We have been hearing and reading the prognostications from both pundits and experts alike that oil and gasoline are headed to far loftier prices. Yet few project the potential for a near-term 50% or greater advance, which I now believe has a high level of probability. My only caveat is that oil must first confirm its break-out by remaining above it’s old high, which it posted during the Gulf War in 1990, of about $41.25 a barrel for several trading sessions.

Commentators talk about the war in Iraq and the potential for disruptions in the oil supply as the reasons for their higher price projections. This is supported by the damage done to Iraqi and Saudi Arabian pipelines as well as by the deaths of a number of non-Saudi nationals whose purpose was to maintain Saudi oil production. Or, they discuss the great oil thirst emanating from China and the improvement in the world economy. These have combined to pressure crude’s supply vs. demand equation. However, the key reason for my projection is simple. It is solely based upon historical commodity price movements which resulted after earlier all-time highs were breached.

The last time that we experienced a number of record commodity highs was in the 1970's. During that period, as one commodity after another broke through the restraining, invisible ceilings that were their earlier peaks, they experienced enormous, explosive price advances. As commodity after commodity soared into new high territory they astounded all onlookers as they quickly ascended not 10% or 20% above their earlier apexes, but 30% to 59% or higher.

In his March, 2004 newsletter Past Present Futures (1158 26th St. #523, Santa Monica, CA 90403-4698), James Flanagan listed the startling results of his extensive historical research of commodity price advances. In his study of the twenty-five most recent commodity price rises, after new highs were posted, he found that seventeen of the twenty-five (68%) increased 30% or more, and that ten of the twenty-five (40%) advanced 59% or more. Even more stunning was the short time-frames in which occurred these enormous price gains. Twenty-one of the twenty-five (84%) lasted 3 months, 18 days or less, and eighteen of the twenty-five (68%) lasted 2 months, 20 days or less. Based upon the precedents that Mr. Flanagan found, if oil can muster sufficient strength to firmly position itself above its all-time high, the world should shortly witness a crude oil price explosion of enormous proportions.

These mind-boggling commodity price rises resulted from what I believe were a confluence of events that accompany a commodity’s price movement when it breaks above an established high. They are as follows: First, the commodity had already been in a Bull Market. Supply and demand had become unbalanced which created extremely tight market supplies. Second, prices were bid up by those who used the commodity, the commercials, and by others who recognized and desired to profit from its Bull Market’s progress. These players moved the market higher until its price butted up against its earlier historical high. Then, some short-sellers who were overwhelmed by the amount of buying began to realize and accept the existence of the Bull Market. They attempted to exit their positions; they also bought. Or, they may have even reversed course and acquired additional contracts.

When the old high was surpassed new traders, trend players, chartists, the equivalent of our present hedge funds etc., sensed the appearance of the new trend as well as the fear in the actions of the short holders; they smelled blood in the water. They initiated or added to their long positions. Then, as ever more shorts unwound their positions by placing off-setting buy orders, panic set in among the remaining short-sellers. These players had already sustained significant losses due to having bet against the bull trend. They had steadily watched the market move higher and feared further potential devastating damage. They desperately wanted out.

Finally, as prices moved increasingly above the old peak, a new situation transpired. Those who held early long positions were emboldened to make additional purchases. They had already profited significantly from the commodity’s advance and they recognized that its price was heading still higher. Additionally, the consumers of the commodity became frightened that they would have to pay sharply higher prices. They made additional purchases to hedge that possibility.

These groups were then joined by the technicians, momentum players and others, who had observed the Bull Market in progress. They finally “pulled the trigger” and, along with the remaining short players who were madly scrambling to exit their positions, they too bought. The end result was an enormous influx of buying which overwhelmed the limited amount of selling. Many of those who might have considered shorting the market were already on the sidelines licking their wounds.

As you can see from the excellent work of Jim Flanagan, the exciting price rises that historically follow new commodity prices records are typically brief in duration. Further, when the run is finally over, the commodity’s price is normally substantially above its earlier high. These great price advances end from exhaustion as do all major price movements. The unwinding of this or a similar series of events in the marketplace is nothing new. Indeed, they are based in human nature and are repeated throughout history. They not only occur in commodities, but in stocks, bonds, currencies and any other exchange traded market. However the greatest potential price gains normally accrue to the commodities.

Interestingly, shortly after a record commodity high price is struck, there are frequently initial pull-backs. Thus, it is not unusual for the first thrust above the earlier high to be met with aggressive selling. The longer that an all-time high has been in place, and especially the more times that its penetration was prevented, the greater are the short players mind-sets that it will hold. Then as now, traders knew that all-time peaks have historically been some of the best places to initiate short positions. This is because those price levels had already successfully repelled a commodity’s upward progress, and thus the odds favored a repeat performance. Often, these areas create “double tops” from which lower prices ensue.

This knowledge works to the advantage of the bulls because it sets the stage for short-sellers to pile in when an all-time high point is approached or minimally breached. When a great Bull Market is in force, such as I believe that we have across the commodity boards and especially in crude oil and gasoline, the short players find themselves on the wrong side of what is destined to become a major up-wave in progress. If the shorts initially succeed in forcing the commodity’s price briefly below its break-out point, they are increasing both their potential losses and the magnitude of the final advance.

This results because their new, aggressive short-selling acts to further coil the spring. It has been tightened due to the supply vs. demand imbalance that has already driven the commodity to record levels. After the commodity’s brief decline is exhausted a new wave of buying enters the market, and the short-sellers are trapped. However, due to their gallant effort to again force the commodity lower, the number of shorts that must be reversed has increased.

Oil posted a high of about $41.25 a barrel in 1990. It again rallied to $40 in January, 2003, and approached that level, only to fail posting a new high. To the minds of numerous real and potential short-sellers the $40 to $41.25 range is a confirmed area of great resistance. It is for this reason that we are in the midst of a great battle between those who are aligned, with what I believe is a great secular Bull Market, and those who feel that they can once again turn back the oil tide.

I believe that the stage is set for an explosive rise in the price of oil. All that is needed to light the fuse is for crude oil to hold above its old high for a short period. If this occurs, and if history is a guide, it will quickly find itself in the $55 to $70 price range.

I believe that the real reason why the market has advanced during the past year and a half, and has exhibited such resistance to decline, is the massive amount of liquidity that the Fed has created. In their frantic effort to reverse our economic weakness the Federal Reserve System has produced an enormous amount of new, potentially inflationary dollar credits. These newly issued dollars had to go somewhere. And, due to the generally held belief that the stock market is the place for savings, and housing prices have been heading skyward for quite some time, much of this money was drawn into these two areas.

On the other side of the coin is the fact that U.S. common stocks entered a secular Bear Market during the summer of 1999. For similar reasons as stated above, the unprecedented amount of Fed generated liquidity has delayed the unfolding of the Bear Market. Common stocks remain greatly overvalued. The S & P 500 continues to be priced at a P.E. ratio of thirty-ish and its dividend yield is two percent. Historical market tops occurred when its P.E. ratio was in the neighborhood of twenty-one and its dividend yield approached and was seldom below three percent.

The struggle between the Fed’s desire to keep the economy afloat and the ultimate overwhelming of their efforts by the wrath of the bear, is exhibited best in the machinations of common stocks. When the Fed finally loses the battle, and unless they literally destroy the purchasing power of the dollar, we will experience a severe, long-term decline. That is if they still have sufficient influence to avoid a stock market collapse.

Most investors do not understand what is a real, secular Bull or Bear Market. Briefly stated, they begin at extremes and do not end until the opposite extreme occurs. In the case of a Bull Market, they peak after the market has reached a point of excessive, historical overvaluation. When the Bear Market takes hold it will not be completed until it progress and takes the market down to a level where it offers great values. In the history of the U.S. stock market, great values at Bear Market lows were when, as measured by the S & P 500, dividend yields were about six percent or higher, and the price-earnings ratio was well below ten, and often in the range of seven or eight. This is a far cry from today’s lofty levels. Further, Bear Markets have not ended during pleasant times. Business conditions were typically depressed or worse, and earnings were substantially below their earlier highs. Therefore, investors doubly suffered by a combination of lower earnings and a reduced P.E. multiple.

Today, the market is quite oversold which is likely a major reason why it is resisting a decline. On the other hand, many of the internals of the market are quite weak such as the advance-decline line and the increase in new lows over new highs. It remains to be seen when the market will succumb to the bear. For me, I would rather be invested in a major Bull Market such as that which exists in the precious metals universe, and suffer its periodic price declines, than hope, wish and pray that common stocks are really a form of savings, much of which I believe will be eventually lost.

To my mind, the all clear signal that gold has resumed its Bull Market will occur when it rises above both its 200 day and 50 day moving averages. The 200 day average is presently at 394.65 and its 50 day average is at 399.65.

Gold remains negatively influenced by a number of powerful factors. The masses still do not understand gold’s importance to both themselves and to mankind. They would rather either ignore it or short it if the correct circumstance arises. Further, it is currently being affected more by the dollar’s or the bond market’s day to day price performances, rather than the ongoing, gradual, unnoticed destruction of the dollar. This is fostered by a frightened Federal Reserve which is rapidly increasing the money supply in their frantic effort to prevent a deflationary event. Witness the two week period in early May, when M3 increased by a whopping $100+ billion.

Today, gold typically rises when the dollar or interest rates fall. Conversely, it falls when the dollar and interest rates rise. Further, there are powerful political forces that feel compelled, and are still capable, to prevent a rapid ascent in the gold price. I am confident that as more and more people begin to recognize that gold is likely their best lifeboat in the sea of uncertainty and turmoil in which we find ourselves, the yellow metal will again regain both a far greater following and its proper status as the only desired form of money.

We learn from the various news media that gold does not earn interest. Further, we are repeatedly told that as interest rates rise gold is a dead asset. This is allegedly because it is both costly to hold and the money invested in it can earn a greater return if placed elsewhere. For these reasons most investors believe that rising interest rates are anathema to gold. This is a falsely promoted belief that could not be further from the truth.

Most inflationary periods occurred towards and during the end phases of expansionary economic cycles. During these periods the demand for raw goods, commodities, increased and the available surplus supply was consumed in the fabrication of fast selling items. Further, excess capacity and the pool of unemployed workers that existed during the earlier quiet economic periods were utilized and employed. These conditions gradually led to an increase in the cost of doing business and generally rising prices.

As business improved so did the demand for money. This was needed by companies for acquisitions, improvements, expansion, etc., in order to take advantage of their increased business activity. No one desires to turn away business. Consumers on the other hand increased their purchases because of the euphoria generated by the positive business climate. As new loans were initiated by business and consumers alike, the Federal Reserve System reacted by increasing the money supply. This resulted in an increase in the volume of inflationary purchasing media because the money supply grew faster than the amount of new goods and services that entered the economy. Then, as the country’s purchasing media declined in value, due to the excessive amount of new dollars in the system, bondholders became frightened. They recognized that the buying power of the money that they received upon liquidation of their bonds, would likely be less than it was when they originated their investments. In effect, they would suffer a purchasing power loss. They therefore demanded a greater rate of interest before they were willing to commit their money to protect themselves.

Gold offers a form of stability that is not found in the world of fiat currencies; paper money that solely possesses its value by government decree. Gold must be dug from the bowls of the earth by the sweat and toil of humans. It has eternally been coveted by man, and cannot be created from nothing as can paper currency. It is therefore the only honest form of money.

There are three criteria that must be met for any form of money to endure the test of time. Gold is the sole substance that has been utilized by mankind which possesses all three. First, it acts as a medium of exchange; a true gold standard in which gold is used to back a paper currency could be implemented today. Second, it acts as a standard of value against which all other items are measured. Finally, gold alone has acted as a store of value. This is the area in which all paper currencies have ultimately failed. Witness the experience of our own dollar since its ties with gold began to be separated.

I’m sure that all readers have seen a chart of the dollar’s decline in purchasing power during the past six or so decades. Today it can purchase but a few percent of the goods and services that it could during the 1940's. An ounce of gold, on the other hand, can still buy about the same quantity of items as it then could. It is true that gold’s value oscillated greatly since 1968, and could periodically purchase more or less during the ensuing years. Gold is not perfect! However, compared with the fashion in which our paper currency along with all others have continually lost their value, gold offers the best alternative for mankind.

Since the beginning of civilization gold has moved in and out of the role of money. Whenever it was expedient for a government to increase their country’s amount of money in existence, gold was gradually forced out of the system. Yet, time and time again it returned. I believe that gold is destined to one day again return and act as the basis for our monetary system. Unfortunately, it will likely only occur after the dollar has lost its credibility in both our nation and in the eyes of the rest of the world, and with gold at a far higher price.

An increasing number of the juniors after posting lows which were far below their recent high points, appear to have reversed their direction. While the majority of the exploration companies remain languishing near or at their lows, this sector has surprised me with its resilience. The junior segment is truly oversold and there are waiting buyers who are aggressively purchasing shares of their favorite explorers. This indicates that they believe that the lows have passed.

I however am not so confident. As I stated in my interim missive “The Beginning of the End”, these companies should lag the major gold producers, and may as a group languish for a while after bouncing off of their ultimate nadirs.

I do however believe that given the recent strength of the gold stocks, initial purchases can be made at this time. If the producing and exploration companies continue to exhibit an upward bias, this can be added to as my above price targets are met.

The one problem with attempting to pick the bottom of corrections in a gold Bull Market can be seen through my experience during the one in the 1970's. In that market more often than not, after posting their intermediate low points during periods of price declines, the gold shares quickly rocketed higher and left those hoping for lower prices out of position. This is a major reason why I am suggesting some acquisitions at this time. Prices may fall lower, but the odds now strongly favor that the worst has past.

I recently spoke with the directors of Athlone Minerals. While the results from their Belle Fourche play have been disappointing they still plan on testing their easternmost well. Further, I was incorrect in stating in my last Letter that they abandoned the other wells that they drilled there. They assured me that they have not, and plan to work on them in the future. The company still has $3.5 C. million in cash. Further, they and their partner have acquired an additional 5 sections in their Amoeba play in Alberta, which they anticipate drill testing as soon as they can acquire a rig. This well will be quite significant for the company if it is successful. Additionally, beginning in early July, Athlone should be receiving about $375,000 C. annually from the sale of natural gas and oil from their three successful wells on two other projects. They are also continuing to look for additional opportunities and, by early summer, they expect to participate in the re-completion of a potentially major gas well at White Court.

Canadian Gold Hunter just made a highly unusual announcement that confirms the confidence that investors have in their future. They closed, in two tranches, a $3.9 C. million financing at $1.25 C. a unit. This occurred when their stock was trading at about $0.70 C. Rarely does one witness such an event. They anticipate drilling their GJ and Kinaskan projects in British Colombia and resuming diamond drilling at their Assean Lake project in Manitoba by July. These will be followed by a drill program at their British Colombia, Bob Creek and QCM plays in the Fall.

Cardero Resources was informed by Anglo American, their partner in their vast Baja Peninsula project, that their initial drilling should commence by mid-June. Anglo has already defined five or six high priority targets and will first drill their enormous iron oxide copper gold (IOCG) San Fernando anomaly. It is about 4 km. by 1400 m. in size. The magnitude of this project is so immense that one successful drill hole can cause its stock to trade dramatically higher. They are also progressing on their wholly owned IOCG Pampa de Pongo project in Argentina, which they will shortly be drilling.

CMQ Resources closed a $6.5 C. million financing at $0.80 C. a unit. A subsidiary of Gold Fields subscribed for $4 C. million of the offering. This brings their fully diluted interest in the company to over 11%. The proceeds will be used to accelerate CMQ's exploration program on its Montezuma and Vasquir properties in Crescent Valley, Nevada. They are currently drilling a four hole phase on the Montezuma property to explore targets within a Carlin-style system. They intend to follow this with a Fall program of 9 to 12 additional drill holes on that property, along with an initial 6 to 8 drill hole program on their nearby Vasquir property.

Coral Gold completed their recent drill program and will release the results when they are received. Endeavor Mining Capital announced that they will be announcing monthly net asset values for the company. This should help investors better follow their progress. Great Basin Gold has resumed drilling on its White Cloud project just south of their Ivanhoe project in Nevada. This follows encouraging results from their 2003 drill campaign.

Northern Dynasty Minerals has resumed various work programs at their Pebble project in southwestern Alaska. Their total budget for this phase exceeds $20 C. million. These programs are designed to collect the engineering, environmental and socioeconomic data for next year’s completion of a bankable feasibility study. They will simultaneously be applying for permits for the construction, operation and closure of a long-life, large-scale, open-pit, gold-copper-molybdenum-silver mine and its related infrastructure. Current assessments of the optimum milling capacity for the Pebble project range from 90,000 to 200,000 tonnes per day over a 30-to-60-year mine life.

Palladon Resources is working on a seven hole drill project on their Utah properties. The initial results should be shortly released. Further, management is in the process of determining the best fashion in which to bring this project into production, which they hope will occur during 2005. Solomon Resources completed their 3 hole drill program on their IOCG project in Argentina. Results are pending and will be released as soon as they are received.

Strathmore Minerals has agreed to acquire the 800 acre Cedar Rim claims in the Wind River basin of Wyoming. The original discovery was made by Exxon minerals in the 1970's, where drilling has already indicated uranium mineralization of sufficient size to warrant consideration as a satellite in-situ leach (ISL) operation. The ISL process uses water wells and oxygen-fortified groundwater to mine uranium in place. It is the safest and environmentally friendly method known for mining uranium. The uranium market remains robust with current prices at $17.75 a pound. I continue to anticipate uranium to rise substantially from today’s prices. As oil and natural gas move higher in price, alternative energy sources will come into great demand. I feel that uranium will be one of the leaders in this regard. This will enormously benefit Strathmore because they already have a substantial number of resource pounds to their credit, to which they continue to add. Their share price has greatly suffered lately due to the recent free-trading of shares from a series of stock financings. This should continue for another month or so and, I believe, offers an opportunity to cheaply acquire their stock.

Taseko Mines is scheduled to restart operations at its Gibraltar mine located near Williams Lake in south-central British Columbia. Taseko's objective is to re-establish the Gibraltar mine with a competitive and predictable cost structure that is responsive to market conditions. This will result in sustainable operations over the long term. Ronald W. Thiessen its president and CEO recently stated: "Gibraltar restart activities are well under way and have progressed to the point where we are confident that the mine will deliver its first copper concentrate to the market on Oct. 1, 2004. Most of the prerequisites of the restart and delivery schedules are secure, and operations are proceeding on a normal course basis. We are pleased with the accomplishments to date by our 12-member mine site senior management and technical team."