If you’re like me, you’re preparing for a nice long, holiday weekend.
You’re gathering up your family for some quality time, as Sharon and I did on a recent trip together.
Plus, at the same time, you’re feeling a touch of melancholy, thinking about years past and a new year about to begin.
Looking back a quarter-century, I especially remember an evening at home and a tough time I was having in the silver market.
I had sold short a large number of silver futures contracts. I had done all my homework, and I had my stops in place. But instead of looking ahead to the prospects of winning, my mind was too focused on the fear of losing.
After dinner, my daughter Kari asked me to spend some time with her.
We read, played games and watched TV. But she knew my mind was elsewhere. At the ripe age of three, she sensed that I was worried about something.
When she asked what was bothering me, I confessed to her that I was afraid I might lose money at work.
Her response: “It’s only money, Daddy. If you get it wrong, you can try again tomorrow.â€
She was right, and she taught me two things.
First, I realized that when Kari was a bit older, she was going to need a darn good school, one where she could be truly challenged. So we sent her to the Weiss School, a part of the same group of companies as the publisher of Money and Markets.
That’s where I met Martin, whose son Anthony also attended the same school.
Second, I learned to be more patient with my investments. On the silver trade, I realized I had not over-speculated. I was well within my risk tolerance. Even if I lost, it would not have made a dent in my lifestyle. So I held on, and it turned out to be one of the best personal trades I ever made.
Some Lessons for All Investors
Lesson #1: Investing should never be a cause of anxiety. If it is, your chances of success will be greatly reduced. So never over-invest or over speculate.
Lesson #2: Always do your homework, and when you can, use stops to reduce risk.
Lesson #3: As long as you’ve taken these steps, sit back and relax. There are more important things in life. And if you miss this trading opportunity, there are bound to be others.
That’s also the case today with gold and oil …
Gold Bull Market
Is Firmly Intact!
If gold closes the year above $474 (it’s currently far above that level), my system will generate another quarterly “BUY†signal for the yellow metal.
Plus, at the same time, it will also give me a YEARLY buy signal.
The implications:
A) Gold is likely to rise for a minimum of three more years, into 2008.
B) We will see $618 gold in 2006, and probably $740 — my next two targets.
C) Before the bull market is over, by 2008 we will see gold at over $1,000 an ounce.
Bold forecasts, I know. But they’re based on my tried-and-true cyclical models, which have called all the major moves in gold since the late 1970s.
This is the model that helped me forecast the high in gold in 1980 at $875 and the 20-year bear market that followed. It also caught the bottom of the bear market at the $260 level in 2001, and the move up to gold’s recent highs.
What about the recent dip in gold back to below $500? No problem. We’ve done our homework. As long as you have not overcommitted to any positions, be patient and keep the longer-term picture in focus.
If you do not have core positions in gold and mining shares in your portfolio, for whatever reason, use any price dips — like the current short-term decline — to get them in place. For specific instructions, see my Real Wealth Report.
Oil Correction Is a Building
Block for the Next Big Surge
This is also one heck of a bull market. One that will surprise everyone in 2006.
Right now, the price of oil is still consolidating in the high $50s or low $60s. But its next big move, in my opinion, is definitely up. My technical and cyclical models on oil are lining right up with gold …
A) The bull market in oil had three more years to it, and will continue rising until 2008, minimum.
B) In 2006, I expect to see $92 – $100 oil, plus new record highs in unleaded gas and natural gas.
C) Before the bull market is over, by 2008 we could see oil at over $140 a barrel.
Hard to believe. But so was $60 oil back in 2000 and 2001 when it was trading in the teens and I said it bottomed.
Meanwhile, the average oil share will double and triple from current levels.
My recommendation: Like gold, if you do not have core oil positions in your portfolio — for whatever reason — use any price dips to get them in place. For specific instructions, see my Real Wealth Report.
Your Questions and My Best Answers
I’ve received quite a few questions from readers and the media recently, regarding my views on natural resources, especially gold. So I thought now would be a good time to answer them for you:
Q: Larry, why should I invest my money in gold now? After all, it’s almost doubled since its lows in 2001.
A: Simple: Because it’s ultimately headed much, much higher. Inflation is just starting to heat up. You can see it in the prices of nearly every commodity under the sun. And now, more price increases will soon be passed on from the production level to the retail level.
This will push the Consumer Price Index up, which already greatly understates inflation.
Indeed, never trust the government to inform you of the true rate of inflation. Washington has a vested interest in keeping inflation indexes biased toward the low side. That way, Washington can keep the many rising costs indexed to these inflation indicators, such as Social Security payments, tightly under wraps.
Beyond its value as an inflation hedge, gold is also excellent insurance against political, economic, and social instability. And unfortunately, instability is not something we have a shortage of in the world today. It’s in abundant supply. And it’s bound to get worse.
Q: How much gold bullion should I own?
Each person has different needs. But on average, I recommend about 5% of your total net worth in physical gold bullion, namely American Eagle gold coins or even better, gold ingots. My recommended dealers:
American Century Precious Metals (888) 345-2071
Dillon Gage (800) 537-2583
Rare Coins of New Hampshire (800) 225-7264
Or as an alternative, you can buy a gold exchange-traded fund, such as GLD. Another 20% can be in gold mining shares and/or mutual funds. See the latest Real Wealth Report for current recommendations.
Q: What do you think of the recent talk from central banks about selling more gold at these higher prices?
A: Let ’em! Savvy investors will buy up every ounce they sell. So will smart central banks in countries like Russia, China, India, Saudi Arabia and other OPEC nations.
Remember: Selling by some central banks does not mean prices go down. If buyers are more aggressive than sellers, prices go up. Period. And I believe that’s what we are seeing in the gold market.
The buyers are more aggressive right now because they know that the world is on an inflationary path. They also know that most central banks will do everything in their power to keep their economies tilted toward inflation. The alternative — deflation — is a nightmare to all governments.
Historically, when you hear about central banks selling gold, also keep the following in mind: In the late 1970s, the U.S. Treasury sold tons of gold. Traders and savvy investors bought every ounce at every auction, and more. So despite the Treasury sales, gold prices went up, up, and away!
Q: I remember a while back you said that one of China’s biggest exports would be inflation. Do you still believe that to be the case, when they’re producing so many goods so cheaply?
A: It IS the case, and it will remain so. Yes, China is producing goods at a fraction of the price that Western economies can. But in the process, China’s economy is getting a heck of a lot richer. So the Chinese are now consuming more natural resources than any other civilization in history.
That’s putting huge upside pressure on prices, which, in turn, is raising general inflation levels around the world. This will continue — and escalate — for years to come. And their demand for goods and services will spread from natural resources to virtually all other sectors.
Q: What do you think of rare coins?
A: Very risky! Unless you have a dealer you trust and who knows the market inside and out, I’d steer clear.
Q: My stock broker told me a few years ago that I was crazy to buy gold shares. But I’m laughing all the way to the bank. Now he tells me I should dump them. What do you think?
A: Hold all gold shares. If anything, this is close to a time to buy, and as soon as the current consolidation phase is behind us, I plan on recommending more.
Q: You’re so bullish on China and Asia. Why? Don’t you think they’re headed for tough times?
A: Growing pains? Yes. Truly tough times? No.
There are some 3 billion people in all of Asia that are striving to improve their lifestyles. That’s going to make for economic growth that will outperform the Western world for many more years.
As for China, someday in the future, a rebellion against Beijing is possible. It’s pretty darn hard to usher 1.3 billion people into capitalism without it. The growing gaps between the rich, the middle and the poor will ultimately become a problem. But I think that’s still years away, and there’s a lot of economic growth between now and then.
Also note: It turns out that China’s economy is bigger than previously thought. A new study just released shows the size of the economy is underestimated by as much as $280 billion. That’s an amount equal to the GDP of Turkey or Indonesia, and 40% of India’s economy. China’s GDP now totals $2 trillion and is set to gain even more momentum.
In the meantime, stay the course. Even if the markets go the wrong way for you for a few days or a few weeks, be patient. As long as you don’t over speculate, you can afford to be patient and enjoy the holidays.
Best wishes,
Larry Edelson
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, Beth Cain, Christine Johnston, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
© 2005 by Weiss Research, Inc. All rights reserved.
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