This Milestone in Gold Could Push the Price to New Highs...
For the first time, individual investors take pricing power
away from the world’s central banks...
by Michael Checkan, Advisory Panelist, The Oxford Club

There's little doubt that the bull market for gold is alive and well. The steady uptrend from $268 an ounce in 2001 to $688 today is unmistakable.

Of course, the fundamentals for gold's spike are clear.

Just look at the latest data reported by the World Gold Council:

 

1. In 2006, demand for gold hit a record $65.
2. Industrial demand hit a record of 458 tons.
3. Jewelry sales hit a record of $44 billion.
4. Investment demand rose 45% over 2005.
5. Supply fell 13%.

Yet, there's an even bigger catalyst to this bull market for gold - and it's one that few are talking about, and even fewer are aware of.

A recent report from the CPM Group, one of the most prestigious research firms in the business, just uncovered this monumental fact:

Private investors now own more gold than the central banks of the world.

The chart shows that in late 2005, for the first time in history, private ownership of gold trumped government holdings.

Over the last five years, investors have embarked on the most aggressive gold-buying campaign the world has ever seen - snaring 7,500 tons of the precious metal.

The effect: Private investors have wrestled control of the world's gold supply away from central banks, for which there is no historical precedent. What this means for investors is pretty simple -and extremely important:

Individual investors now have as much, if not more, influence over the price of gold than the world's central banks.

And with demand for gold at all-time highs, we believe there's little to stop gold from reaching and surpassing its historic price of $850 an ounce.

Let me show you how these variables are all fueling an even stronger market for the yellow metal...

Limited Supply and Stifling Demand

The demand for jewelry, industrial products and investment-grade bars and coins is sapping the reserves of goldmines worldwide.

What's more, mines are producing less and less. Production was down 13% in 2006 alone. Even more astounding is this:  A supply shortage in gold has never been seen before.

The reason this has never been a problem is because large amounts of "above ground" gold has been controlled by central banks. In the recent past, shortfalls between demand and production has been offset by the reserves held by central banks.

In fact, here's a list of the top 10 official holders of gold, according to the World Gold Council as of March 2007:

1. United States - 8,133.5 tons
2. Germany - 3,422.5 tons
3. International Monetary Fund - 3,217.3 tons
4. France - 2,709.6 tons
5. Italy - 2,451.8 tons
6. Switzerland - 1,290.1 tons
7. Japan - 765.2 tons
8. European Central Bank - 641.7 tons
9. Netherlands - 640.9 tons
10. China - 600.0 tons

In general, central banks hold gold to cover their monetary reserves. For instance, the U.S. holds enough gold to make up about 76% of its monetary reserves. Mexico holds about one-tenth of 1 %.

And yet, the stockpiles of gold held by central banks are quietly shrinking. For years, the average hovered around 60% of reserve, but now the banks' monetary reserves (on average worldwide) tally a measly 10%.

This precipitous decline is significant, and hardly anyone is talking about it.

You see, central banks have quietly sold or leased gold to eliminate supply shortfalls for the past 20 years. The transactions were quiet, raising little atten­tion. Once the sale was complete, the banks would inform the world of their deeds.

The effect was dramatic. By dumping large volumes of gold onto the market at once, the central banks would cause gold prices to plummet suddenly.

This practice has long frustrated individual and institutional gold investors. In fact, the fear of sudden price drops has kept many investors on the sidelines.

But those days are over now. And what it means is that, more than ever, investors will dictate the price of gold, not central banks.

Independent precious metals analyst John Nadler stressed the importance of this structural change in the bullion marketplace, saying:

"The entire landscape of the gold market has not only undergone a tectonic shift,
but will have been forever altered."

Since 2001, investors have snared almost 7,500 tons of gold. That's a 30% add-on to the 25,000 tons they were already estimated to be holding...

There is no historical precedent for such an intense buying campaign of gold over such an extended period of time. And because these global investors typically adhere to the "buy and hold" approach, the trend will likely continue.

That's right; the buyers of gold are also the holders of gold. In fact, there have only been three years since 1965 where investors were actually net sellers of gold on a global basis:

• 248 tons in 1970;
• 6 tons in 1972, and;
• 22 tons in 1995.

Consider Adding on Dips...

Demand for the most precious of metals contin­ues to be white-hot in the face of limited supply. As a result, the gold bulls are expected to run well into the foreseeable future...

We believe the thought that anyone is "late for the dance" is entirely untrue.

And remember, we as investors now dictate the price. The cataclysmic power shift means a dimin­ished ability for central banks to push gold prices down by quietly selling large lots of gold.

That should make us all a bit more comfortable. If you have already bought, great - consider adding on price dips. If not, we suggest you start buying gold now.

Just remember the old adage... ”He who has the gold makes the rules!” OC

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OC Advisory Panelist Michael Checkan spends much of his time travel­ing to China and other parts of Asia researching investment oppor­tunities. He's also president of Asset Strategies International, Inc. based in Rockville, Maryland.

You can contact Michael by telephone, 800.831.0007, or by email at assetsi@assetstrategies.com.
Reprinted with permission from The Oxford Club.