Good morning! I hope you’re having a great holiday weekend!
I wish I could be back home, spending it with my wife and three grown children. But I’m still in Asia and will be for another month or so.
What I find especially amazing about the culture here is the role of gold. This is a land where gold is on display nearly everywhere … where consumers are snatching up gold jewelry like crazy … and where most news channels have gold prices in the corner of the screen like ours have the latest on the Dow.
It’s a new gold fever. But right now, it’s still only in certain parts of Asia. So just wait till it spreads to the rest of the world!
The spot price of gold reached as high as $608 this week, blasting through its recent 25-year highs … and clearing a path which could take it to $740, and then, even higher.
This is a landmark event. And as happy as I am that my forecasts for gold are now coming true, I’m also worried.
Reason: This week’s move in gold sends some dire messages to investors:
A. Inflation could rise substantially in the months ahead …
B. Oil prices — already creeping up — could be ready to explode again …
C. A sharp rise in interest rates lies just beyond the horizon …
D. The dollar may get a lot weaker than anyone expects, and …
E. A conflict with Iran may be unavoidable.
I hope and pray I’m wrong on the last point. But even if I am, I have no doubt that gold is headed much higher. And in a few moments, I’ll tell you where I think you’ll find the biggest profit opportunities in this new phase of gold’s bull market. But first …
Here’s an Update on Eight
Powerful Forces Driving
Gold’s Continuing Surge
Force #1: Dwindling Gold Reserves. Most large gold mines are experiencing a steady reduction in their resources. For example, Newmont Mining, the world’s #1 gold producer, lifted production from 1.7 million ounces in 1992 to over 7 million ounces last year. But at the same time, the company’s reserves fell from 17 years of unmined production to just 11.
Force #2. Peak Production. Worldwide, gold production peaked in 2001 at 2,621 tons. Since then production has fallen steadily, and it has continued to do so despite rising prices.
Even in South Africa, the world’s largest gold producer, output is tumbling. It is now estimated that South African gold production is one-third of what it was in the 1970s.
Worse, much of the gold being mined today differs substantially from that in the past. In most existing mines around the world, all that’s left is fine gold dust. Nuggets, chunks of gold, are far rarer than they used to be.
The microscopic dust particles of gold are clearly harder to find, and more expensive to process. It can take 75 tons of ore — or more — to yield one ounce of gold.
What about new world-class gold deposits? They’re out there. The big problem: It can take hundreds of millions of dollars and up to a decade to bring a new gold mine up to speed.
Force #3: The previous dearth of exploration is making the supply-demand imbalance even worse.
Global spending on precious metals exploration fell sharply to $1.9 billion in 2002 from $5.2 billion in 1997.
This year, it’s back up to an estimated $5.2 billion. But the lack of past spending has caused a large exploration and development gap.
Result: Global supplies of gold have fallen off a cliff while global demand is soaring, rising 19% in 2005, and an estimated 25% in 2006.
Between 2003 and 2005 was especially bad: Global supplies of gold fell 20 tonnes, or .5%, BUT demand soared by 565 tonnes, or 17.7%.
So if you thought oil was in tight supply, I suggest you look again. Gold is more precious than ever.
Force #4: The U.S. dollar is on a slippery slope. In 2005, gold and the U.S. dollar went up at the same time. That’s rare — and very revealing.
It proves that the rise in gold is not just a reflection of the dollar’s weakness. It’s driven by powerful and chronic supply-demand imbalances that are likely to continue regardless of the dollar.
Moreover, it means that when — not if — the dollar starts sliding down its slippery slope again, gold’s bull market could accelerate higher and much more sharply.
And I think the dollar’s days are numbered. It had a great 2005 thanks to multiple rate hikes by the Federal Reserve. But the value of the U.S. dollar has gone nowhere for months on end. Its rally appears to be over.
Soon, foreign investors will likely start moving their money to countries where rate hikes are either just getting started or poised to do so soon.
This could have far-reaching consequences, because Americans are deep in debt to foreigners. Foreign investors own more than 54% of marketable U.S. Treasury bonds and notes. The U.S. trade deficit is running well over $700 billion per year. That means America needs to attract more than $2 billion per day in foreign investments just to keep the value of the dollar stable.
Quite simply, this is unsustainable. Something has to give. I expect it’ll be the dollar. When it gives way, the price of gold could shoot through the roof.
Force #5: Investors and central banks are both running for gold, at the same time! One of the major factors pushing gold higher is that a growing minority of savvy investors are now buying gold hand over fist.
One report I recently received, for example, is of a $1 million order from an investor in Dubai. I haven’t heard of one million dollar bullion orders since the late 1970’s.
On top of that, billions of dollars of gold are now being bought up in the new Exchange Traded Gold Funds, such as the streetTRACKS Gold Trust (GLD). These funds, nonexistent two years ago, now hold over $7 billion worth of gold.
And here’s another big switch: Central banks, who were net sellers of gold through the late 1990s into 2002 — are now net buyers!
Argentina has been buying gold. And, reportedly, so have Russia and China. South Africa and several mid-Eastern central banks are also rumored to be net buyers of gold. Like oil, anxious buyers are now clamoring for the precious limited supply of gold that’s left in the world.
Force #6. Inflation! Everywhere in Asia and around the world, I see depreciating paper currencies, tremendous debts and rampant fiscal mismanagement — all closely associated with inflation. So it’s only natural that the value of “real money†— gold — has only one way to go: UP.
Force #7: HUGE increased gold demand from China and India. Forgive me if I sound like a broken record, but I beg you, never underestimate India and China’s impact on the gold market. The two countries have a cultural affinity for gold, and we’re sending both of them more of our money all the time.
In recent years, China has consistently thumbed its nose at doomsayers who periodically predict its economy is about to collapse. Sure enough, its economy actually turns out to be growing more robustly than anyone thought.
Result: It’s now larger than anyone believed possible. In fact, an updated census shows China’s economy is worth over $2 trillion after adjusting for its lower purchasing power. And it continues to grow at breakneck speeds of about 9% per annum.
That already makes it larger than Italy, one of the world’s largest industrial economies. And just a couple of month’s ago, China muscled ahead of Britain as the world’s fourth biggest global economy.
China also now has the world’s largest U.S. dollar reserves at over $840 BILLION, surpassing the top position Japan held for decades.
Meanwhile, India is no slouch. Its economy grew at 8% in the most recent quarter, much better than forecasts of 7.5%. Plus, Indian gold imports rose 52% year-over-year.
The bigger China and India’s economies grow, and the richer their people get, the more they’re going to buy. Hundreds of millions of people are joining the consumer class, and they are going to want a lot of everything, precious metals included.
Force #8: Petrodollars are pouring into gold. Gold isn’t the only commodity moving up. That’s pretty obvious.
But the explosive move up in energy prices is resulting in billions of dollars in money from crude oil revenues pouring into the Middle East and much of that is moving rapidly into gold.
Among the world’s top ten oil-exporting nations alone, petrodollar revenues are approaching $700 billion.
Just a small fraction of those funds rushing into gold markets is enough to keep the gold freight train running at breakneck speeds for many months.
Dubai, part of the United Arab Emirates, and nicknamed the city of gold, opened its own gold trading market last November.
It is expected to import 23% more gold in 2006, with the total hitting 650 tonnes, according to industry officials.
Reason: Many oil-rich countries and sheiks, nervous about war and revolution, are taking a chunk of their oil gains and socking it into the hardest asset of all — gold.
If a war with Iran breaks out — which I suspect it will — all bets are off in gold. We could easily see my $740 target this year, perhaps even much higher.
Some Investment
Vehicles To Look At
Here in Money & Markets, I’ve talked about some investment ideas for the
gold market. For example …
Gold Mutual Funds: USGI World Precious Minerals Fund (UNWPX) is up 39.6% since the beginning of the year. The Tocqueville Gold Fund (TGLDX) is up about 25%. And the DWS Gold & Precious Fund (SCGDX) is up 20%. All since January 1.
I’ve also told you about the Central Fund of Canada that invests both in gold and silver bullion in approximately equal dollar amounts. It’s up about 27% this year.
Gold ETF: The streetTRACKS Gold Fund (GLD) tracks the price of gold bullion. It’s up over 14 this year.
Seriously consider them on any dip.
As for individual shares, I’ll go on the record right now: Gold mining companies have much more upside to them. But …
In This Stage of Gold’s Bull Market,
You Can’t Buy Just Any Gold Shares!
Glamis Gold, one of my favorite junior gold miners, was trading at a mere $2.22 a share back in 2001. This week it traded over $35 a share — for a gain of 1,476%.
Agnico Eagle Mining, another one of my favorites, has soared from $5.30 to $31 a share, a 484% gain. Newmont Mining has gained 253% since 2001.
If you had invested $2,000 in each of those gold shares in 2001 (total $6,000) — today you’d have over $50,000 in your brokerage account.
If you had invested a modest $10,000 in each — you’d have more than A QUARTER OF A MILLION DOLLARS.
Top gold miners like Glamis, Agnico, and Newmont still have plenty of upside potential in them. And they should be part of any smart investor’s core gold portfolio — either directly, or indirectly via a gold mutual fund such as I mention above.
But in this next phase of gold’s bull market — where gold blasts off to $740 an ounce and higher — the big money is going to be made by those who can find the next 1,000%-plus winners.
I’m talking about junior mining companies that are sitting on potential mammoth gold discoveries … that have plenty of capital on hand to start mining and producing the gold (or are close to obtaining the capital needed) … that are virtually debt free, and … that have great, experienced management
Some Unbelievably Hot Mining Shares
Sean and I Have Turned Up in Australia
Sean Brodrick is helping to dig up the facts from home. I’m on the other side of the world scouting new opportunities in the field. Between the two of us, we make a 24-hour round-the-globe team that I think is dynamite.
And we’ve just turned up some undiscovered mining shares that remind me of where Glamis Gold and Agnico Eagle were five years ago. We’re looking at:
Miner #1. An Australian gold company involved in the exploration, development and production of gold exclusively in China, sitting on at least 4.48 million ounces.
At $600 an ounce, those gold resources are worth $2.7 billion. But the company’s total market value is still a meager $423 million.
This company is no early stage explorer either. It’s scheduled to start producing 170,000 ounces of gold per year in the second half of this year, at a cheap cost of $200 per ounce.
My view: This company’s share price should quadruple in the next two years.
Miner #2. It’s chiefly an Australian miner, but also owns properties in Africa. Total gold resources: Up to 8.7 million ounces — worth $5.22 billion at today’s gold price.
Market cap: Just $287 million! Potential longer-term gains: 10 times your money! And if that sounds like a lot, just remember that Glamis Gold gained nearly fifteen times from the time we first recommended it in 2001.
Miner #3. Set to start new gold production in June! Just one of its projects is estimated to produce over 500,000 ounces of gold a year for more than 20 years!
Naturally, if I’m wrong about these companies, you could lose money. But the upside is tremendous: Just with these three alone, your shares would give you a stake in 12 million ounces of gold — worth $7.2 billion. Market cap: A tiny $711 million. Potential gain: 10 times your money.
Sean and I are now in the final phase of completing our due diligence on these miners — and many more like them. You’ll find them in our Red Hot Asian Tigers. Only 112 memberships remain available. So if you’re interested, I’d climb on board now. Call in your membership at 800-898-0819.
Never forget: Always seek to protect your wealth with most of your money in the safest investments in the world. Then, once you’ve got those funds tucked away, allocate a nice chunk to the mining shares that can really fly.
On behalf of everyone at Money and Markets, I wish you a very happy holiday!
Larry Edelson
P.S. On Monday, your regular Money and Markets issue will come a bit later in the morning. We’re aiming to get it to you by about 10 am.
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.
© 2006 by Weiss Research, Inc. All rights reserved.
15430 Endeavour Drive, Jupiter, FL 33478
