Peter Brimelow: Harry Schultz sees $1,500 gold

By Peter Brimelow
CBSMarketWatch.com
Thursday, November 30, 2006

http://www.marketwatch.com/News/Story/Story.aspx?guid={5D7B90DD-2606-4DEC-A866-A428B3F87A9C}&siteid=mktw

NEW YORK -- The North Koreans exploded a nuclear bomb just after I wrote about the International Harry Schultz Letter in October. At the time, veteran editor Harry Schultz warned about an "October Surprise." One of his suggested surprises promptly came true.

The stock market gulped but regrouped. However, that wasn't really a problem for Schultz, whose recommended portfolio is heavily into gold and foreign currencies. According to the Hultbert Interactive, Schultz is the third highest-performing investment letter over the past 12 months as of Oct. 31, up 55.9% vs. 16.4 % for the dividend-reinvested Dow Jones Wilshire 5000 Index.

This continues a serious run of success for the octogenarian -- at least -- Schultz. (I see he's now listed as "editor emeritus" but the letter is still written in his highly personal style). Over the last five years, the letter's portfolio has appreciated at an annualized 20.6% vs. 8.9% by the Dow Jones Wilshire 5000.

Schultz is still thinking geopolitically. He writes in his latest issue, published Nov. 26:

"Biggest world risk now is Bush/ Cheney/neocons vs. Iran... [Israeli pressure] points to an attack between now and July 1, 2007. Plan your security and investments accordingly, as the spin-off effects will be global/enormous. It will give a new meaning to 'collateral damage.' Commodities/oil/metals rise; stocks slide. Economies quakey. Market anticipation begins April '07. ...Tiny chance it could happen before Jan. 20 Democratic takeover [of Congress]."

And then there's the really serious crisis -- what Schultz sees, eerily like he was predicting (rightly) in the late 1960s, as the coming crash of the U.S. dollar. He writes:

"The dependence of foreign central banks on the dollar will defer its crash but won't prevent it. Today's snowdrift will become tomorrow's avalanche. The masses of snow are accumulating at breathtaking speed. The avalanche could happen tomorrow, in a few months or years from now. Much of what people today think is immortal will be buried by the global currency crisis -- perhaps even the leadership role of the US."

Not surprisingly, Schultz is currently recommending an exposure of only 10% to 15% in non-gold stocks. His favorite sectors: oil, alternative energy, uranium, and general commodities.

Shultz is 35% to 40% in gold stocks and bullion, 20% to 30% in currencies, (mostly Australian dollars, Canadian dollars, British pounds, Swiss francs, Japanese yen), 15% to 20% Treasury bills, bonds, notes; 15% to 20% in commodities.

Interestingly, Schultz is also 5% to 10% in bear stock funds: Prudent Bear Fund (BEARX), Rydex Ursa Fund (RYURX), Profund UltraBear Fund (URPSX).

Shultz complained:

"It's a grand moment to be going to press, as gold broke through its May downtrend line at end Oct, and then last week survived a test of the $618 support level. ... I look for resistance at the 45-degree line of approximately $650 (profit taking there) and later at $675, after which the golden army will attack the $700-720 prior high. Meantime, gold shares also rose but lagged bullion, telling me that deep pockets (who buy bars and are better informed) are ahead of the small buyers (who buy shares)."

Schultz also reports "a well-placed Swiss banker" who believes that China will raise its gold reserves in the next year and that "gold will definitely hit $1,500."

Schultz comments: "That's close to my July Bloomberg TV interview forecast of $1,600 within two years."

And he notes that Freemarket Gold & Money Report's James Turk recently told Barron's that gold would reach $2,000 in six to12 months (and $8,000 later!).

Schultz's conclusion: "Interesting how [all three] have nearly identical forecasts for two-year timeframe and price."

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