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Gold has just surged to an 18-year high. Copper has just surpassed every price record in history. Cement, steel and lumber are going wild.
And the supply shortages of heating oil, diesel, natural gas and jet fuel are now so severe, many companies are dropping their temporary fuel surcharges and shifting to permanent price hikes. Even air fares, previously pounded by price wars, are now going through the roof. Throughout the nation and in almost every financial market …
The Economic Cycle Research Institute, an independent research group, says its Future Inflation Gauge rose from 120.7 to 122.7 in September, the highest reading in over five years. The Institute of Supply Management, providing the most widely respected survey of businesses around the nation, says its index of prices paid for raw materials has suddenly skyrocketed from 62.5 to 78, the largest single jump in fifteen years. As I told you last week, recent surveys show consumers now expect 6.8% inflation, nearly double what the government’s inflation index is showing. Even Fed Officials, Typically Loathe to Just within the last few days, the Kansas City Fed president warned about a combination of inflationary “pressures coming together at the same time” … The Philadelphia Fed president warned about the energy spike “permanently disrupting the price environment” and … The Dallas Fed president warned about the inflation rate “near the upper end of the Fed’s tolerance zone.” You cannot ignore this. It’s a crisis that’s quickly getting out of hand. Depending on how you respond, it can be a bomb – or a bonanza – for practically every asset you own, or care to own. It’s here. It’s now. And it’s time to take action. So in this issue, I’m not going to waste any time or mince any words. I’m going to tell you what’s likely to happen next and give you detailed instructions on what to do – now. Gold Going Through the Roof! Gold’s new bull market is now in full bloom. Just in the last two months, it has busted through every major barrier and leaped over every recent high – near $442, $446 and $458. It has resumed its long-term uptrend that began over four years ago.
Despite the 18-year highs, however, there’s still no “froth” in this market – no “irrational exuberance” or hysteria. Indeed, in this morning’s long list of business headlines – websites like at NYTimes.com and Yahoo Finance – not a single one is about gold. Here you have gold and gold stocks outperforming almost every other sector … and yet the financial media rarely mentions gold … Wall Street brokers tell you to shun it … and even die-hard gold bugs have yet to come out in full force. For gold investors, it’s the best of both worlds: The trend is both persistent and powerful … but, at the same time … there are countless potential buyers who have yet to join. It is a true-blue, no-nonsense, hard-core bull market in gold. Gold Investments If you’ve been following our gold and gold stock recommendations, your profits should already be impressive. If you have the potential to repeat the performance – or better – even if you start right now. First, buy streetTRACKS Gold Trust (GLD). This is the large, widely-traded exchange-traded fund (ETF) that tracks the price of gold bullion. Until this ETF was available for purchase in U.S. markets, the only way you could directly invest in the yellow metal was by buying gold bars or gold coins, incurring annoying storage and insurance costs. Now, however, you can effectively buy or sell gold just like you buy or sell any major stock. Call your broker or click on your mouse. You issue the order to buy shares of GLD on the New York Stock Exchange. It goes right to the trading floor … and into your account. The price of GLD is set to one tenth of the price of an ounce of gold bullion. On Thursday, it jumped to $47.21. On Friday it went up again, to an all-time high. And in after-hours trading Friday night, it rose still further – to $47.41. If you already own it, just stay the course. If you don’t, buy a small amount now, but wait for a temporary dip before buying the rest. Corrections are likely along the way. But as gold heads for $500 and beyond, GLD is making a beeline for $50 or more, giving you a good chance for a quick 10% gain … plus potentially more as gold continues to rise. Second, start buying into a mutual fund that invests in a diversified portfolio of gold shares. I’ve been recommending US Global World Precious Minerals Fund (UNWPX), which has jumped from $13.11 in May to $18.38 Friday, up 40.2% in less than five months. Larry has been recommending Scudder Precious Metals (SGLDX) and The Tocqueville Gold Fund (TGLDX), with similar performance. If you already own funds like these, stick with them. If not, pick one or two and take a nibble now, waiting for a dip before buying more. For buy-sell instructions on our complete portfolios, plus regular follow-ups, I recommend subscribe to my Safe Money Report (more conservative) and Larry’s Real Wealth Report (more focused on natural resources). Total cost for both: 54 cents per day. Third, if you can afford to be more aggressive, stock options give you the biggest bang for your buck. You can invest in small amounts, limit your risk strictly to the amount invested, and aim for double- and triple-your money windfalls in short bursts of time. Just be sure not to overdo it and to keep the bulk of your portfolio in less volatile investments. For more details see Larry’s latest report on gold options. Why the Correction in Oil While gold and gold has been surging, oil has been correcting. So some investors, seeing their shares down a bit, are now wondering if they should be buying more gold shares and fewer oil shares. But I think they’ve got it backwards: The better time to be jumping on board with any new investment is after a downward correction – not before. Look at it this way: Gold and gold shares are already in their next blast-off phase, a more risky time to start investing … which is why I told you to step into them gingerly. Oil and oil stocks, meanwhile have just had their correction and seem to be finding firm support, a less risky time to get started. Indeed, the oil correction should be welcomed as a nice, little gift. We should thank the government for releasing the nation’s oil and heating oil reserves. That has made our favorite energy stocks cheaper for us to buy … but have not changed the likelihood of higher prices ahead. And in a way, we can also be grateful to Wall Street for talking about the so-called “diminished demand” for gasoline. That has also helped cheapen the cost of investing at a time when the real-life supply-and-demand stats continue to show chronic shortages. Where is oil headed? I agree with Larry: Compared to other goods and services, it will be relatively cheap until it’s above $90 per barrel. And it could rise significantly beyond. How to Invest in Energy Right now, you can buy any one of six exchange-traded funds (ETFs) with diversified portfolios in energy stocks, all selling at about a 9% discount from their recent highs:
In each case, the support levels on these ETFs are very close, helping to limit your risk. If you’re a trader, and they decline below those support levels, that would be a good time to exit. If you’re a long-term investor, but you feel you’re overloaded, it may be a time to lighten up. And if you’re using inexpensive options, it’s a clear buy zone. Reasons: Your risk is limited by the very nature of the options – you can never lose more than the small amount you invest. Your risk can be further controlled by watching the nearby support levels. And most important, because of the persistent and powerful bull market in energy, the upside potential is very substantial. (For details, see Larry’s latest report, updated late last week.) So there you have it: Inflation spreading … gold in a big bull market … and energy surging. This inevitably leads to one more, fundamental change which we must also talk about … How Long-Term Interest Rates While the bull market in gold and energy is relatively mature, the bull market in long-term bond yields is just now being born. So far, for example, the yield on Treasury bonds, has moved up only a half of a percentage point (50 basis points) from its 46-year lows. Just to get back to the levels of a few years ago, it would have to move up another 3 or 4 full percentage points. In other words, the upward move in yields is, at most, one-sixth or one-eighth complete. So you ask: Wouldn’t it be nice if there were vehicles for making money from rising bond yields much in the same way as investors are making money from rising stocks and commodities? I’m not talking about the meager amount you make from the higher yield. I’m referring to some real profits. For example, let’s first talk just about yield. If the yield on a long-term bond rises from 4% to 5%, most people would be content simply to earn the extra percentage point on their money. For every $10,000 invested, that would be another $100 per year. Not bad. But not enough. So let’s talk now about profits. Let’s say you have strong reason to believe that the yield on Treasury bonds is going up from 400 basis points (4 percentage points) to 500 basis points. That’s a gain of 100 points or 20%. Isn’t there a way to convert that gain into something akin to a 20% profit on your money? Yes. Actually there are. For example, you can invest in a mutual fund that goes up along with Treasury bond yields, such as the Rydex Ursa Fund (RYUAX). These investments have a dual purpose: You can use them as a hedge. Imagine interest rates rising at the same clip as gold and oil. Then think about what kind of damage that might do to your investment portfolio, your real estate or your business. If you buy some of these investments, you’re effectively buying protection against that scenario. Plus, you can use them for profit. If yields go up, you win; if yields go down, you lose. But with yields still near their lowest level in a half century … and with these yields now finally being driven higher by inflation, we feel the downside risk is minimal and the upside potential is huge. No matter what, always remember we live in very uncertain times. So always keep a big portion of your money safe and most of your portfolio invested conservatively. Good luck and God bless! Martin 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, Michael Burnick, Beth Cain, Amber Dakar, Scot Galvin, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others. © 2005 by Weiss Research, Inc. All rights reserved. |
New Inflation Contagion
Inflation warning signs are now flashing so blatantly, anyone not yet positioned for profits — or at least protected against losses — must be mad, masochist or missing in action.
Energy is also up big. Despite the latest price correction in crude oil, fuel costs are still 80%-100% higher than last year. 
And it is now aimed squarely at the $500 level and beyond, which could be reached in a matter of weeks.
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