We’ve been waiting for a pullback in gold and silver to give new investors a chance to jump in. We knew one was coming. We just didn’t know when.
But now we do: It happened yesterday.
Gold was down $13. Silver plunged almost $2. And if this correction continues for a few days longer, soon you’ll start hearing the precious metals naysayers come back out of the woodwork, telling you “it’s all over.â€
Good! Let them. Because in my book, that’s the perfect opportunity to jump in.
Look. These markets have been flying for weeks. They were overdue for a setback. Plus, if you were worried that the train had left the station, and it was too late to catch it, well … now that train is coming back to pick you up.
Over the next few days, we’re going to be hunting for bargains in virtually every instrument — in ETFs and natural resources mutual funds (more details in a moment). Plus, we’re gunning for the hot small-cap mining companies Sean’s got on his radar screen.
Why Asia Is Key
Early next week, I fly from Thailand to Japan: I’m off to Tokyo for the biggest commodity conference in Asia, and quite possibly, the world.
Companies and investors here in Asia know better than anyone that the boom in natural resources isn’t a flash in the pan. They know it’s driven by solid fundamentals related to supply and demand. They see the evidence all around them, first hand.
And at the Tokyo conference, I’m going to meet with them, one on one. With this year’s amazing surge in commodities and this week’s pullback, the timing couldn’t be better.
But if you think metals have been hot, wait till you see what’s been happening in the mining shares! One gold miner on Sean’s radar screen surged 33% in the first three days of this week. Another jumped 30%. Yet a third is up 96% in one month!
This is bigger and better than the great gold frenzy of 1979-80. And it’s just beginning!
So if you want to jump in, it simply does not make sense for you to wait around for the NEXT correction. This is it! This is the pullback Sean’s been waiting for! (The number to call is 800-898-0819.)
The Gold Fever Is Not
Cooling by One Iota
This past weekend, I visited Chiang Mai in the north of Thailand.
At one of its temples, I took this picture of a reclining Buddha encrusted with 24k pure gold leafing, placed on it by Thais making blessings for the Thai New Year.
At another, I was amazed to watch the steady stream of individuals, couples and families arrive with gold leafing in their pockets.
To the Thai Buddhists, gold symbolizes eternity and the circle of life. Only in the last 300 years or so has gold in Thailand taken on another, important meaning: wealth. But to me, “eternity†and “wealth†are very intertwined. And that’s the main reason I think gold is the only real form of money.
Indeed, gold is the only asset that has held its value and purchasing power for thousands of years. During short periods in time, gold may be less desirable than others. But in the long term, gold has always held its value.
In fact, in terms of today’s dollars, just for gold to reach the equivalent of its 1980 high, it would have to sell for $2,176 an ounce.
And this estimate is not just based on history. The fact is there is now massive upside price pressure in the gold market.
According to a Chiang Mai gold dealer I talked to last week:
“I’ve never seen anything like it. Buyers are pouring in like there’s no tomorrow.
“The domestic political scene in Thailand is in chaos right now. Oil and gas prices are soaring, pushing up prices of everything, from energy costs to fruits, vegetables, and even rents. The U.S. dollar is weakening. And everyone is also very worried about the Iran situation.â€
He told me he’s bumped up his gold inventories to their highest levels ever, and the yellow metal is still flying off the shelves.
So far, you haven’t seen this kind of gold fever outside of Asia. But you will. Just wait. Plus, consider some of the powerful demand factors for gold:
Demand factor #1. The wedding season — which runs from Memorial Day through September — is a major demand driver for gold. And with gold prices so much higher, shoppers in the U.S. can expect to pay at least 20% more for wedding rings and other gold pieces compared to last year.
Now, figure that U.S. consumers bought a mind boggling $18 billion in gold jewelry last year and all of a sudden we’re staring right in the face of stunning U.S. jewelry sales this year.
I’m talking $22 billion — perhaps even $25 billion — in sales, just in the USA! Worldwide, I also expect to see record demand.
Demand factor #2. New nanotechnology applications use gold, opening up yet another source of demand for the yellow metal.
Demand factor #3. Just last week, scientists at Northwestern University announced they’ve developed a detection system — called colorimetric screening — to help discover DNA along with the small molecules and proteins that bind to DNA. The element that makes this possible: Gold!
Bottom line: Gold demand is skyrocketing. In 2005, gold jewelry demand was up 14% to $39 billion … industrial demand jumped 11% to $6 billion … and gold investment demand surged a mind-boggling 37% to $9 billion.
All told, gold demand worldwide skyrocketed 16% to a stunning $54 billion! Meanwhile, gold mine production was up a measly 1%, not nearly enough to keep up with demand. That translates to massive upward pressure on gold prices.
Why You Haven’t
Seen Anything Yet
Yesterday’s correction in gold is not going to be the only bump in this gold market. But it could be your last chance in a long, long time to buy at these levels. Just the ordinary supply and demand factors themselves tell me gold is headed much higher.
Ditto for gold shares. Hold all core gold shares that I’ve recommend in my Real Wealth Report, and all the gold funds I’ve talked about here in recent months.
Also don’t neglect the companies with the potential to be the next 1,000% winners. Now, we’re in the second, more dramatic phase, and we’re likely to see 1,000% gains again. Perhaps more.
Silver Correction
Is A Godsend!
by Sean Brodrick
Larry just told you some of the forces driving gold higher. Now let’s look at the key forces driving up silver.
Plus, always remember: These powerful, worldwide pressures don’t go away just because silver happens to fall on Adolph Hitler’s birthday (yesterday).
Quite to the contrary, whenever prices pull back, it just unleashes more demand and drives them back up again. Consider:
Silver force #1. Stockpiles Being Depleted. Each year, the amount of silver mined has repeatedly fallen short of the amount consumed — in everything from jewelry to industry.
Estimates of the supply deficit range from 21 million to 138 million ounces annually. And CIBC World Markets expects there will be a deficit of 77 million ounces of silver production this year, too.
At their peak, the above-ground stockpile of silver was an enormous 2.2 billion ounces. Now, there are less than 300 million ounces, and some estimates are as low as 200 million ounces. That’s not much.
Silver Force #2. Mine Delays Adding to Chronic Scarcity. The supply/demand squeeze isn’t going to ease anytime soon. For one thing, there are only 22 pure silver mines around the world. Moreover, it used to take only about five years to bring a new mine online. Now, thanks to higher regulatory hurdles, it takes about eight to ten years to move from promising prospect to real production.
Silver Force #3. Rip-Roaring Industrial Demand for Plasma Display, Solar Cells and More. About 44% of the silver that’s produced each year is being gobbled up by the electronics industry. For example, a 32-inch plasma display panel uses between 0.96 and 1.3 ounces of silver. And there are millions of plasma display panels made every year. Silver is used for solar cells, silver oxide batteries, medicines … hair dyes … inks … you name it.
Silver Force #4. Rip-Roaring Investor Demand: The Giant Elephant in the Room. I’m talking about the upcoming silver ETF. If the recent investor rush into silver could be pegged on one thing, it’s the looming debut of the new Barclay’s silver ETF. As more people want to buy silver through that ETF, the fund will automatically need to scoop up more of the metal.
Meanwhile, the Dubai Gold and Commodity Exchange is going to launch a silver contract. The contract size will be 1,000 ounces of silver of 99.9% fineness, deliverable at the DGCX approved vaults in the United Arab Emirates.
What’s going to happen when Barclay’s silver ETF is launched?
Earlier this week, I told you not to be surprised if the price of silver actually dipped temporarily. Well, guess what! Now that’s already happened before the ETF launch. Go figure!
But the issue is not how to predict each up-and-down zigzag in the market. It’s how to take advantage of them when they arrive …
How to Stake Your Own
Claim to Gold and Silver
Here are two funds to consider …
- American Century Global Gold Fund (BGEIX) is a no-load fund that has a total expense ratio of just 0.67% (less than half the category average). It’s up 11.2% in the last three months and 76.8% in the last year. Its portfolio is stuffed with gold companies, but many of them produce silver as well.
- U.S. Global Investors World Precious Minerals (UNWPX) is another no-load fund. It has a total expense ratio of 1.48% and holds companies that produce not only gold, but also platinum and silver. It’s up 26.4% in three months and 98.99% in the past year. Wow.
Looking for Values up
North and Down Under
If you’re buying individual issues, small-cap silver stocks were underperforming the price of the metal recently. Good. That translates into some great values.
Moreover, it’s changing fast, and I have my eye on select stocks that are ready to power up. I find good values in both Canada and Asia/Australia. Both have …
- An abundance of natural resources
- A wealth of world-class mining expertise
- Real bargains due to under-investment, as great stocks were overlooked by US investors
- Great positioning, both geographically and economically, to feed the metal-eating monster that is China
I have one service dedicated to each. And I’m making new picks for both. The Canadian service is sold out. But if you want to get on board with my latest precious metal picks in Australia, let me know now by calling 800-898-0819 or subscribing online. We have only 84 slots left.
Don’t Lose Sight
of the Big Picture
If you’re making money hand over fist in gold, silver, and small-cap natural resource companies, that’s wonderful, and I couldn’t be more delighted. Congratulations on your success! And stick with it because a lot more could be on the way. But please don’t lose sight of the big picture:
Making big money is no good unless you can keep it. And money itself is no good unless you can enjoy it in good health.
Here are the steps I’m taking to achieve these goals for myself and my family:
My First Step: Avoiding Risk. I’ve got an untouchable keep-safe fund as far away from risk as humanly possible. This is the money I’ve reserved for health emergencies, long-term care or my grandchildren’s college tuition.
I won’t even put it in supposedly safe Treasury bonds.
In fact, while gold is surging, Treasury bonds have been taking a beating.
Moreover, the decline has crossed a critical threshold marking the first major trend change since 1994.
This is telling me that the market value of bonds is headed sharply lower and their yield sharply higher.
It means that if I buy a Treasury bond today, and it continues falling in value, every penny of interest I’d earn this year could effectively be wiped out in a few short months.
My Second Step: Going for the Safest Yield
At the right time, my goal is to lock in 8% … 10% … maybe even 12%. Will I get that yield tomorrow? No. But I’ve been waiting patiently for higher yields for quite some time. So I can afford to wait a while longer. And in the meantime, I can put my keep-safe money in 3-month Treasury bills or in a Treasury-only money market fund.
My Third Step: Going for Much Higher Yield
I’m talking about Canadian royalty trusts, especially those concentrated in energy. One to seriously consider: Enerplus Resources (ERF). Its dividend yield is 8.36%. And at $51.90 per share, where it closed on Friday, it’s selling at a discount from its recent all-time high of $56.05.
Like any stock, it can go up … and it can go down. But over the past three years, with oil and gas prices rising steadily, it has been going up pretty steadily, with, at worst, very modest corrections.
And in the months ahead, if energy prices continue higher, the company’s revenues are likely to rise in tandem. Overall, between dividends and stock price appreciation, you’re talking about total returns of 20%, 25%, 30% or more per year.
Like with bonds, you can lose money. But even assuming bonds don’t fall in price, the total return on Enerplus could be over five times more than what you can get with a 30-year Treasury right now.
My Fourth Step: Added Inflation Protection with
Investments Most Likely To Rise When the Dollar Falls
My original plan was to use these as a hedge against the falling dollar. I figured the more the dollar goes down, the more resources like gold and energy are likely to go up. But it hasn’t quite panned out that way — it’s actually worked out better than expected.
Why? Because precious metals and energy have been taking off despite the fact that the dollar has been relatively stable. This is a bad sign for anyone who’s locked up in long-term bonds or who’s not protected from inflation. It means the worst is yet to come.
But it’s a great sign for anyone who’s bought the contra-dollar investments. My reasoning:
If gold and energy are doing so well even without a dollar decline, imagine the kind of performance they could deliver when the dollar starts sinking!
Good luck and God bless!
Martin
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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 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, Red Morgan, Ekaterina Evseeva, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
© 2006 by Weiss Research, Inc. All rights reserved.
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