Do forgive us for shouting -  but we are afraid our humble statements will not be heard over the thunder of  hooves as the precious metals bull rampages!

Back in October 2007 we published a website update entitled: 'Is the precious metals bull about to charge?' (access via About Gold). In that article we noted that the "fiat currency matador" is "no longer content to debase by stealth, judiciously teasing the beast, but is hurling javelins at a frantic pace". As our regular readers will be aware, NZ Gold has consistently held to the view that much of our contemporary 'prosperity' is nothing more than a credit financed scam - of Byzantine proportions. The most obvious example of this fraud has been evident in the new 'peoples opium' the new 'peoples religion' of rising house prices - that ubiquitous obsession that has come to dominate both cognizance and conversation throughout Anglo Saxon economies and beyond.

Essential to the new economic paradigm has been the requirement to convince 'Joe Public' that he can have something for nothing! (Rome's emperors engaged in similar deceptions with their bread and circuses) Then, under cover of a general population rendered crapulent and undiscerning by the euphoria of easy money, rising house prices, and 'equity release' dramatic progress along Hayek's 'Road to Serfdom' has largely gone unnoticed. In the preceding paragraph we perhaps showed our quaintness - by using the term Anglo Saxon to describe those economies with a particularly rabid penchant for living beyond their means. Yet, as we survey the scene today - and especially as we reflect on how prescient Friedrich von Hayek's warnings from 1943 in The Road to Serfdom were - we feel more inclined to substitute the term Anglo Saxon with 'Emerging National Socialist'  It brings us no pleasure to describe Britain, the United States, Australia, Canada, and New Zealand in such disturbing terms! Yet, what we perceive today, is not the spirit of liberalism, laissez faire, and adherence to the rule of law that delivered the unique conditions in which our prosperity burgeoned. Rather, we discern menacing parallels with Weimar Germany and its desperate attempts to finance - ever more dishonestly - a standard of living that could not be afforded. Remember, irrespective of his formidable oratory and political skills, it required the right underlying conditions - that had been developing since the days of Bismark - for Adolf Hitler to come to power in Germany. At NZ Gold we believe the insidious advance of the state poses a mortal threat to our personal liberties and property rights. Moreover, we consider the monetary lunacy of recent years to be evidence not of unfettered capitalism - but of its superficially attractive but ultimately impoverishing antithesis - socialism!

It is our suspicion that 2008 will prove to be a very interesting year. In particular it looks as though the 'easy money Shangri la' is over and the implications of such a seismic event will be profound. In seeking to articulate what appears to be unfolding we find the words of William Playfair, from his 1805 "Enquiry into the Permanent Causes of the Decline and Fall of Powerful and Wealthy Nations", so eloquent in setting the scene:

"As in a hall, in which there has been a sumptuous banquet, we perceive the fragments of a feast now become a prey to beggars and banditti; if, in some instances, the spectacle is less wretched and disgusting; it is, because the banquet is not entirely over, and the guests have not yet risen from the table".

Without doubt, there are many still 'feasting at the table of easy credit'. Yet the wine is flowing less freely and the cuts of meat are not so succulent. More ominously, the restaurant manager suddenly seems less friendly - he is even asking some of the more intoxicate patrons to settle their accounts! At NZ Gold we suspect that American writer James Howard Kunstler (www.kunstler.com) has got it right when he notes in his 2008 forecast: "the charade of permanent prosperity based on getting something for nothing is over. That sound you hear out there is reality knocking on the door. It has been standing out in the cold for a long time and it is not happy with us".

For a long time at NZ Gold we have believed that the credit cycle has been approaching the 'blow-off' phase. The obsession with consumption and the flaunting of 'wealth', the utter absurdity of house prices, the suburban 'mansions' with their preposterous Romano-Grecian pillars, the ubiquitous television programmes telling you how all sorts of people people have made 'fortunes' in real estate and the inexorable decline in standards of public probity speak - not of a new 'permanent era of prosperity' - but of a gigantic financial bubble on a collision course with the sharp rapier of history! In a all of this gold has been acting as a 'quiet sentinel' warning those ready to listen that a huge monetary disturbance has been building for years. Now, in the opening days of 2008, gold has - to borrow the words of Winston Churchill - given the lion's "roar".

At NZ Gold we cannot know the fate of the gold and silver price during the coming year - as we have stated before we are not soothsayers! Yet we are historians and logisticians and, as such, we look to both the past and the process of intellectual analysis to try and discern some clues as to how events might unfold. Thus far such an approach has served us well!

Looking forward into 2008 it is difficult to imagine the process of monetary debasement being curtailed. On the contrary, logic would seem to suggest that political pressure to expediently "save the ruinously indebted consumer" - particularly in the United States and Britain - is growing rapidly. We foresaw this possibility in our Sunday June 3rd 2007 update and suggested that such actions could lead to precisely the "stampede into precious metals" that we have recently witnessed. Also, bear in mind that the profound fiscal consequences of decades of 'welfare immigration' have not yet been fully comprehended by those who will pay, pay, and pay again (namely the 'middle class') for the corporate 'population replacement policies' being imposed in most western countries. It is all suggestive of flabbergasting levels of new money creation going forward! Yet, as we have pointed out before, markets are strange things! Logic - and the generally scurrilous nature of politicians and those that control them - leads us to assume that a hyperinflationary repudiation of accumulated debt will occur, or at least will be attempted by the great 'lumini' who bless us with their leadership. This seems especially likely since modern technology means vast quantities of new 'money' can be created electronically. How much tougher must things have been for the great debasers of Weimar Germany - they had to rely solely on the printing press.

Yet it may be that what is coming is not inflation  - but deflation! This is not to suggest that governments and central bankers will fail to behave - in our view - very irresponsibly with new money creation in a desperate attempt to ward of the dreaded 'D' word. It may simply be that events overwhelm them, especially if housing and equity markets sink deeper into the abyss and foreign creditors demand much tougher terms for lending aspirant "National Socialist" countries the money to finance a  standard of living that has not been earned. In such circumstances it is unclear how the precious metals might perform in 'price' terms since, theoretically, paper money would become more valuable and gold and silver less appealing. However, deflation would make the real burden of debt - which is already unprecedented - reach excruciating levels and the question would then be what happens to the 'relationship' between lenders and borrowers? Presumably, there would be massive 'debt default' due to skyrocketing unemployment, deep cuts to government spending, and waves of business failures. Such events could drive previously sanguine lenders into insolvency as many borrowers would find themselves unable or unwilling to repay their loans. In such a situation, the 'nominal' price of gold and silver might fall - yet we suspect the 'purchasing power' per ounce would remain intact or even rise. Remember, what really matters about money - and gold and silver are forms of money - is to be resolutely aware that it is merely a form of 'communication'. The difference with the precious metals (certainly when held in physical form) is that they are no one else's liability - there is no 'counter-party' risk. (Counter-party risk is a phenomenon with which many Kiwis will be painfully aware after the recent wave of finance company collapses).

When seeking to anticipate the performance of gold and silver within a debt deflation the incisive question should surely be: "what would my precious metals buy me and what value would I put on the absence of counter-party risk" not "what would their nominal price be?" Remember, a depression would dramatically lower the 'cost' of many things, especially houses, cars, plasma screen televisions and a host of other items. Within this we suspect the price per gold or silver ounce of the aforementioned 'things' would still fall faster than the cost per unit of fiat currency. Therefore, especially given the risk of widespread defaults by borrowers that we mention above, we offer the following enquiry:

"What would you sooner be holding as a saver - a bank statement or gold?"

We could sum up by suggesting that - in a hyperinflationary 'blow off' - you might not get your savings back in real terms but - in a depression - you might not get them back in any terms (unless you are 'holding gold')

So we find ourselves unclear as to where the precious metals might be headed in 2008. Even if we are on the path to inflation - and ultimately hyperinflation - we would not be surprised to see gold and silver consolidate or even fall significantly in the short term. This would seem logical given the bull's recent thunderous charge. We would tend to see any such an event as another buying opportunity. At NZ Gold we remain committed to the view that it is prudent to hold a proportion of wealth in gold and silver but we are minded of the advice of that supreme Englishman - King Alfred the Great - not to become obsessed with such things. Indeed, some of the 'good' that we suspect may emerge from the crisis that we foresee is a renaissance of the view that there is more to life than money!

During the coming year we hope to be able to compliment our periodic 'updates' and our 'weekly market commentaries' with additional information, features, and 'for sale' publications that will prove useful to our readers. Our new 'NZ Gold Noticeboard' is the first of these. At NZ Gold we can see no way of avoiding, what we believe, will ultimately prove a painful - even savage - economic adjustment. We are also persuaded that the progressive assault on individual liberties and the ruthless application of confiscatory taxation will burgeon in emerging 'mob-ocracies' like New Zealand and Britain. All we can offer are our own thoughts on how some of the worst aspects might be 'managed'. In the meantime all the best for 2008!

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