credit suisse

I see that 2 analysts from CS have just published a report in which they state that the long term Bull run in Gold has finished and, going forward, any rally should be seen as an opportunity to sell. To summarise the reason for this; because the world economy is recovering and going forward, Gold's safe haven status won't be needed.

This is certainly an interesting view, especially as it seems CS is still in the Gold Mining loan business. Perhaps they are right, but I think it is worth stating the opposite point of view.

Gold isn't in favour right now, but there are events unfolding that will make it so. I would argue that the rate at which money is being printed is actually speeding up. Proof? England and Japan. As Japan devalues its currency, so its neighbours such as Singapore, Malaysia etc must look to theirs to stay competitive. As to the USA, with its enormous debt burden and faltering economy, can it really afford to let its dollar appreciate against its trading partners, killing any export led recovery? So we turn to the Euro, with Europe still having virtually no signs of economic growth.

What do the powers that be do when their hands are tied? Talk. Well they're doing plenty of that. Look at last week's Fed minutes and the confusion in the markets as a result. Even NZ got in on the act to talk the Kiwi dollar down.

So here we are, with the Hui approaching strong support after being dramatically beaten down, Gold Silver and Commodities looking dreadful, MYG some 40% off its highs (what was it you chartists said about a new uptrend?) and the international media trumpeting Gold's demise.

How about we look at this conundrum the other way round.

MYG's share price is irrelevant now that funding is secure (I presume it is), the company's in good hands, it has plenty of digging to do and every chance of further substantial finds. Add to that the excellent hedge. So no problem there. We can assume the lowly share price has little to do with the company and much to do with sentiment towards the mining sector.

We also know that inflation isn't yet a concern in most developed economies right at the moment. Aha, in fact that isn't quite true. Britain's inflation rate has been higher than the BOE's target for some while and isn't expected to fall within it for years. In fact Britain's inflation rate is rising, with little the BOE can do to combat it, without severely affecting their markets. Britain is on the verge of stagflation. Is she the canary in the cage for USA? I suspect so.

The best way to create inflation is to increase the money supply. Around the globe, perhaps with the exception of Australasia, that is exactly what central banks are doing in spades. And what happens when inflation increases? Hard asset prices, particularly Gold and Silver, rise.

If I were a central bank, how would I handle this? Well, I might try to drive the (paper) price of gold down by flooding the market with short positions, whilst buying and storing physical gold at cheaper prices. What are central banks doing right now? Buying physical gold in volume.

If that is happening and if inflation is brewing out of these extraordinary world wide monetary conditions, it makes CS's predictions seem questionable, unless of course CS is doing some jawboning of its own?

We know then that money is flooding out of Gold. Where is it going? To equities that is equally clear. The US markets are up significantly and Japan's market is up some 30% in a few short months. Great, so are the companies that make up these indices producing results that justify such increases? That's easy to answer. No they are not. So here we are with money flowing into fully valued equity markets, in the hope that interest rates, already at all time lows, will stay there. If you go to 321gold there are some excellent articles there at present. One of them compares just how low Gold Mining shares are in comparison to equities at this point compared to the historical norm.

Why do so many people sell low and buy high? But they do and are doing so at the moment.

All of this is my opinion and now I'll do some jawboning of my own. Not this year, but maybe next or the year after, we are going to see a significant increase in global inflation, a rise in interest rates, negative bond and equity markets and a rising (even soaring) gold price. By then, MYG will be a producer with futher discoveries in hand. Why would MYG's price not soar as well?

Short term, one would have thought that the head shares are approaching a low point, so the OA's would be worth converting. The OB holders will be sweating with a 50/50 chance that OB's will expire worthless? I still think that we are in a head share accumulation phase. You may remember my posting an opinion months ago when the heads were 12c that I thought we would revisit 8c again and we are nearly there. All my opinion of course.

I reiterate that I like MYG. I still believe it will really deliver. Some posters have naturally expressed concern at the lack of announcements. From where I sit, why announce when the whole world is dumping your shares? If finance is already secure, why not wait until the stampede is over and then use announcements to help repair the damage in a more positive environment?

As I said, just some jawboning. I might be quite wrong.