Gold blasted right up to my $540 target this week, piercing it by a buck, to reach as high as $541.
Now, it’s pulled back to the $510 level.
Next move: Expect gold to chop around a bit in this area before blasting off again toward $618 and then $740!
Don’t let anyone fool you otherwise: The bull market in gold is far from over.
Will it be straight up? No. The ride is bound to be bumpy with long, sweeping rises followed by sharp sell-offs that seem to come out of the blue, such as we’ve seen in the last couple of days. Ditto for gold mining shares. That’s the nature of the beast when a bull market reaches 24-year highs: Volatility increases.
In this environment, a short-term or emotional focus will cost you.
But as long as you retain some basic discipline and objectivity, never losing sight of the long-term trend, you should make out like a bandit.
Real Wealth Portfolios Beat
the Pants off the Major Indexes
Gold is not the only natural resource going through the roof.
Just last week, for example, I sent out a flash alert to my Real Wealth Report subscribers to bag gains of up to 30% on ITT Industries. ITT is a high-tech company involved in the water business, one of the world’s most precious natural resources.
But the opportunities in this sector remain boundless, and I see many more to come.
The inescapable reality: The world is suffering from a massive water crisis.
Twenty percent of the world’s population has no access to safe drinking water.
FIFTY PERCENT lack sanitation.
More than 2.2 million people die each year from diseases related to contaminated drinking water and poor sanitation.
Another 200 million suffer from diseases associated with lack of potable water.
Yet hardly anyone on Wall Street is paying attention to this situation. And ITT is just one example of water companies that have been profitable for subscribers to my Real Wealth Report. I also told them to bag a minor 7% gain on Watts Water Technologies and a 68% gain on Ionics.
And water is just one of many natural resources that have been neglected by Wall Street, and one of the many that has provided a very fertile ground for profits this year.
If you’re a subscriber to my Real Wealth Report, and you have followed my recommendations, check my estimates of the overall results for the year through December 13 (before any broker commissions).
Gains on positions closed in 2005: $13,053.35
Gains on open positions and bonus recommendations: $10,417.43
Total gains (on all open and closed positions): $23,470.78
Return (including yield-oriented investments): 23.5%
Depending on the actual prices you got, your performance may differ
— for the better or for worse. But overall, it should be in the same ballpark. If so, great. Don’t change a thing in your procedures. If not, check to make sure you are acting promptly on my recommendations.
The above estimates assume that, for each purchase and sale, you get the closing price on the day after you receive my issues in the mail. If you are accessing my issues on line, you may be able to do even better than the 23.5%.
In contrast, the Dow, S&P 500, and the Nasdaq are up 1.5%, 5.6% … and 5.5% respectively. So Real Wealth Report has outperformed the best performing of these averages by a factor of four to one, despite the fact that the portfolio also includes relatively conservative, yield-oriented investments.
Phase II of the Natural Resources Boom
Of course, past performance is no guarantee of future results. But with what I see ahead, it should be even better next year.
Reason: After a relatively choppy period for gold and other metals during much of 2005, nearly all commodity markets have now signaled the beginning of Phase II of the natural resource boom.
This is not a subtle change. It is ushering in a new era of faster, steeper and more profitable price rises.
Nor is it just a single-year phenomenon. On average, commodity booms last 15 to 18 years, and the current boom is merely four years old.
But history is not my only basis for reaching this conclusion. Virtually every chart I look at tells me that natural resources are now in a classic bull market.
Over and over again, I see a pattern of powerful rises, punctuated by normal corrections, which, in turn, are consistently followed by another round of sweeping gains. To see what I mean, take a look at this chart of the Morgan Stanley Commodity Index.
The blue lines I’ve drawn under the actual price action of the index show how enduring, long-term bull markets behave:
They typically rise for extended periods, then experience sharp but shallow corrections, followed by still higher highs.
This is classic bull market behavior.
Moreover, the action in major natural resources such as gold, oil and gas are following the same pattern:
Yes, they endure corrections. But each correction merely gives new investors the opportunity to buy, or gives prior investors the chance to buy more. Prices move higher again. Another correction unfolds. And a new wave of buying emerges from the woodwork yet again.
How do you estimate how far the market can rise? There are no sure-fire formulas. But all my analytical approaches are now unanimously pointing in the same direction: Up!
First, as I stated earlier, we know that the current boom is only about four years old, an infant compared to previous booms in natural resources. Based on that alone, the bull market in natural resources has a long way to go. Never lose sight of that big-picture perspective.
Second, my charts and cycle analysis point substantially higher for each of the two natural resources that I believe are the most pivotal: Gold and oil.
In my gold chart, notice how, until just recently, the price of the yellow metal had been in a very steady uptrend channel for nearly three years.
Now look: It has exploded through the top of that channel, establishing an even quicker rate of ascent. That’s very bullish.
Next, see the long, rising line stretching from 2001 to 2006 and beyond? This is what I call a “cyclical price projection line.†It’s based on a computer-calculated model I designed in the 1980s which, so far, has been very helpful in projecting long-term moves and targets.
In early 2006, this line is close to the $600 level, and it climbs higher as we move forward in time. I’ve drawn it to show you roughly where I think gold is headed.
Indeed, I expect gold to be attracted to this line like a magnet.
Now, here’s my chart of crude oil.
Again, the uptrend channel is clear. The upper line in that channel, however, is not merely a parallel line.
It also coincides with my “cyclical price projection line†calculated by my computer model, similar to the one I showed you above in gold.
I expect oil prices will tend to gravitate toward this line throughout 2006. In early 2006, the price projection line is near the $90 level. By the end of 2006, it’s above $100.
Make no mistake about it. The natural resource markets are just entering Phase II of their boom, with much higher prices coming.
2006 is going to be a wild ride in many markets, raising a series of urgent questions for investors:
Will the Fed continue to raise interest rates to get a handle on inflation, or, will they back off and let inflation rage higher? Will the budget and trade deficits rage out of control, affecting the value of the U.S. dollar?
How will the broad stock markets perform?
If you have been following me for a while, you should know which way I’m leaning on these issues. More inflation, another leg up in natural resources, a weaker dollar, and a difficult, to say the least, broad stock market.
But for all my answers, along with my complete forecasts for 2006, please see the December issue of my Real Wealth Report, which will be mailed to subscribers and posted to my password-protected website tomorrow evening. If you join me today, I’ll be sure to email you the download instructions as soon as it’s posted.
For now, let me sum up what you should be doing to prepare:
First, continue to keep a large portion of your money in short-term money market funds. You can sleep at night, and with short-term interest rates now up still another notch, including the Fed’s rate hike this week, you will scoop up the higher yields almost as soon as they become available.
Second, I repeat my warnings for the stock market: It’s schizophrenic. Many sectors are either weak or in danger of falling. And by far the best performing sectors should continue to be those driven by natural resources, especially gold and oil.
If you have profits in the vulnerable sectors (especially those that are hurt the most by rising natural resource costs), I would not wait till January first, a new tax year, to grab them. I’d take them now, while the overall market is near multi-month highs.
The outstanding exceptions: Any natural resource shares you are holding. They have much further to go.
Best wishes,
Larry Edelson
Editor, Real Wealth Report
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Beth Cain, Christine Johnston, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
© 2005 by Weiss Research, Inc. All rights reserved.
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