Gold Shares Exploding Higher!

History repeats itself in strange ways.

Over 70 years ago, in the early 1930s, the shares of the world’s leading gold mines were neglected, misunderstood and undervalued, much as they are today.

Then, right in the midst of the nation’s worst depression, they surprised everyone … busting out of their doldrums … surging to their highest levels in history … and making a small minority of forward-looking investors very wealthy.

Today, mining companies are beginning to repeat that performance — but in a very different world.

In a moment, I’ll let my father explain to you what happened in those days and why. First, here are the pivotal events that are taking place right now:

Pivotal event #1. Natural gas surges past its post-Katrina high. The world’s primary driver of inflation and gold — the cost of energy — has now jumped back into the limelight with alarming speed.

Last week, in just a few quick trading sessions, the price of natural gas erased all of the declines endured during the recent energy-price correction and surged far above its historic high made after Hurricane Katrina.

So if you’re wondering when the energy superboom is going to resume, there’s your answer:

In the world of natural gas, the primary fuel needed to heat homes this winter, the superboom has ALREADY resumed.

Pivotal event #2. Crude oil ends correction. The new explosion in natural gas now points the way for heating oil and crude to do the same.

Indeed, the correction phase in crude oil has just ended with a clean break-out to higher levels. And now, crude also appears to be headed back toward its post-hurricane highs made in late August.

Ditto for every other source of energy — gasoline, diesel, coal, jet fuel, even electric power.

Pivotal event #3. Gold breaks $530 per ounce. As Larry vividly pointed out on Saturday, huge surpluses of dollars earned by oil exporting countries are rushing into the relatively narrow gold market.

This is a key new force helping to drive up the yellow metal.

It means that the energy superboom is not only an indirect factor in the gold markets because of its inflationary impact … but it’s also a direct factor because of the big gold buying by oil-rich nations.

When Larry was talking about all this months ago, it made sense, but was not yet real. Now the picture that emerges is both clear and confirmed by hard-nosed evidence:

(1) The U.S. Fed pumps out too much money …

(2) The money flows overseas, especially to major oil exporting countries and others nations with huge, growing trade surpluses, and …

(3) A growing share of this excess money rushes into the gold market.

Result: A gold price explosion!

On Friday, gold broke the $530 level, closing a bit under that level in the December futures contract, and somewhat above in the February contract. That puts it within striking distance of Larry’s next target level at $540 per ounce, which he feels could be critical.

“Once that’s broken,” Larry told me this weekend, “all heck could break loose in the gold market, potentially unleashing forces you’ve probably never seen before.”

Pivotal event #4. Gold shares bust out to new highs. Gold mining shares, which were lagging gold in this latest move, have suddenly started playing catch-up.

Agnico-Eagle Mines (AEM), for example, has just surged through five successive price barriers, two of which go all the way back to 2002.

This now paves the way for much higher levels — not only for this company, but for a host of other mining shares as well.

The last time we saw something like this happen was back in the 1930s, and Dad told me the story about those days before he passed away. Here it is in his own words …

How Mining Shares Made a Small
Group of Investors Rich in the 1930s
by Irving Weiss (1908-1997)

I’ve heard several advisors claim that they are the “original gold bugs.”

But it’s not true. The first gold bugs of the twentieth century were friends of mine — men like Bernard Baruch, William Baxter, Thomas Bragg, and Ben Smith.

Bernard Baruch was an advisor to several presidents and is famous for having made a fortune during the crash.

William Baxter was the founder of the International Economic Research Bureau.

Tom Bragg and Ben Smith were floor traders specializing in gold stocks.

I was working for a Wall Street firm at the time, while writing freelance reports on inflation and gold for Baxter.

The five of us had been accumulating gold coins. In those days, very few people were buying the gold pieces. They were being used mostly for gifts and weren’t circulating. But we bought thousands of them.

For over a hundred years, the price of gold was steady at around $20. So no one viewed it as an investment, as something that might go up or down in value. At the same time, most people still believed in banks. It was assumed that if your money was in a bank, especially a large, well-known bank, it was safe no matter what.

I Told Everyone to Get All Their Money
Out of the Banks. But I Had a Hard Time
Convincing People. Even My Best Friends!

Mrs. Wallman, my best friend’s mother, was a case in point.

In 1932, she asked me what she should do with her money. She had it in the Bank of the United States which, according to my analysis at the time, was very weak. So I told her to take it out and put it in $20 gold coins.

The next day, she went to the bank to withdraw her money. But the teller called over the vice-president, who then proceeded to talk her out of it.

“Look,” he said, pointing to the others in the bank lobby. “Do you see any of these people taking their money out? You’re the only one!”

She put every dime back in.

Several weeks later, FDR declared a national bank holiday. The Bank of the US never reopened. Mrs. Wallman’s life savings was frozen for years, with no interest. She never did buy the gold coins.

But we did. We were able to buy gold coins for ourselves and for our clients. We’d walk up to the bank tellers and ask for $20 gold pieces. They’d give us as many as we wanted, no questions asked. It was just like asking for $20 bills.

Then We Started Buying the Gold Shares —
This Time, Investing in Bigger Amounts.

The mining shares were grossly undervalued and consistently snubbed by most traders. In fact, back in the early ‘30s, my boss used to laugh at me for buying gold shares. Every morning, he’d rib me about it.

Gold and gold shares had a bad reputation. Earlier in the century, a bunch of shady characters used to roam the countryside peddling the shares in mining ventures which went belly up. So by the 1930s, investors gave mining companies a wide berth.

But we didn’t give a darn about what other people thought or said. We figured we couldn’t go wrong if we concentrated on the biggest companies like Homestake plus a couple of Canadian companies. We knew we were on the right track because our gold stocks started to move up nicely.

We soon had very respectable paper profits. So some of the boys were itching to get out. With the ‘29 stock market crash still fresh in their memories, you couldn’t blame them for being nervous.

I called a meeting at Bill Baxter’s office. Bernard Baruch was there, and so were Ben Smith and Tom Bragg.

One of them alluded to the possibility of “some big selling which could hit at almost any time.” Baruch said he was hanging on. He knew something we didn’t. But we didn’t find that out until later.

Our immediate question was: “Who’s going to do the selling and how much?”

I suggested we get the facts with a survey. I got a hold of the stockholder lists of some of the big mining companies and had our staff call about 400 people at random, asking a simple series of questions — “When did you buy your gold shares?” “How much do you own?” “What do you plan to do with them?”

Boy, were we surprised when we saw the results! We never got past the second question! About half the stockholders in mining companies didn’t even know they owned the shares. The rest said they had the shares stashed away — in their attic or in a vault somewhere. None of the people had plans to sell the shares.

So I called another meeting and told the boys: “The only big source of selling would have to be from someone right here in this room.”

They all breathed a sigh of relief. We held on to our shares and doubled our profits.

This story drives home the basic principle that information about the market is one of the most valuable resources you can get, especially if it’s from an original source. And this concept leads me to the real reason Bernard Baruch wasn’t selling his gold shares.

We Gathered from Bernard Baruch That FDR Might Have a
Plan Up His Sleeve to Stop Gold From Leaving The Country.
But We Never Imagined He’d Confiscate the Yellow Metal.

The banks were shipping gold out to London by the boatload, and Baruch was doing the same.

He was advising FDR at the time and so he was privy to some information. He couldn’t tell us what it was. But based on logic and the bits and pieces Baruch did talk about, we surmised that the President was going to restrict gold investments in some way.

We bought as much as we could, while we still could — gold coins, shares, bullion, you name it. Then FDR announced one of the landmark financial events of the day: The confiscation of gold.

We were ready. But we were also stunned. We had no idea FDR was going to be that tough.

Homestake Went from $65 to $470!
Dome Mines Surged from $6 to $61!

Most investors have no idea how huge the profits were in gold shares in the 1930s.

Homestake, for instance, went from a bottom of $65 per share after the crash to $130 and change in 1931.

From there, it doubled again to more than $350 a share by 1933. By the time it peaked in 1936, it had climbed to $540 a share — an astronomical gain of more than $470 per share. That was a 7-fold increase.

In the meantime, the dividends also doubled, redoubled, and doubled again — reaching $56 per share in 1935. Think about it. The dividends earned in one year alone almost paid back the entire purchase price of the stock.

Homestake was not an isolated example. Dome, another great gold producer, did even better. You could have bought Dome for as little as $6 a share after the crash. But in the next seven years, it paid $16.60 in dividends. The dividends alone were equal to more than 2 1/2 times the cost of the stock.

Meanwhile, the price of Dome rose to $61 a share. A person who put $10,000 into Dome could have walked away with more than $100,000 — while nearly everything else remained depressed.

(Note: In 1938, the stock split two for one. So subsequent stock charts showed the price rising from $3 per share in 1929 to a high of $34 7/8 in 1938.)

Tom Bragg reaped the biggest benefit. He was the largest holder of Newmont Mining. Then he left Wall Street to become a major executive in the company and stayed with gold for the big rise in subsequent years.

The others made big profits also. I’m not sure how big because these guys were very private individuals. They never boasted about how much they were making — especially when they were making a big killing.

Cash was king back then. This was the Great Depression. Prices of everything were extraordinarily cheap. You just needed a modest portion of that to build real wealth. It didn’t pay to get greedy.

You Could Have Parlayed $4,000
In Silver into $1.2 Million —
Just by Putting Some in Your
Trunk and Forgetting It There.

Silver was also a great way to build wealth.

I’ll never forget the day I first got interested in silver in 1936. My boss, Bill Baxter, and I were riding the subway home one evening. I had to raise my voice over the deafening clatter of the uptown express to get my point across.

I shouted, “Silver is undervalued. I’m writing a special report on it.” It took me a few times to be heard over the noise, and all he said back was “OK!”

Back then, silver was selling for a meager 17 cents per ounce. I knew that industrial demand was about to take off. When I finished the report a couple of months later, Baxter decided the arguments were so strong that we should release the report to our best clients and subscribers before making it available to the general public.

The very first person we called was Joe Kennedy, the father of JFK. Kennedy really liked the idea, but later, he decided to beg off because his advisors told him it was too much of a “long shot.” The man was wealthy enough as it was, but this wound up costing him another fortune.

I bought silver at around 17 cents, but I didn’t ride it up to $50. I wish I had. I got out of silver in the 1950s, having multiplied my money several times over. I thought I was smart to take a profit like that. If I had stashed away a few dozen bars in a trunk and thrown away the key, I’d have made more money than I did with all my other silver trades — large and small — put together.

I calculated that, at 17 cents an ounce, if you invested $4,000, you could have purchased about twenty-two 1,000-ounce silver bars. Each one of them would have been worth $50,000 at the peak, or about $1.2 million for the lot.

But back then, if you told me silver would go to $50 an ounce, I would have said you were nuts. It just goes to prove, again, that no one can possibly predict ahead of time the ultimate peak — or the ultimate bottom — be it in a commodity, a stock, or interest rates.

Kennedy’s experience is also something you should never forget.

He himself wanted to buy silver. He was convinced. But it was too much to convince his advisors, and he missed a great opportunity. To protect your wealth or to make real money, you have to be your own man. You have to be willing to ignore what everyone else is saying.

Listen to their facts and opinions. Then draw your own conclusions — and once you’ve done that, don’t look back.

The more you know, the better. But the more you rely on others to agree with you, the more likely it is you’re going to miss your best shots … because those always come when just about everyone else thinks it’s “a long shot.” If you ever find yourself in a majority, watch out. The market is too small for a crowd.

Back to the Present:
New Vehicles for Big Leverage

Martin here again. I trust you found Dad’s story compelling. But the key now is to apply it to today’s world, keeping in mind the three critical differences between then and now:

Critical difference #1. Believe it or not, the fabulous surge in gold mining shares during of the 1930s took place despite massive deflation. Nearly everything else — including basic commodities — stayed mostly depressed even as gold shares moved higher.

Today, most other commodity prices, especially energy, are moving up in tandem, giving investors the opportunity to diversify beyond gold shares.

That’s what I recommend you do as well, while still keeping a substantial portion of your portfolio in cash equivalents like U.S. Treasury bills.

Critical difference #2. In my father’s time, there were few liquid instruments available for investing in gold or gold mines. You could buy gold bullion coins. And you could buy a small handful of gold mines traded on the New York Stock Exchange. But that was it.

Today, there are many mid-cap and small-cap mining stocks that enjoy better trading volume than the leading mining stocks of the 1930s.

Sean Brodrick, a veteran Weiss Research analyst I introduced to you last month, is pursuing the small-cap opportunity avidly and with great discipline. And I’m pleased to see that the first red-hot small-caps he’s recommended to his subscribers are already rising very nicely.

Call 800-871-2374 for more info.

Critical difference #3. There were also no options to speak of in the 1930s. Today, in contrast, you can buy a wide variety of options on nearly every major stock, including many mining shares.

Options not only give you the potential to multiply your gold stock profits by 5, 10 even 20 times … they also can help you cut back on your capital exposure.

For example, the call option Larry told you about last Thursday — on Agnico-Eagle — was trading for 75 cents per share on November 30.

Now it’s close to $3.30, over four times more.

Larry’s on top of this for subscribers to his Gold Trader Hotline, and his next set of recommendations to catch this move is going out this morning. If you call right away, you may still be able to join in time. The number is 800-408-0081.

Good luck and God bless!

Martin

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