(He is Fighting The Monster that has afflicted so many of our family & friends. I know he'll be reading this so..To One of the Best Poster ever on this site and SH... our hearts and Prayers are with you as you Fight that Bastard Affliction that has destroyed so many yet,.. an increasing number are winning their bodies back. We fervently hope you'll be one of them. Best ABE & your Friends @ Club 300.")

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In 2009 global gold production finally rose slightly back up to 2570 metric tons on the back of rising Chinese production and even wider participation on a global basis. That also meant production was falling in other leading nations due to the reasons above; mining of lower grades and failure to bring on new large discoveries. Demand from risk adverse investors was still soaring and central banks became net buyers. central bank sales almost halved in 2008 and fell to 30 metric tons PA in 2009 after running at 400—500 metric tons a year between 1989 and 2007.

This was a significant shift in the fundamental picture for gold and it was expected by those investors that had done their homework. We know the central banks selling was not sustainable and that gold was a valuable component for the central banking system as a hedge against currency volatility. The global financial system was in dire need of stability mechanisms due to systemic imbalances across the board.

This reduction in supply from the central banks was equivalent to a 16% fall in global production by itself. Total global production circa 2500 metric tons and Central bank sales of 500 metric tons comes to a total of 3000 metric tons. 500 tons from 3000 tons is about 16% which is massive. Mining companies have reduced forward sales, called hedges, as well.

Hedging created forward paper sales of massive amounts of unmined production in the mid to late 90's. Some analysts claim that this, combined with central banks sales created a false low in the price of gold. I am one of these analysts as I am always looking for price distortions that can be exploited. In my view gold would never have gone below US$400 an ounce without central bank selling and forced hedging by financial institutions.

In this case, the miners were also exploited however and many were lucky to survive at all. Having lived and run mining businesses through such rough times these gold miners are very well justified to be angry about any talk of any super profits tax. They, like farmers for instance are entitled to enjoy some good years when they finally arrive, reap the benefits and put something away for the lean years in future.

The thing to remember is that, if some of us are right, that gold would not have fallen below US$400 per ounce without central-bank selling and the sale of paper gold hedges (unmined gold,) then this gold bull is younger than you might think. Bubble propaganda states that we are up over 5x from US$250 however this is barely over 3x from US$400 to US$1400. In Australia we bottomed at around AUD$550 around the year 2000 are at $1400 now for a rise of under 3x. So what? This gold run is just getting started and the mania stage is still far enough away for us to accumulate a larger and larger portfolio with the right strategy.

When you factor in the rising demand for gold, which surpassed 3,800 metric tons in 2010, you get a compelling argument for a substantial upside for gold price—and China is just getting started. They are importing ever larger volumes of gold and silver creating a sustainable demand curve. When China's disposable income class recognises rising inflation and economic risk to a greater degree this can rise rapidly and significantly.

The official sector, governments and central banks will continue to hold gold as a valuable part of their reserves. They are probably more risk adverse than the average investor because they understand the challenges in the financial system better. So where does this all leave us? Rising demand from several sources, rising need and awareness, stuck production levels and higher production costs has to equal a steadily rising gold (and silver) price.

Our analysis indicates that, correctly managed, we still have greater upside from investing in the mining companies. We do recommend some physical metal as part of your strategy, however, not to hold the metal at home. There already have been some home invasions and theft of precious metals, so even a safe is not safe. Store the metal in safety and spread it around different institutions—no matter what the cost. It is worth it for the sake of your own personal safety.

Predictive Analysis

The gold stocks are extremely fluid in that takeovers, mergers, mishaps, new projects and discoveries make the sector more difficult to follow. The rewards for doing so however far outweigh the time consumed by the process. If you are busy this ongoing work can be purchased for as little as $1 per day. Due to the nature of the industry and how the index components change on a regular basis I am rapidly giving up on any index analysis of this type.

We are just not measuring apples against apples in the indexes any more due to de-listings from the ASX (such as Centamin), major mergers (such as Newcrest and Lihir) and new entrants to the indices. This market has become one where you have to play stocks on an individual basis and I view this as a good thing. It makes it much harder for novice investors however the good news is that despite the strong run in gold in AUD terms since 2005 there is still some low hanging fruit. We can still identify stocks that represent major upside for investors, stocks I expect to go up five to tenfold over the coming three years purely due to organic growth.

We are monitoring a number of the more promising stocks (at current prices) in an Ideal Portfolio to show the gains in real time. We also include investment rationale and timing theory as put to the test. We are also monitoring the sector by individual stocks and have added a few new producers, developers and explorers of value lately. I believe this is the best approach for capital growth.

We measure the performance of these stocks quarter on quarter in our ratings tables and, therefore, have followed the progress of the producers and developers very closely. High gold and silver prices are driving the industry to perform and it is meeting the challenge to the delight of shareholders. There is much talk of a gold mania and I do believe that the banking and political systems make this inevitable over the coming years. The optimum way to protect yourself and grow your wealth is to hold on for the ride and to constantly do your due diligence on these companies to follow their progress.

Good trading/investing.

Neil Charnock
http://goldoz.com.au/" target="_blank">goldoz.com.au