company's accounting practices. MBIA's stock tumbled 7.7 percent, or $4.36, to $52.28 in New York Stock Exchange composite trading.

Commentary

Real Risk Management & Real Diversification

We all want to believe that this is the best of all possible economic world's and that the massive economic growth of the last 20 years will continue eternally. Unfortunately a number of realities, including a rising oil price, suggest otherwise.

It is important to acknowledge these realities and deal with them rather than sticking our heads in the sand and hoping that they go away.

The ever optimistic Dr Pangloss, the tutor and philosopher in Voltaire's Candide (1759) said that "All is for the best in the best of all possible worlds". Most people's experiences of life would lead people to be sceptical of this rose tinted philosophy as Voltaire intended us to be, since Dr Pangloss was old, pedantic and deluded, maintaining his misguided beliefs even after experiencing great suffering. His name is one clue to Voltaire's view of the old man, since it comes from Greek pan, all, and glossa, tongue or language, so suggesting glibness and talkativeness or being all mouth but no substance. Panglossian thus means to be naively over optimistic.

Recently a lot of financial and economic analysis is quite panglossian. Important macroeconomic and geopolitical trends are conveniently ignored and less significant financial news is emphasised. The important maxim that 'past performance is not a guarantee of future returns' is continually ignored as sections of the media irresponsibly continue to bang the drums that the only two asset classes worth looking at are equities and property. Many people are thus lulled into a false sense of security whereby they underestimate risk of investing in these asset classes believing that they are a one way street to early retirement and economic nirvana.

Given the Goldman Sachs report, the IEA's calls for emergency oil measures and the increasing acknowledgement of peak oil by knowledgeable people in the oil industry and in the US government, not to mention many other macroeconomic and geopolitical risks, more defensive investment strategies should be considered.

Ireland and indeed the world has experienced a massive increase in wealth recent years. The constant pursuit of more wealth and riches may not be advised and consolidating on our wealth would be more sensible. A policy of 'what we have we hold' or wealth preservation rather than wealth growth would be prudent.

To use a sporting analogy: we are 2-0 up at half time it is time to bring on an extra central defender. Gold is the safest and most defensive of the asset classes as it is the only asset class with a strong negative correlation to other asset classes. It is the ultimate financial insurance and hedge against any possible unforeseen eventualities.

Gold is not the preserve of doom and gloom merchants rather it is the preserve of prudent investors who believe in taking a more risk conscious approach to their investments and livelihood. In the same way that one does not buy car insurance in the expectation of crashing one's car or one does not buy health insurance in the expectation of getting seriously ill. One invests in or saves in gold not in the expectation of a recession but rather as an acknowledgement that there is that possibility.

Too often investment advisors and brokers 'talk the talk' with regard to investment risk strategy and investment diversification. But it seems as if these are merely buzzwords to reassure investors and that real diversification remains off the spectrum for many. The majority of investors globally have all their eggs in the same investment baskets - the equities, bond and property baskets. This strategy has served them well in the last 20 years however there are indications that we are soon to experience a different set of economic circumstances and a more sober evaluation of risk is warranted. Real alternative asset classes such as commodities and in particular precious metals should be and are being seriously considered in order to create a more robust and secure investment portfolio.

Opinions of the Week

"The strength in oil demand and economic growth, especially in the United States and China . . . has surprised us.... Because spare capacity throughout the energy supply chain is limited and given any supply additions take a very long time to complete, only a sharp sustained increase in energy commodity prices will meaningfully reduce energy consumption and recreate the kind of spare cushion that existed through much of the 1980s and 1990s....

We believe oil markets may have entered the early stages of what we have referred to as a super spike period - a multi-year trading band of oil prices high enough to meaningfully reduce energy consumption and recreate a spare capacity cushion only after which will lower energy prices return"
Commodities Analysts Research Report, Global Investment Research, Goldman Sachs, 31-03-05

"Oil prices will rise through 2008 and stay high thereafter as demand increases and concern mounts that global production is nearing its peak."
Commodity Analysts, Lehman Brothers Holdings Inc., 8-03-05

"We are in new historical territory. The safety margin that we had in the past just isn't there anymore. In the past we could always count on the Saudis to make up for the loss of production in, say, Iraq or Nigeria, but that's no longer the case. The capacity isn't there and demand has risen more than we thought it would."
Rick Mueller, Energy Security Analysis Inc., 31-03-05

"The IEA report showing higher demand is the focus of the market. Strong demand is driving prices, even though inventories vastly exceed year ago levels.... OPEC is pretty powerless to lower prices.... The only thing that will get us to move decisively lower is a global recession that would reduce demand."
Kyle Cooper, Analyst of Citigroup Inc . . . , 31-03-05

"Land prices in Japan's big cities started to rise last year, the strongest sign yet that the devastating asset price collapse that followed the bursting of the country's economic bubble in the early 1990s is coming to an end.... High property prices were a symbol of Japan's booming economy in the 1980s.... but when the bubble burst, property prices plummeted more than 80%, undermining company balance sheets, wiping out many families' wealth and helping plunge the economy into 13 years of stagnation."
'Rise in Japanese property prices fuels optimism', Financial Times, 23-03-05

"As is typical historically at housing peaks, a contraction of refinancing presages lower new home sales. Refinancings are nearly 65% lower than the peak established one year ago and interest rates have not risen dramatically in an historic sense. Rental vacancies have recently hit the 10% level -- a record high -- and will begin to provide competition to new home ownership. The price earnings ratio of a home (average selling price divided by twelve months of rental income) now stands at over 34x -- a level that is eerily reminiscent of the price earnings ratio of stocks (at 32x) at the end of the stock market bubble in early 2000!
The Street on US House Prices

"Everybody wants to be long of commodities. Hedge fund managers think that the potential returns in commodities are still very high."
Stephen Briggs, Analyst, Societe Generale London, 'Commodity Prices Climb to 24-Year High on Global Demand Growth.' 10-03-05

"The conventional "wisdom" praises Americans for their profligacy while condemning foreigners for their thrift (ironic because without foreign savings, Americans could not borrow). As a result, Wall Street and the media predictably received this data as good news. What would have been the reaction had American consumers acted responsibly for a change and had denied themselves some current gratification for the sake of the future? What if they acted like adults, rather than undisciplined children, and paid down debt? What if they had decided to put some money aside for their kids, a financial emergency, or retirement? What if personal spending actually declined?

Such an inevitable first step down the road to financial responsibility would have been greeted by Wall Street and the media as a disaster; evidence that the "heroic" consumer had finally run out of gas. This is because the entire house of cards that is the U.S. economy, and the over valued stock and housing markets it supports, rests on the continuation of reckless borrowing and consumption which must inevitably come to an end. Given the fact that sooner or later the American consumer will "run out of gas," wouldn't it make sense for him to refill his tanks before they run dry? Ironically, the longer consumers borrow and spend, the more severe the long-term damage they inflict on the U.S. economy, and the greater the inevitable declines in the very asset prices their irresponsible behaviour temporarily props up."

"Reserves can be mobilised as a powerful army. In a global financial market, their first function is defence. In the Asian crisis of 1998, Taiwan, which had large gold and currency reserves, did not suffer the devastating blows felt by Korea, which did not. Historically, Britain's last attempt to assert imperial power, at Suez almost 50 years ago, collapsed when a run on the pound exhausted reserves and America declined to help out. China has about $100 billion of short-term foreign debt, some of it sneaked in to speculate on a revaluation. So it is covered several times over against any sudden withdrawal of foreign hot money.

Foreign exchange reserves could, however, also be used offensively. Suppose, for instance, that China decided to invade Taiwan. Any attempt by America to resist the invasion could be scuppered by dumping, or threatening to dump, dollar assets on such a scale that falls in bond prices and the dollar could precipitate a collapse in the US financial system. That would not be in the rest of the world's economic 's, but mercantilism never was."
Graham Searjeant, 'Old Empires find an old way to assert New Power', Financial Editor, The Times, 1-04-05

"Pension funds have bet nearly everything on equities for the past 50 years and that is no longer tenable."
Chris Hitchen, Chairman, National Association of Pension Funds Investment Council (UK)

"Europe's largest manager of pension fund assets will tell its UK clients this week that they should be investing in commodities. BGI, the asset management arm of Barclays, will address the National Association of Pension Funds' conference in Edinburgh with the message that broadly traded commodities, including copper, oil and gold, offer "extremely attractive characteristics" to institutional investors."
Brendan Maton, 'Barclays Global Investors Backs Commodities', The Guardian

"Gold is undervalued, under-owned and under-appreciated. It is most assuredly not well understood by most investors. At the beginning of the 1970's, when gold was about to undertake its historic move from U.S. $35 per oz to over U.S. $800 per oz in the succeeding 10 years, the same observations would have been valid. The only difference this time is that the fundamentals for gold are actually better."
John Embry, 'Fundamental Reasons to Own Gold', Sprott Asset Management

"A breakout in euros will serve notice to the market that gold is not a subset of the weak dollar play. Once it has crossed this threshold, gold will begin to attract capital from assets parked in all currencies and asset classes including commodities and high yield credits, the two most recent investment bubbles. The bull market in gold, which commenced in August of 1999, will shed its stealth mode. Its pace will quicken and become difficult to ignore. We stand at the end of the beginning of the first leg in a multi year bull market in the metal. The significant accumulation that has occurred during the past five years will not yield easily to the sharply higher prices that lie ahead, because those price gains will be spurred by financial market developments that make gold's appeal quite obvious, even to its detractors."
John Hathaway, 'Euro Trash', Tocqueville Asset Management

Opinions and Quotes can be found in articles in the News and Commentary sections of www.gold.ie.

Key Events in the Week Ahead

Alcoa (Research) reports quarterly results Wednesday after the close. The aluminum producer is expected to have earned 39 cents per share, down from 41 cents a year ago. Bed, Bath & Beyond (Research) also reports earnings Wednesday. The home improvement retailer is expected to have earned 57 cents per share, up from 47 cents a year ago. Three top tier companies are holding analyst meetings this week, with Pfizer (Research) on Tuesday, Dell (Research) on Wednesday and Wal-Mart Stores (Research) on Tuesday and Wednesday. All three should yield relevant forward-looking comments. Philadelphia Fed President Anthony M. Santomero, a voting member of the Federal Reserve Board, will discuss monetary policy on Wednesday.

Thursday brings the February read on wholesale inventories, expected to have risen 0.7 percent, after rising 1.1 percent in January. (CNN Money)