It's been a big week for the cottage industry of John Paulson-watching.

The Paulson & Co. fund manager is set to launch a dedicated gold and gold mining equity-focused fund at the start of next year, in which he'll invest $250 million of his own money.

You may recall that Paulson's earlier forays into gold ignited a new rush into gold by hedge funds and investors piggybacking on the trades of sophisticated hedge fund managers. JP's new fund signals his continued positive outlook for the precious metals sector over the intermediate to long-term.

On a percentage basis, the price of silver can easily outpace gold over the next few years as both metals hit record highs after adjusting for inflation since 1980. Silver might achieve that goal far more quickly than gold.

But as gold reaches over $1,145 this week (+10% in November) there's one missing ingredient required to legitimize this historic bull market; silver must exceed its March 2008 high of $20.78 an ounce. Spot silver trades at $18.71 an ounce this morning in New York.

Today's extraordinary loose monetary conditions are "benefiting hard assets," according to James Passin, co-founder and manager of Firebird Global Fund and Firebird Global Fund II. Surplus liquidity is flowing into ETFs that buy commodity futures and physical commodities, which James says, is "creating a feedback loop" that is driving up the price of resources. James discusses gold's momentum, as well as its associated near-term risks and shares some hot companies and sectors he's following right now in this exclusive interview with The Gold Report.

The Gold Report: James, last December, you commented on the low interest rates that the government had on bonds. You said you thought that would spur inflation and an increase in commodity prices. Now that we're in the last quarter of '09, how do you feel about your predictions and what do you see going forward into 2010?

Introduction

In the Gold mining world as in life, Darwin’s law of survival of the fittest holds true. The large Gold mining companies (which we shall refer to as “Big Gold” hereinafter) need to continue growth in order to survive. Big Gold needs to replace their mined out resources in order to continue their existence and to grow.

By Lara Crigger

First there was peak oil, now there's "peak gold."

The idea that we may have already passed the zenith of worldwide gold production has never crossed many investors' minds, but now some industry insiders, like the CEO of Barrick Gold (ABX), are loudly hailing an impending mining decline. So have we hit the peak of world gold production—and more importantly, if we have, would it make any difference?

Like all commentators, I am somewhat constrained in what I write about: it has to be a subject in which people have interest. Sure, I could write about Greek mythology or backpacking in Bolivia, but if no one reads it, it becomes a fruitless exercise – and raises that cliché question “if a tree falls in a forest...?”

Regular readers will have noticed that I have been writing about precious metals mining companies more often in the last few months – and this is no accident. In my interaction with readers/investors there has been a sharp rise in awareness of and interest in these companies.

Today we take ourselves away from all the hype, from all the news being fed to us and try and decide whether the price of gold is justified. To weigh the decision we look at the textbook factors - supply and demand.

It is a special delight to present the following guest post by Sean Rakhimov, editor of silverstrategies.com, who sees first notable moves from institutional investors into the silver sector.
• • •

The Institutionalized Silver Market

Gold
Gold was unchanged yesterday and remained near record nominal highs as equities fell and the dollar staged a moderate rally. Gold appears to be attempting to consolidate at these higher levels and the unchanged close will encourage the bulls and support is now at $1,130/oz. Gold has moved back up to $1,144.70/oz and remains near record nominal highs in euro and sterling - €770/oz and £690/oz.

It is interesting to note that while government mints are working flat out to provide investors with gold and silver bullion coins, the shortages and surging premiums seen in the small coin and bar market of last year are no longer to be seen. Many retail investors are under financial pressure and many have had to sell their liquid precious metal investments (including coins and bars) and some have sold as they are wary that gold is a bubble. What is interesting is that the tightness in the small bar market seen last year appears to be more evident in the large bar market with the futures market close to backwardation (spot price or price of gold and silver for immediate delivery becomes less than price of front futures contracts - for delivery at a later date).

While this experience (and my speculation that the man had just unearthed the gold from his yard) forever cemented my impression of gold as a safe-haven asset, other aspects of the situation are instructive regarding the current gold market. The man was selling his gold at a price that was probably around $450 an ounce, and history showed that he was wise to do so. Even with gold’s recent appreciation and the financial crisis crushing the stock market, large cap equities (going from Dow 2500 to 10,332 as of market close on November 19) have outperformed gold (about $450 to $1141 an ounce) by a large margin since 1987. And that doesn’t even take into account that stocks can earn dividends, while holding gold can incur costs in the form of storage and/or insurance expenses. (For that reason, other than for people who want to keep a stash of gold at home to prepare for the most extreme scenarios, I suggest that people who want to invest in gold consider equity-based investments like the dividend yielding shares of one of the established gold mining companies such as Barrick Gold (ABX), Newmont Mining (NEM) and Gold Fields Limited (GFI).)

VanEck Market Vectors Junior Gold Mining ETF (GDXJ) has only been on the market for 7 trading days, but in this limited timeframe it has outperformed its large cap peer, the standard Market Vectors Gold Mining ETF (GDX) by over 2%.

The IMF’s International Financial Statistics show the US holding the lion’s share of global gold reserves:

(Source: Zero Hedge)

Now another pair of strategists have taken sides - although not as personal as Rogers and Roubini. Dennis Gartman, believes not only that gold is in a bubble, but that it should be obvious to everyone. But that doesn’t mean he’s necessarily climbing off the trend:

Three or four years from now, people will ask why they didn’t buy gold earlier.

- John Paulson, quoted in “Profiting From The Crash”, Gregory Zuckerman, The Wall Street Journal, October 31

Gold Daily Chart- Chart Courtesy of AVA FX (11 Nov 19)

• A continuing decline in the US dollar
• Rising optimism about the recovery igniting inflation concerns

The Central Bank of India bought 200 tons of bullion from the International Monetary Fund. The IMF thought they were getting a great deal, selling their bullion at the "height" of the market in order to raise cash to help struggling nations.

Before everyone freaks out about the claims that copper demand has seized and will never return, lets take a little look at the supply and demand balance for copper from 2008 through projected 2010.

First, let me put in a disclaimer that this information is according to Barclays' data. The article I wrote a few days ago, which argued that estimates for supply side growth are a staggering 8% for 2010, was far too optimistic as for the general analyst community. The data shown below is from Barclays and, as such, their production growth estimate is much more modest than 8%. So there is no contradiction between what I wrote a few days ago and what I am writing now. (Click to enlarge)

Exchange traded funds ((ETFs)) that track or hold gold and silver have seen a wave of inflows in assets. But do you know the tax responsibilities that come with these ETFs?

By Julian Murdoch

As Brad Zigler wrote earlier this week, the new Market Vectors Junior Gold Miners ETF (GDXJ) is off to a good start, especially compared with the Market Vectors Gold Miners ETF (GDX). But what's really going on under GDXJ's hood?