We continue to believe that gold will trend higher.  It will undergo corrections in price, but gold’s price longer term will reflect the declining dollar and the rising specter of inflation on a worldwide basis.

Inflation will drive up the prices of many commodities.  Food prices for example will continue to move higher globally as China, India, and other nation’s expanding middle classes consume more of the world’s food.  Increased demand for energy and base metals from emerging economies keeps upward pressure on the cost of living and the cost of operating businesses which begets more price increases.  As the purchasing power of money deteriorates, gold benefits.  These are long-term trends which we do not believe will be reversed by the banking/derivatives crisis in the U.S. and Europe, because the solutions to the crisis that are being implemented are highly inflationary.  While the crisis is recessionary, we believe the possibility that we will enter a deflationary cycle is remote.


From The Times
January 28, 2008
China’s growth could spark political tensions
By: David Robertson

China’s booming economy is expected to consume more than half of the world’s key resources within a decade, according to Rio Tinto.

The rapid industrialization of China’s economy means that it is likely to consume a majority of the world’s supply of all the major metals and minerals, potentially leading to clashes with other countries over access to resources. Rio Tinto, the world’s second-largest miner, said last week that China already accounted for 47 percent of all iron ore consumption, 32 percent of aluminum and 25 percent of copper.

Tom Albanese, Rio’s chief executive, has predicted that within the next couple of years this will move to 58 percent of all iron ore, 45 percent of aluminum and a third of all copper. He said: “Even with the assumption that the current growth intensity will slow, we are looking at China consuming a higher percentage of global supply.”

Vivek Tulpule, Rio’s chief economist, said that with China likely to consume more than half of the world’s key resources within a decade, political concerns would be raised as the country seeks to control access to the resources its economy needs.

In 1990, China accounted for only about 5 percent of all copper demand and 3 percent of aluminum and iron ore. The country is already the largest buyer of nickel, copper, aluminum, steel, coal, and iron ore. Only in oil does it fall behind, coming second to the United States.

By 2015, China will be consuming nearly a billion tons of iron ore a year. To meet this demand, large mining companies are ramping up production in areas such as Western Australia’s Pilbara region, which is geographically one of the closest ore deposits to China. Rio Tinto expects to increase its production in the Pilbara from 160 million tons a year to 320 million tons by 2013. BHP Billiton, the world’s largest miner, hopes to achieve 300 million tons by 2015.

Mr. Tulpule said: “The US’s consumption of the key metals has been going backwards while China has continued to grow. Its share of global demand will continue to rise until about 2020 when other economies like India start to challenge.”


Russia has global ambitions and we expect that the government is now taking steps to stop the terrible demographic trends that have plagued Russia since the collapse of the Soviet Union.  Over the last 20 years the Russian population has declined by about eight million people.  The population is aging as new births have been slowing.  There were only 1.27 million births in 2005 for a country of 140 million people.  Recent government focus on birth encouragement and social security, has improved some of these trends.  Births for instance rose to 1.5 million in 2006 (however, this is still less than the number of deaths, which was about 2.16 million in 2006).
Further, Russia’s working age population is falling every year, and labor shortages are in the offing.  Life expectancy is lower than any developed country in the world, especially among males.  For males it is lower than any non-African country.  In 2005, the life expectancy of a Russian male was only 58.1 years.

Many informed sources believe that after the March presidential election the government will offer more policies to correct some of these problems, such as by instituting better retirement benefits, working to reduce alcoholism (which is responsible for a huge number of deaths of Russian men).

The very weak social infrastructure may be revamped and Russia (rich from energy and metal sales) has the money to change the fortunes of their people.  Do they have the will to make big changes?  Or will the oligarchs continue to milk the country for their personal benefit?  I believe that in the coming years President (and soon to be Prime Minister, and then again President) Putin and colleagues will work to improve the standard of living of the average Russian in order to improve the stability of the nation and enhance their increasing significance on the world stage.

Even if public social services improve slowly, the rise in family income currently being enjoyed by the commodities boom will allow more access to healthcare services, the use of private nannies, doctors, hospitals, and schools.  Additionally, Russian citizens now have access to health and life insurance from private companies.


Our favored investment themes remain agriculture/food, gold, energy, and fast growing countries.  We favor Russia, China, India, and Brazil.  Our last theme is base metals, and we plan to buy base metal stocks on corrections like the current one.  In many of the areas we like, corrections are taking place and we are beginning to nibble on investments in these sectors and countries.


Below are some of the results we thought interesting from a world psychology study done by IANS for WORLD OPTIMISM.

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