Buy More Gold!

Golds pulling back again … slipping nearly $50 in the last week … but getting ready for the next big surge up!

That gives you another nice, convenient entry point plus high profit potential, provided you dont hesitate on buying opportunities, and provided you make the right choices.

So I want to make sure youre in the right place at the right time, and that you understand the forces at work.

Gold Is Still Trading at Less Than
One-Third Its Inflation-Adjusted High

In terms of todays dollars, gold reached $2,176 in 1980. But right now, its trading right at about $615 an ounce. Thats less than one-third what it should be when you factor in inflation.

That alone tells you that gold has much more to go on the upside.

Even if it were to reach just half of its inflation-adjusted price, the yellow metal would zoom to more than $1,000 an ounce, a gain greater than 50% from todays level.

And it would have to more than triple just to regain the same purchasing power it had 26 years ago!

Price, though, is merely a symptom of underlying forces. To find the forces behind golds bull market, you have to look below the surface. Thats where youll see whats driving savvy investors to pile into gold.

I count five massive global economic forces still at work in the financial world that make higher gold prices a virtual certainty …

Force #1
An Exploding National Debt

All told, the overall debt in the United States now stands at a mind-blowing $41.7 trillion, of which the U.S. government is directly or indirectly responsible for $11.2 trillion. And the total debt is increasing at an average of $7.4 billion per day!

The estimated population of the United States is 299 million which means each citizens share of the total debt in the U.S. is close to $157,500.

Theres only one way Washington can possibly keep this mountain of debt from crushing the U.S. economy: Cranking up the printing presses and flooding the economy with paper money!

Now, you … I … and every foreign investor and central banker in the world know what that means: A flood of Fed funny money would send inflation soaring. No wonder so much cash has been going into gold!

Force #2
Despite What the Fed Says, Real
U.S. Inflation Is Skyrocketing

Have you noticed that the more inflation rises, the more Washington talks about its lame core inflation indicators?

Thats because Washington cant control inflation. To the contrary, all they can ever attempt to do is to control the publics inflation expectations. By trying to control mass public psychology, they hope to keep inflation in check.

The old lesson they fail to learn: You can fool some of the people some of the time, but you cant fool all the people all the time.

Washingtons inflation stats insult the publics intelligence. Inflation is not running at the 3.5% or 4% that Washington likes to tout:

Property taxes all over the country are surging.
The cost of services from legal fees to college tuition for colleges is increasing at an estimated 8% annually.
Since 2001, gasoline is up 49% beef is up 28% eggs, oranges and tomatoes are each up more than 30%.
The price of oil is up more than 500% since 2001!
The cost of buying a home has more than doubled.
Health care costs have gone through the roof.

So, how does the government get away with their gobbledygook? Simple: Their math is so convoluted it would make Enrons crooked accountants blush in shame!

For example, if a product jumps in price but Washington decides the quality improved, they claim that the price fell.

Plus, they totally ignore the surging cost of homes and condos by substituting the lower cost of renting the equivalent housing.

Then, they factor these artificially lower prices prices nobody is actually paying into the consumer price index and announce that inflation is under control!

Meanwhile, the real cost of living is skyrocketing by double digits every single year.

Thats important to know because during the last officially recognized inflationary crisis (1974-80) before Washington began cooking the books on inflation the average annual inflation rate was 8%.

And during that period, gold prices rocketed from $58 to $612 an ounce a 1,055% increase.

Today, true inflation is probably higher than 8%. But even if gold jumped only a quarter as much as it did in the 1970s, youd be looking at a gold price of more than $2,000 per ounce!

Force #3
Wars Mean Huge Demand for Gold

Right now, much of the planet is a powder keg on a short, short fuse. The Middle East and the Persian Gulf are mired in conflict.

And as Martin points out in The Next Big Wave, indirectly, the U.S. is already at war with Iran.

Meanwhile, the conflict in the Middle East shows no sign of cooling off. Just yesterday, talks failed between key Middle East players in Rome. They were looking for a way to end the 15-day-old conflict in Lebanon. But they came up empty handed.

Its a region that seems destined to blow itself wide open in an all-out, multi-country war. The question is not if, but when.

In this environment, gold is the ultimate crisis hedge. Thats why its once again becoming the investment of choice around the world. And that demand will push prices ever higher.

Force #4
China Set to Take Millions
More Ounces of Gold off the Market

China has already announced it will plow at least 2.5% of its trade surplus into gold. Thats a staggering $2.5 billion of brand new demand for gold every year.

And were not talking small quantities: At nearly $900 billion, Chinas cash reserves are the biggest dollar reserves in the history of the planet.

What do you think theyre going to do with it? Risk it all in U.S. dollars or Treasury securities? Of course not. Theyll invest ever increasing amounts of their reserves in gold.

Indeed, just to match half of the gold reserves held by the United States, China would have to buy 3,467 tons of gold. That alone could easily send gold skyrocketing to $2,000 an ounce.

Force #5
Worldwide Gold Supplies Are Dwindling!

Fact: The planet is running out of gold. According to U.S. Geological Survey, there are now less than 45,000 metric tons of proven gold reserves left in the ground worldwide.

Moreover, mine production of gold has fallen almost 3% in just the past year, despite the huge capital inflows and profits mining companies have earned, and despite the reactivation of older mines.

Thats a seriously negative outlook for gold supplies, especially because the above-ground supplies of gold cant even begin to satisfy todays exploding demand for the yellow metal.

Bottom line? No matter how you look at the supply and demand realities, only one conclusion makes sense: Much, much higher gold prices are virtually guaranteed throughout 2006 and beyond!

Four Ways to Buy Gold

First, you can buy bullion. For small amounts, a convenient vehicle is 1- and 10-ounce gold ingots.

Second, consider an exchange-traded fund, like the StreetTracks Gold Shares (GLD).

Third, look into gold mutual funds. Two that I like are Scudder Gold & Precious Metals (SGLDX) and Tocqueville Gold (TGLDX).

Fourth, you can invest in individual gold stocks, and there are lots of great companies out there. For specific trading instructions, see my Real Wealth Report.

Best wishes,

Larry

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About MONEY AND MARKETS

MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. 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. Regular contributors and staff include John Burke, Colleen Collins, Amber Dakar, Ekaterina Evseeva, Monica Lewman-Garcia, Wendy Montes de Oca, Jennifer Moran, Red Morgan, and Julie Trudeau.

Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short blurb: This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://legacy.weissinc.com

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