The spot price of gold has just hit $455.50. In the futures market, the December futures contract is at $458.50. Other gold measures are even higher.
No matter how you measure it, the yellow metal has now blasted through its recent highs … catapulted above the $450 barrier … and cleared a path which could take straight to $475.
And when that level is surpassed, I see nothing that could stop gold from going to $540.
This is a landmark event.
It was happening even while the price of oil was still dipping earlier in the week. And it’s sending some messages of major importance, namely that:
A. Inflation will rise substantially in the months ahead …
B. Oil prices could be ready to explode again …
C. The dollar may fall more sharply than anyone expects, and
D. Some hidden surprise, such as a blow-up in derivatives, could be lurking just beyond the visible horizon.
Gold Anticipates
Jump in Inflation
A year ago, hardly anyone was paying attention to inflation. All you heard was “inflation is under control.”
But now, as Tony pointed out yesterday, the Producer Price Index is surging. Wholesales prices jumped 0.6% in August, equivalent to over 7% inflation on an annual basis. And compared to the year-ago level, producer prices are now showing their biggest increase since December 1990!
For most people, this is a big problem.
But for my Real Wealth Report subscribers who have heeded my warnings about inflation and taken the actions I recommended, it’s turning into the greatest profit engine since commodity prices soared in the late 1970s, over a quarter century ago.
Just in the past 16 months, the net gain on all closed-out Real Wealth recommendations, including losers, is $19,986 before commissions, enough to cover the cost of a yearly subscription until the year 2205.
Why are some investors not taking better advantage of these opportunities? One reason may be that they’re still following Wall Street, and Wall Street is still in denial about inflation. Here’s what I think they’re missing:
FIRST, price inflation is being driven largely by commodities; and commodities are continuing to surge at a far faster rate than Wall Street anticipated.
Just since May of this year, for example, the Morgan Stanley Commodity Index is up 26%. And much of that price surge has not yet worked its way to producers on the wholesale level let alone to consumers on the retail level.
SECOND, the Prices Index, tracked by the Institute for Supply Management, has just jumped from 48.5% in July to 62.5% in August. Among the supply executives surveyed, those reporting higher prices outnumbered those reporting lower prices by a factor of more than three to one.
THIRD, among 153 products the institute monitors, 147 rose in price in August, while only nine declined!
NONE of this, mind you, includes the recent changes since Hurricane Katrina, which is bound to drive up prices on everything from copper, to lumber, to plastics, and more.
Nor is this just a flash in the pan as some experts would have you believe. It’s all pointing to A NEW WAVE of inflation.
Again, for many investors this will be a huge problem. But for those who know how to turn it to their advantage, it could be the greatest profit engine in 25 years.
Why Washington Won’t Be Able
to Do a Darned Thing to Stop It
Inflation is being driven higher by fundamental changes which are beyond Washington’s control.
The exploding growth in Asia especially in
and
is unprecedented in the history of civilization. There’s next to nothing Washington can do to change that trend.
You’ve heard about how much oil these Asian countries are consuming. The same can be said about virtually every other natural resource on the planet. There’s next to nothing that Washington can do about that, either.
Equally unstoppable is the declining U.S. dollar, where we’re starting to see new cracks forming.
Indeed, over the last year, central banks have quietly been replacing portions of their dollar reserves with the euro, the Canadian dollar, the Australian dollar, and gold.
And earlier this year, a report by Lehman Brothers said non-Japanese Asian central banks dumped as much as $133 billion in dollar reserves.
Why is this happening? It’s simple: Foreign banks and investors aren’t blind.
They see the U.S.
government’s debt at $7.96 trillion, growing at the rate of over $1.5 billion per DAY …
They recognize that the U.S budget deficit is virtually insurmountable, requiring over 80% of the world’s surplus savings to finance …
They see American households in debt up to their eyeballs, with liabilities growing 65% faster than
‘s GDP over the past four years, and …
They see the personal savings rate of Americans falling to ZERO in the last quarter. Think about how atrocious that is. For every $100 earned, Americans are not saving one red cent.
Even more staggering, overseas investors see an even larger unfunded U.S. government debt for the war on terrorism … Social Security … Medicare … failed pension funds at bankrupt companies like United, Delta, and Northwest … plus other Federal pension payments.
Grand total: An estimated $44 TRILLION of unfunded
government liabilities.
If you were in their shoes, would you continue pouring good money after bad into the U.S. dollar? Would you not be looking for other alternatives?
One consequence of the structurally unsound dollar is the rising inflation I’ve been telling you about. The second consequence is …
Another Surge in
Interest Rates
To better understand how a falling dollar (and the parallel rise in inflation) can cause interest rates to move sharply higher, consider some history:
In 1931-1933, as the dollar declined in value in international markets (via a rise in the official price of gold), bond prices plunged and long-term Treasury-bond yields soared from an average of 3.1% to 4.2%. Short-term interest rates skyrocketed to catch up, slamming the stock market.
In 1974, as the dollar plunged in value on international markets (after Nixon abolished the gold standard), T-bill rates jumped from 5.41% to nearly 9%.
In 1987, 30-year bond rates jumped from 7.28% to over 10%, while short-term 3 month T-bill rates soared from 5.41% to 7.4% all on the heels of a plunging dollar.
And in 1992-1994, the dollar plunged as much as 27% in value against the Japanese yen and other major currencies. T-bill rates rose to 4.33% from 3.44, on the heels of a jump in long-term rates to 8.11% from 7.39%.
Despite this history, Wall Street wants you to believe that the Fed is going to stand pat this month and back off from its rate hikes due to Hurricane Katrina. I disagree. But a rise in short-term rates isn’t my main concern.
What really bothers me is the bond market: It’s teetering on the edge of a cliff. If commodity prices continue to rise as I expect they will traders and investors are going to dump the dollar, and in turn, dump bonds, driving long-term rates higher.
So don’t be fooled by still-low interest rates. They will not last for long.
A Sharp Decline in The
Most Vulnerable Stocks
In the initial stages of a dollar decline, stocks can actually fare well as they have been doing recently.
But when corporate America begins to feel the pain of rising raw material prices on the one hand and rising interest rates on the other their sales, profit margins and net earnings suffer badly.
Consider Ford, GM, Delta, Northwest and more. These are bastions of America, and they are falling like a rock.
I repeat my warnings from my Real Wealth Report: Get out of the most vulnerable companies, before it’s too late.
Sell heavily indebted manufacturers, energy-intensive transportation companies, plus interest-rate sensitive banks, brokers, real estate companies and other financial firms.
Continue to hold gold, mining shares, key natural resource stocks and naturally, oil and energy shares.
Black Gold Gearing up
for Another Big Move
Here’s the headline from my September issue of my Real Wealth Report that went to press last night
“Anyone who thinks the oil and gas bull markets
are over better wake up and smell the coffee!”
Strong opinion? You bet it is, but it’s based on even stronger facts, and followed up with the strongest of recommendations.
If you’re already a subscriber, make sure you act on my recommendations promptly. Markets are popping right NOW as I write these words! And if you’re not a subscriber, you can download the recommendations instantly when you sign up.
Plus, if you’re getting my Energy Options Alert, you should have bagged 103% gains with our latest trade … on top of earlier gains of 44% … 48% … 52% … and 161%, in less than five weeks.
If I’m even half-way right about these markets, more gains are coming. So stay tuned.
If you’re not getting my options service, just remember that over two-thirds of the available memberships are sold, and they’re going quickly. If you’re interested, do not delay. Grab your slot by ordering online through our secure website.
Best wishes,
Larry Edelson, Editor
Real Wealth Report
Energy Options Alert
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, Michael Burnick, Beth Cain, Amber Dakar, Scot Galvin, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
2005 by Weiss Research, Inc. All rights reserved.
15430 Endeavour Drive, Jupiter, FL 33478
