Gold busts $600! Silver smashes $12!

The price explosion Ive been alerting you to is happening now, and its happening fast.

June Gold surged as much as $9 per ounce yesterday, smashing the $600 barrier … reaching $607 … closing at $605.20 … and getting ready to blast off for my next target of $740.

Silver, which eclipsed $11 just one week ago, has now smashed through the $12 barrier.

Crude oil is over $68. Copper, zinc, oil, gas and virtually every scarce resource on the planet is surging higher.

This is not a one-time flash in the pan. Nor is it just speculative fever. Its being driven by a broad, long-lasting, rise in real demand colliding with a chronic, worsening shortage of real supplies.

The Gold Market Has Spoken.
Its Message Is Loud and Clear.

At a mosque, when its time for prayer, the muezzin climbs the minaret and sings his call to all the faithful.

Similarly, in the worlds financial markets, when inflation dangers are rising to a critical level, gold climbs to new heights and issues a loud call to all investors.

Thats what gold has done just now. By surging past $600, gold is sending the message:

We have crossed into a new phase of worldwide inflation. Its time to stand up and listen. Its time to gather your assets and take protective action.

So our first recommendation this morning is quite simple: If youre not yet on board with gold, its not too late. Gold is headed for my next target of $740 per ounce. From there, $1,000 could be a quick run.

The simplest vehicle: streetTRACKS Gold Trust (GLD). Each share in this exchange-traded fund represents one-tenth of an ounce of gold. You can buy it like you buy any stock. But thats just your first step. For further instructions, read my latest gold alert ASAP.

The call of gold is not a new message. Its what Martin, Sean, Tony and I have been saying for many weeks. And this week in particular, we did our best to stand on the rooftops to make ourselves heard …

The Inflation Gap
by Martin D. Weiss

Never before has there been a greater gap between the meager inflation the government is recognizing and the surging prices you can see with the naked eye!

Since the early 2000s, the cost of buying a home has more than doubled. Health care costs, college tuition, and insurance premiums have gone through the roof.

In the 12 months ending April 3, gold jumped 39%. Silver has leaped 63%. Copper has rocketed 67%. And just in the past three weeks, those rises have suddenly gained momentum, blowing away multi-decade records … catching Wall Street off guard … making Washington squirm.

Yet, shameless officials everywhere continue to swear on a stack of bibles that inflation is under control.

How do they get away with it?

The governments math is so convoluted it would make Enrons crooked accountants blush in shame.

For example, if a product jumps in price but the bureaucrats decide that its quality improved, theyre actually allowed to claim the price fell. Never mind the fact that the cheaper, unimproved models are no longer made or sold!

Worse, they have totally ignored the surging cost of homes and condos, substituting instead the low cost of renting equivalent housing.

Then, they factor in those artificially lower prices the prices that nobody is actually paying into the consumer price index, announcing that inflation is under control.

Another gimmick: They strip out all items that are going up the most, like energy. They focus attention on the remaining core items. Then they convince everyone that the so-called core inflation is the only inflation that counts. But now, with all commodities surging, that argument has fallen by the wayside.

Earlier, energy was leading the way, as the price of crude oil jumped by leaps and bounds, driving inflation higher. Now, precious metals have been leading the way.

Next to leapfrog higher: Crude oil again!

Whats behind it all? As Ive told you time and again, the starter engine of worldwide inflation is right here in the United States, in Washington, D.C.

Its the largest budget deficit in our history (in dollar terms), coupled to the largest trade deficit ever (in any terms).

The order coming down from on high: Fight the foreign wars. But dont bust the budget. In other words, make an omelet but dont crack any eggs.

Thats not going to happen. Neither the White House nor Congress neither Republicans nor Democrats have lifted a finger to restrain domestic spending. No one has done a darn thing to raise additional revenues. Everyone is pandering to election-year politics.

Its a classic cesspool of carelessness that breeds inflation. Its here. Its now. And its rampant.

Asian IPOs
Going Bonkers!
by Tony Sagami

If your eyes are glued to the Dow or the Nasdaq, you may be missing out on some of the most profitable markets in the world. Im talking about Asia.

Taiwan, which I just visited a couple of weeks ago, trumped all major world markets last week, surging by almost 4%. Japan was close behind, with the Nikkei smashing through 17,000 last week.

And as faithful readers know, Ive pounded on the table about two Japanese stocks in particular Sony and Trend Micro. Well, guess what! Last week, in just one trading day, Sony jumped from $44.56 to $46.05, a 6.3% single-day gain. Trend Micro did even better, soaring 7.7% in a single day.

My view: Expect more of the same!

Whos This Man? And Why
Is He So Do Darn Happy?

His name is He Renchu, and hes the chairman of Hunan Nonferrous Metals, Chinas largest producer of tungsten, zinc, lead and antimony.

Tungsten is used in cutting tools and electrical systems; zinc is used to make corrosion resistant steel products; and antimony is for fire-resistant materials.

Each of these nonferrous metals are in huge demand, and China happens to have the worlds largest reserves of several of them.

The reason this man is so happy is that his company raised $1.78 billion (Hong Kong dollars) last Friday when Hunan Nonferrous Metals (symbol 2626.HK) floated its IPO.

He then sat back and watched his stock soar by 73% on the first day of trading. Yup, a 73% gain in a single day! The demand for a piece of the IPO was so strong that it was 700 times oversubscribed. And Hunan Nonferrous Metals isnt an isolated situation either. Already, just this year:

Golden Eagle Retail Group (3308.HK), a Chinese department store, rose 13%.
China National Building Material (3323.HK) rose 21% on its first day of trading.
Nine Dragons Paper (2689.HK), Chinas largest containerboard maker, surged by 40%.
Lingbao Gold, (3330.HK), a Chinese gold mining company, jumped 33%.

Now, heres a heads up on another IPO that I think will also skyrocket:

China Communication Construction Group is the government infrastructure construction company that pulled in over $10 billion of revenues in 2005 and is planning a $1 billion IPO later this year.

I wouldnt be surprised if China Communication Construction Group ends up being one of the most successful IPOs of 2006. No matter what, the IPO market in Asia is red hot, and it looks like its going to stay that way.

Which Would You Prefer:
2% Growth in the U.S. or
20%-Plus Asian Growth?

The Chinese Central Bank just released its 2006 economic forecast last week. Their expected growth rate for the Chinese economy this year: 8.9%.

Ha! I dont place much credence in that government report because China has consistently underestimated its economic growth for several years now. By the end of the year, dont be surprised to see the Chinese economy growing by closer to 10%.

Heck, in a separate report last week, I learned that Chinas industrial output has skyrocketed by 20.1% and that the value of goods delivered for export has risen 29% in the twelve months through February.

And if you think all that growth came from exporting cheap shorts, t-shirts, trinkets, or toys, think again. The fact is that, just in the first two months of 2006, the value of high-tech products exported from China skyrocketed to U.S. $35.77 billion. Among these …

Chinas exports of laptop computers rose 29% to $4.63 billion,
Exports of cell phones jumped 69% to $3.98 billion, and
Cell phone parts jumped a whopping 81% to $1.96 billion.

If youre running Motorola or Nokia, should you be worried? If youre running Dell or Hewlett Packard, should you be worried? Darn right you should!

More importantly, this is the first time Chinas high-tech exports have made up more than 30% of its total exports: Nearly 37% of Chinese exports are now tech products, and China has clearly made the shift from manufacturing low-margin commodities to higher-margin tech products.

Bottom line: It wont be long before U.S. tech companies join the already-long list of American companies that have gotten clobbered by competition from Asia.

New Oil Crunch!
by Sean Brodrick

According to members of the British government quoted in Londons Daily Telegraph, the U.S. is now gearing up for an inevitable attack on Iran to destroy its ability to develop nuclear weapons.

What do you think another conflict in the Persian Gulf will do to oil prices? Wall Street used to see $100 oil as a worst-case scenario. Now, that worst case might be far too low.

Already, the ongoing civil war in Iraq involves three countries with the richest conventional oil reserves in the world Iraq, Saudi Arabia and Iran. And already, its pretty well known that the Iranians are backing the Shiites in the civil war.

Whats not so well known is that the Saudis and Syrians are backing the Sunnis.

The likelihood of multiple wars breaking out across the Middle East grows greater every week. A U.S. attack on Iran, if it comes, will be a grenade tossed into a gasoline pit. And all this at a time when oil prices are already under pressure.

IRAQ: The Middle Easts poster child for Armageddon is sitting on 115 billion barrels of proven reserves. It pumped 3.5 million barrels per day (bpd) of oil before the first Gulf War. Now, it can only manage an estimated 1.7 million bpd, according to the Oil & Gas Journal, with only 1.1 million of that exported.

Now, as conditions in that blighted country deteriorate, pipelines are blown up so often theyre becoming difficult to patch. Over and over again, they get hit. Repeatedly, repair workers rush in.

And despite the big expenses and huge losses, it seems to never end.

IRAN: The heirs to the Persian Empire have enough money to develop a new 223-mph torpedo (using stolen Russian technology), and theyve just successfully tested it in the Strait of Hormuz, where 40% of the worlds oil travels via tanker.

But they apparently dont have the money to spend on upgrades or even ordinary maintenance of their oil infrastructure. As a result, Iran, which claims to be sitting on 132 billion barrels in oil reserves, is seeing its oil production spiral lower.

Iran cant even meet its OPEC production quota of 4.11 million barrels per day. Indeed, Irans existing oilfields have a natural annual decline rate estimated at 8% to 13%. Thats 300,000-500,000 barrels per day of production lost each year. And in February, another 40,000 bpd was chopped off Irans production as two offshore fields were shut down.

KUWAIT: This countrys state-run oil company acknowledged that the production of its Burgan oil field has peaked. That means they cant increase production, and a slide in output is sure to follow. Burgan was one of the worlds largest, though an internal Kuwait Petroleum Corp. document cut estimates of Kuwaits oil reserves in HALF, to 48 billion barrels from 99 billion.

This shouldnt be a huge surprise; the Burgan has been pumping oil for 60 years.

SAUDI ARABIA: The central bank of oil seems to be healthy on the surface. And on March 23, the Saudis officially opened their Haradh oilfield project four months ahead of time. It is pumping 300,000 barrels per day, and pumping at full output capacity.

Pretty good. Except the Saudis need to pump over 500,000 barrels of seawater a day to maintain high pressure. Thats a lot of water! So its not exactly coming up easy.

Meanwhile, Saudi Aramco, the state oil company, is officially expanding its oil rig fleet by 100% over a two-year period, going from 55 to a planned 110. Unofficially, I hear they plan to go as high as 120 ASAP. Aramco is adding plenty of offshore jackup rigs, laying down obscene amounts of money to buy up existing contracts of rigs-for-hire.

Drilling for oil under water is very expensive. Youd expect the Saudis to be drilling out their cheapest oil first. Dont they have a desert full of this stuff? So why are they willing to pay a premium to drill for oil off shore? Id say its because the exhaustion of desert oil reserves is probably a lot closer than the Saudis would have you believe.

NIGERIA: About 27% of that countrys oil output was knocked offline by rebel attacks. The government has deployed new Chinese-made patrol boats to secure the areas under siege and is offering peace talks with the rebels. But, at best, that truce will only hold up as last Septembers, which soon collapsed.

Meanwhile, Royal Dutch Shell is not impressed, refusing to send workers back to abandoned oil fields. About 65% of Nigerias roughly 36-billion barrels of crude is light and sweet perfect for making into gasoline. Too bad guerilla war is probably going to take even more of it off the market.

MEXICO: The really bad news is our neighbor to the south.

Its giant Cantarell oil field which produced 63% of that nations total crude oil output in 2004 has gone into irreversible decline. As a result, Cantarells output may fall 6% this year and 30% by 2008.

Mexico says it will make up for the production with other fields, but since 60% of the state oil companys revenues are taxed away, it cant even afford to buy steel pipes. Good luck with that!

Two Picks for the
Coming Oil Crunch

For a diversified mutual fund, look at US Global Investors Global Resource Fund (PSPFX), stuffed with great companies, including Petroleo Brasileiro, Valero Energy, National Oilwell Varco, and more.

It has no load. It returned 72% last year and is up 17.35% year-to-date. It has a total expense ratio of 1.3% lower than the category average and gets a four-star rating from Morningstar.

For an individual stock well, you might want to take a tip from history and invest in something that will be around even after the Empire of Oil. Pacific Ethanol (PEIX) has already had a great run, but it recently broke out to the upside after consolidating for two months.

I think it could easily run up as high as $34.5 a 57% move from recent prices. The government is throwing money at alternative fuels like ethanol, and Pacific Ethanol is one of those stocks that should make the most of it.

As some empires slip, others rise. Thats why I like to look at the resource-rich countries of Canada and Australia, which are only beginning to exploit their wealth.

The energy picks in my Red-Hot Canadian Small-Caps portfolio are doing very well indeed!

That service is sold out. But Im targeting Asian and Australian energy picks for my Red-Hot Asian Tigers, giving you huge leverage with strictly limited risk. If this intrigues you, see my latest report or call 800-898-0819 for more information.

Best wishes,

Sean

For more information and archived issues, visit http://legacy.weissinc.com.

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 Jennifer Moran, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.

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