Philip Klapwijk, executive chairman of Gold Fields Minerals Services, a major consultancy based in London, gives his thoughts on the gold market in an interview with resourceinvestor.com. Mr. Klapwijk is not especially concerned with gold’s recent price drop, having thought that gold had “run too far too fast.”

He sees not only the chance of a fourth quarter rebound but also “a stream of bad news for the U.S. dollar, news that will also lead to perhaps a higher oil price environment again, and cuts in U.S. interest rates I think will be on the cards before the end of the year quite potentially.”

Yet when asked about $850 gold before year end, he answered: “I think that’s a tough call because I do believe that we will have a period of weakness now. But I would say if we were to extend the analysis into early 2008, I would be very surprised if gold does not within the next three months have an attack on that $850 level again, and I think surpass it.”

Resourceinvestor.com noted that according to the World Gold Council’s ‘Gold Demand Trends Report’ that was just released, gold demand was at a record high in the third quarter.

Meanwhile, the investment banking arm of the Royal Bank of Canada says that gold could see $900 the first quarter of 2008, with a continued declining dollar being the reason.

Gene Arensberg, in his Sunday Nov. 11 Got Gold Report for resouceinvestor.com, asked: “Why didn’t gold sell off?” If the Got Gold Report had been scheduled one day later, Arensberg wouldn’t have asked the question because gold and silver suffered big setbacks Monday, which was Veterans’ Day, with further drops Tuesday. Today, however, gold and silver rebounded in early trading.

Still, today’s gains are not nearly enough to wipe out the losses of Monday and Tuesday, which begs the question: Is the decline over, or is there still more to the downside before the metals renew their upside movement?

Arensberg was looking for gold (and silver in a sympathy move) to drop based on the record large commercials’ (LCs) short position in gold as of Tuesday Nov. 7. (Weekly positions are reported Thursdays as off Tuesdays.) With Monday’s and Tuesday’s drops, did the LCs reduce their short positions significantly?

Further, the LCs could have added to their short positions late last week as gold moved to 27-year highs. The commitment of traders report (COT) is as of Tuesday, but is released Thursdays, so the LCs could have added shorts late last week as the metals climbed, and they could have reduced their positions Monday and Tuesday.

Which puts us back to: Is the decline over, or is there still more to the downside before the metals renew their upside movement?

Frankly, I don’t know, and neither does anyone else. Still, analysts and traders (Note that’s traders, not investors.) who follow the market may be looking for a deeper decline because the LCs record position in gold. This week’s COT will shed more light on how the LCs see future action.

Arensberg’s comments on silver were interesting, particularly in that they are in line with my thoughts on silver vs. gold. Read Arensberg’s report for the details, but here are the comments that jumped out at me:

Is silver expensive here? Well, in a word, no. It may be due for a short term pullback technically, but with gold knocking on the door of its all time nominal highs silver has a mountain to climb value wise to achieve the same goal. In fact silver could triple from right here and still be under its all time 1980 nominal peak of $50. And in 1980 dollars were “worth� a lot more than now.

Adjusted for inflation silver’s 1980 $50 peak would equate to about $125 in today’s weakened U.S. currency, so silver would have to increase eight-fold just to match its peak purchasing power back then. Is that hyperbole? Well, perhaps a little, but even if silver’s 1980 mania-driven spike was a once-in-a-lifetime financial fluke, it traded for weeks over $35 back then, or the equivalent of $87.00 today. Silver could increase 400% and still not have the same purchasing power it garnered for weeks in 1980 in other words.

As for the technical short-term pullback that Arensberg suspects may be in the works, is it over? Frankly, I suspect the decline may not be over, but I am not advising any long-term investor not to buy at current levels. In the long-term, gold and silver remain favorably priced considering all the uncertainties the world faces. In the short-term, however, gold and silver can drive you crazy.

By the way, here are the gold market “drivers” that Arensberg sees:

. . . big honking write downs by the financial sector giants, a pipeline attack in Yemen, civil unrest and martial law in nuclear armed Pakistan, heavy weather in the North Sea and record high oil prices nearing $100, a mining strike in Peru, sub-prime woes expanding into prime time loans, major U.S. housing sector anxiety, lots of talk about slowing U.S. growth or even recession heaped on almost certainly higher inflation talk, a very sick and dangerously low greenback prompting increased fiat currency confidence erosion, significant and sustained short covering in both gold and silver … and the kicker this week: A high Chinese official commenting that China will be diversifying into other-than-U.S. dollars accelerating the already underway mass exodus of enormous global wealth out of the buck and mostly into the other global fiat paper promises.

The prospects of the Chinese diversifying out of dollars alone should drive people to precious metals.

We will be closed Monday, November 12, in celebration of Veterans’ Day. The COMEX will be closed also, but the Globex Internet-based exchange will trade, and action can be watched on our Spot Prices page. Note: follow the price action on the graphs, not in the table.

Despite the Globex being open Veterans’ Day, we will not be open. Additionally, the Post Office will be closed, as will banks. Besides, if there’s a holiday we should observe, it’s Veterans’ Day.

Liberty Watch has posted an excellent article about the rapidly growing in fame legal case in which a Las Vegas businessman was not found guilty for paying his employees with old US gold coins, which the businessman and his employees valued at face instead of their Federal Reserve note value.

One hundred sixty-one counts were lodged against numerous persons, but the jury delivered zero guilty verdicts. Three defendants were acquitted, but two other defendants were partly acquitted as the jury hung on one count each. The jury also hung on all counts faced by the businessman and two associates, resulting in mistrials. The government has not yet revealed whether it will re-file charges.

The results are especially fascinating because hard money advocates long have said that a $20 gold coin, regardless of when minted, has a monetary value under law of only twenty dollars. They aver that if an employee is paid a Double Eagle ($20 gold coin), he has an income of $20, not the number of Federal Reserve notes (FRNs) for which the coin could be converted, now at more than $800.

At the heart of the issue lies the fact that there is no law that differentiates among monies minted of different materials of varying intrinsic values. Before 1934, the Treasury turned out $20 gold coins and $20 gold certificates, which circulated as money because they could be converted at any bank into $20 gold coins. Over the years, through machinations only possible because of the force of government, gold certificates were replaced by FRNs. Still, Congress has made no distinction among old gold coins, base metal coins, and paper money.

Consider this: two copper-nickel fifty-cent pieces have much greater intrinsic value than one paper dollar. Still, they command the same value as money. So, why does a government-issued $20 Double Eagle have to be valued differently, for income tax purposes, while there is no difference between two half-dollars and a paper dollar?

The IRS was supposed to notify the judge in late October if the agency intended to retry the defendants whose cases were hung. The government waffled, indicating they would pursue another grand jury and issue superseding indictments.

It is my guess that the IRS will pursue the issue. The last thing the IRS wants is workers being paid in pre-1965 US 90% silver coins and those workers filing tax returns at 10% of what they would have filed if paid in FRNs. Still, it would not be a major financial problem for the government because there are not enough pre-1965 US 90% silver coins and old US coins to make a dent in the government’s income tax revenue. For the IRS, though, I’m sure it’s a “matter of principle.”