PETER SPINA launched the highly-ranked GoldSeek.com website in 1995, developing the service as this decade's secular bull market in precious metals took shape.

Peter's technically focused subscription newsletter, Gold Seeker Report, joined forces with three-decade gold analyst Julian Phillips to create GoldForecaster.com in 2005, and in addition to advising clients on mining-stock and precious metal investments, Peter now frequently appears in the media, including Investor's Business Daily, the Wall Street Journal's MarketWatch, Reuters and TheStreet.com.

Here he speaks to the Gold Report about why, a year from now he believes, we'll look back on $1000 gold as a bargain...

The Gold Report: We've seen some big bumps for gold several times this month, with the price nudging the $1,050 mark now. What's behind the spike?

Peter Spina: There's a lot of confusion out there now, but the bull market in gold is not about jewelry demand; it's about money. As gold keeps reaching new record highs, it's becoming more apparent what's driving it. The true issue at hand is trust (or lack of it) in the value of paper money – specifically the US Dollar. What's really made this country so strong has been the value of its currency.

We're seeing a shift away from US Dollar reserve assets. The value of the Dollar had been primarily driven by demand in its global use, including trade in Dollars, specifically, the oil trade. There are growing rumors about shifting some of that oil trade away from the Dollar, and at the same time, central banks around the world are diversifying away from it. Combine that with other factors we're experiencing – trade deficits, internal deficits, the incredible amount of printing of Dollars to bail out banks and provide stimulus and so on. It can't go on.

The US internal deficit is nearing $2 trillion a year and growing, especially in the last year. Now they're talking about projections from the recent financial bailouts total obligations exceeding $20 trillion. That doesn't take into account future banking and derivative issues, which are upcoming. Already, we do not have the ability to finance our debt. It requires about 80% of the world's savings to support our debt habits, and we're just increasing our debt load so quickly – our appetite for a debt is increasing.

How do we continue to finance this kind of system? This has to play itself out at some point and I believe inflation will be the outcome from all this paper printing via growing monetization of US debt. It will cheapen the debt load, but there will be some severe consequences to pay. The price we'll pay will be reflected in devaluation of the US Dollar along with a degree of influence such power provides. Gold will benefit from this process. As people look for sound money and a safe-haven asset, gold will be the obvious choice.

TGR: Aren't most governments printing more currency to do some form of stimulus in their own countries, and not just the US?

Peter Spina: Yes, they are. Gold is actually moving up in foreign currencies as well as US Dollar terms, and we could see a widespread devaluation of paper currencies versus gold. A global paper currency problem really brings gold to the forefront.

TGR: Why didn't Gold take off earlier in the year, when a lot of that activity you described was already taking place? This is not news.

Peter Spina: It's a process. In relative terms, gold is such a tiny market that it commands quite limited attention in the financial world. That's changing, but it's a process that takes time. Some heavy accumulation behind the scenes helps support the Gold Price to this point, but some other factors tended to calm down the price appreciation. Primary among these factors has been general stabilization of this turmoil that engulfed us toward the end of last year and early this year. The mass psychology of the markets has shifted and is actually quite good, all things considered. Removal of the fear factor has driven away tension and stabilized things.

I just think there's not a broad understanding of the process, which is ongoing. I believe the US Dollar is going to really start losing its footing but the stock market is going to continue to stay firm and grow. As the Dollar begins losing its value and gets to the point where that may happen very quickly, the situation will change and people should realize quickly what's going on. The squeeze on the Dollar will be reflected in the Gold Price taking off.

TGR: How high can gold go? Won't people who aren't invested in it already going to get minimal return because it's already spiked up so much?

Peter Spina: There are definitely short-term risks after spikes. Gold reached $1000 a couple of times and then pulled back to the $900 for most of this year. Now, after breaking through $1000 again, it could rally to $1100 to $1300 and then pull back somewhat. That said, same time next year I believe we'll look back and say, "Wow, $1000 was cheap; it was a bargain." So $1500 to $2000 gold in the next 12 to 18 months seems definitely within sight.

TGR: Do you see a situation where we might use gold as actual currency and actually go back to a gold standard?

Peter Spina: Direct use of it, while possible, is not likely. But I believe we'll be using gold in form or other in trade and/or in backing a new currency. We'll see central banks holding more gold in attempt to stabilize their currencies. They've already shifted from disposing gold on a net basis to accumulating gold to their reserves.

TGR: As you look at the gold sector just in the last year, the spot Gold Price has gone up 20% to 25% up until these recent bumps. But during that period, the gold equities have doubled, tripled, quadrupled. It's been amazing. Is the play here in holding Physical Gold Metal or the Gold Mining equities?

Peter Spina: When you invest in mining stocks you take on a greater degree of risk; for that you are entitled to a greater reward. As we saw last year when the markets collapsed, mining equities dropped quite severely. Valuations on many of the stocks went down 70%, 80%, 90% – so these equities are a lot more volatile and sensitive to general market conditions. There are arguments for and against, but I believe a good portfolio should contain both bullion and mining stocks and, within the mining stocks, include more stable mining equities and some high-risk speculative investment opportunities such as exploration plays. But I believe the mining stocks, the gold stocks, will outperform the metal itself.

TGR: You mentioned that an investor should be looking at fairly stable equities along with some more speculative exploration opportunities. Do you define "stable" as the majors?

Peter Spina: Yes, those that would be classified as senior Gold companies, with annualized gold production in the multi-millions of ounces. With a basket of those companies, you can march down to the mid-tiers and the smaller-cap gold stocks for more leverage.

TGR: A couple of years ago, when we had a handful of uranium companies, uranium had a run up, and then suddenly hundreds and hundreds of uranium companies flooded the market. Does that happen any time a mania begins? Are we likely to see the same thing in gold, except that hundreds of gold companies may multiply into thousands? If that happens, how do you decide where to invest?

Peter Spina: As the Gold Price rises, I think we will see some companies coming in that people should be very careful about investing in. They may do well in the bull market, but when all is said and done, if there's nothing really behind them, they will be the ones that will go away first. As you know, we saw a bit of a washout last year with the market correction. Some good quality companies took a hit and went under or emerged as somewhat different companies. But there were others that I would never have invested in, kind of moose pasture want-to-be Gold Investments. When those faded away while the good assets remained, that was good for the market.
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