After spending most of the year 2002 bumping its head up against the seemingly insurmountable price barrier of $328, gold began moving upward from the $317 area during the first week of December last year, and barrelled through all the price barriers that had once seemed so formidable.

Previously significant price obstacles such as $328, $330, and gold’s prior five-year high of $338 all fell quickly, and then gold really started to show strength. Gold’s price march paused briefly in January in the $350s, but then proceeded to take out $360 a couple of weeks ago, $370 last week, $380 this Tuesday, and finally, tired from its strenuous run, just ran out of steam as prices spiked to $390 early on Wednesday.

Could such a rally have gone on forever? Not in the real world.

This run in gold had become a spike, a giddy upward move that fed on itself and just made life hell for those either short gold or waiting for it to correct a bit so that they could buy some. Gold prices for nearly two solid months could do no wrong, saw no serious corrections, and simply astounded and baffled those involved in the metals markets.

The basic reasons for owning gold remain intact. And, we believe, the positive price action in gold is a trend that will be in place for years to come. This undervalued and long-ignored monetary constant is finally having its day after a 20-year dormancy. And despite the numerous corrections we will see as part of its run against the US dollar, a fundamental re-appraisal of gold is taking place that will be similar in order of magnitude to that of the era 1970-1980.

Deutsche Bank’s Kenneth Landon said this week that "the plunge in the value of the dollar relative to gold is the biggest monetary story of the past two decades." The weakening US dollar is, in part symptomatic of myriad threats to America’s hegemonic hold on the world, economically, militarily, and culturally.

James Grant, in a Forbes magazine column of 2/17/03 entitled “The Case for Gold,” says that “The metal will do well in a time when inflation is heading up and short-term interest rates are negative (in terms of real, after-inflation return -ed.). “Don’t be misled by those who say commodity prices will stay low.”

Federal Reserve Board governor Bernanke stated in November that he has a printing press and knows how to use it. To avoid deflation, the Fed has essentially vowed to crank out portraits of dead presidents like there’s no tomorrow. Fed chief Alan Greenspan speaks almost wistfully of the days of the gold standard, when the stability of gold served as a monetary anchor.

As we contemplate the possible end of the dollar’s dominance of the world’s economies, gold, a metal that as recently as 2001 had no friends, can now be said to have no enemies. And as it takes a breather during this price correction, there will be chances for gold’s friends to acquire some at more favorable prices.