The Feb-06 contracts are trading +3.50 at $517.30.

Here is the aspect of the precious metals markets I think bears some thought and discussion:

1. Higher gold prices are linked to investor anxiety and a weaker USD. This is worrisome to Wall Street and Washington, so you will not see talking heads pushing gold. In fact the talking points they bring to Financial TV are the same ones they bring EVERY TIME GOLD MOVES INTO PUBLIC CONSCIOUSNESS, regardless of anything else happening in the business or stock cycle.

2. Spot gold and goldminer share prices out-perform all other equity sector/groups at the end of the typical stock cycle. As sectors rotate by the ebbing and flowing of money flow, the last two sector/groups to rally are oil (first) and then gold.

3. Last year and earlier in 2005, the pent-up liquidity in the world, caused by over-printing of money and overly accommodative monetary policies of central banks (needed after 9/11), was directed first to housing prices, and then to the oil market. Traders knew that the economic demand-supply factors of oil did not warrant a $70 price per barrel, but they knew there would be speculative demand, and so they pushed all the hot buttons of "fear". Same thing is happening today with gold.

But here is where the common thinking has to pause to understand the differences between oil and gold. Gold trading, at the extremes, is multiple times more emotionally linked than oil, and, once started, the momentum is really hard to stop.

Partly the reason is that, while oil people will "hint" that the world is running out of oil, the goldminers do "know" the limits to the supply of gold. As oil prices escalated from $30 to $40, there was more oil made available; and the same as price went through $50, $60, $70. Had the global economy been running on all cylinders, the oil price might even have gotten to $80, $90, or $100. As it is, oil prices tripled (i.e., +300 pct) between Sept-03 and Sept-05.

Meanwhile gold prices have increased just under +50 pct from Aug-03 to Dec-05. Why the lagging performance gold to oil? In my view, the public still has not adopted the gold market. The oil lobby and oil-connected U.S. Administration forced the oil market on them, and the sell-side, i.e., Wall Street, went along with it because volatility was good for trading volumes (and industry bonuses of $24 billion) this year. But pushing gold trading extremes is bad for Wall Street and bad for Washington, so gold needs to find its own market. It has in the past in good times and bad. In the Dirty Thirties following the Great Depression (1929-1932), gold was the best performing asset class. In the expansionary ‘70s, with the world awash in Vietnam-related money, gold was again the best performing asset class.

Gold has yet to have its day. But the day has started; the sunrise is upon us. Just like oil prices could not be forecast with any accuracy during the latter stages of the mid-year speculative rally, nobody " certainly not Wall Street or Washington " can tell how far gold will go. There are literally billions of people in the India to China region who are presently buying gold in preference to holding paper currency.

This momentum can be slowed of course, and the present strength of the USD is an attempt to do just that. There is a point of no return when the US$500 price becomes entrenched as a strong base. At some time soon, the USD must pull back into line with the currencies of the U.S. trade partners, or else U.S. exports will die and also foreign profits of U.S. corporations will become much less a factor. As soon as the USD reverses trend " as I expect in the near future " then gold prices will take another move higher, and U.S. equity prices will rapidly decline.

This is a momentum trading market. When was the last time you heard a meaningful discussion of corporate fundamentals " PE's, Discounted Cash Flow, and so forth? You haven't. The sell-side has been focused instead on economic data, which can be jiggered, and per share data, which can be misrepresentative of future growth in corporate operations. Massive share buy-backs has of course set up that story. And massive layoffs do not result in sustainable productivity gains of a corporation. So, Wall Street can tell their story, but that doesn't mean that the buy side is always buying it. Today the buy side is focused on momentum.

Momentum is what is driving gold prices, and in my view will drive them higher and longer than:
(i) the public is presently anticipating, and
(ii) Wall Street/Washington/Big Media
would like.

Long-term (say within two years), I believe an intermediate cycle top will be above $600. I don't think, without an economic basis to stand on, we should be speculating on a momentum market beyond that. Yes, I could tell you I think gold will exceed $1,000 within five years, but so too could the cab driver.

But I'm also not going to be telling you what the bought-and-paid-for talking heads and broadcast media is going to tell you. I'm going to tell you to protect wealth by buying gold and gold shares, and writing puts, on the dips.