VANCOUVER, BC - Since 2003, the rhetoric in support of stronger gold prices has been continuous and increasingly hyperbolic. Gold Bugs such as Rob McEwen of U.S. Gold have even gone so far as to suggest a price of US$5,000 an ounce, and more.

For those of us mired in the trenches of day-to-day broad market observation, and the stupefying task of trying to write something both smart and relevant every day, there is an increasing number of signs to indicate that the breakout we've all been waiting for is just around the corner.

In case you haven't been paying attention, there is a Perfect Storm gathering on the economic horizon. By that I mean a convergence of otherwise disparate financial conditions that will cause a rapid and fundamental shift in the global economic balance of power.

Gold, as we have come to realize, is what everybody buys when things start to look shaky. Its strongest gains occur when catastrophe strikes.

If the ultimate safe haven is gold as a hedge against instability, and instability is the driving force of demand for gold, then look out. Because a quick survey of the climate, energy resources, political landscape, and financial markets in general points to record growth in "instability".

An assessment by the Intergovernmental Panel on Climate Change builds on reports by two other IPCC working groups issued earlier this year that said unabated emissions from power plants, auto exhaust and other sources could drive global temperatures up as much as 11 degrees Fahrenheit by 2100, and also reported that warming was already affecting animal and plant life.

The number of people killed by terrorism around the world surged by 40 percent to more than 20,000 last year, largely because of greater violence in Iraq and Afghanistan, a U.S. report said recently.

Global terrorism fatalities rose to 20,498 in 2006 from 14,618 in 2005, with the vast majority in Iraq, according to the U.S. State Department's annual "Country Reports on Terrorism" publication.

And then there's the U.S. economy. One sign that it, and by extension the U.S. dollar, are heading for a new all-time low: the collapse of the sub-prime mortgage business.

Sub-prime and FHA loans were, as always, the hardest hit: 13.46 percent of all subprime loans are now delinquent, an increase of 77 basis points since the third quarter. And an identical percentage of FHA loans was also not performing, an increase of 66 basis points. Delinquent prime loans increased from 2.44 percent to 2.57 percent and VA loans went from a delinquency rate of 6.58 percent to 6.82 percent.

In the face of this, the illustrious Treasury Secretary Henry Paulson delivered a delusionally upbeat assessment of the real-estate market last Friday, saying, "All the signs I look at show the housing market is at or near the bottom."

Oh really?

I googled "U.S. Housing Market" in pursuit of evidence one way or the other, and the results were a tad frightening.

Here are the top eight relevant results:

1. Housing Crash Continues, Bubble Pops
2. US housing market, US hard landing - Money Week
3. The US housing market is different this time - it's worse - Money Week
4. US Housing Market Crash to Result in the Second Great Depression - MarketOracle.co.uk
5. US housing slump fuels crash fears | Business | The Observer
6. The Biggest Slump in US Housing in the Last 40 Years - Bloomberg
7. U.S. housing market worsens - detnews.com
8. BBC NEWS | Business | Top US lender in Chapter 11 move

Not exactly what I would consider positive sentiment.

So the sub-prime market and the housing market as a whole are intertwined in a downward spiral. Hardly cause for alarm. But consider that against a backdrop of other suspiciously ominous events, like:

a) The employment tracking firm Challenger & Gray's latest report shows that layoff announcements rose 18.4% year-over-year in April.

b) The jobless rate edged up to 4.5 percent. The fresh employment picture provided by the Labor Department on Friday shows that payrolls grew by just 88,000 as job losses spread beyond the struggling manufacturing and construction sectors and into retailing and financial services.

No wonder the COMEX June gold contract rose $9.30 to $684.40 this week. "It's fresh buying by funds," said Leonard Kaplan, president of Prospector Asset Management.

I'm not sure about you, but I'm going to go get my umbrella and head to the bullion dealer myself.

Until next time,

James West

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