Gold surged to $518 yesterday, but it’s still so grossly undervalued it’s a joke.
Let’s say you owned an ounce of gold in 1980. And let’s say you cashed it in at gold’s peak of $850.
You’d walk out of the gold dealer’s with $850 in your pocket. Today, it would take a gold price of $2,176 to equal the inflation-adjusted value of that ounce of gold in 1980.
So put another way, today’s gold price of $518 is less than one-quarter of what its true inflation-adjusted price was 25 years ago. Just half of that level would be $1,088, more than double today’s gold price.
Indeed, if you plot the inflation-adjusted price of gold on a chart, you’ll see that, so far, gold has barely climbed back from its severely depressed levels of 2000 and 2001.
So I think gold’s next move has the potential to be similar to oil’s recent explosion from $30 to $70 per barrel — a dramatic doubling, or more — just to catch up with inflation.
That’s why the targets I gave you last week — first $540 gold, then $618, and $740 — are actually conservative.
In a minute, I’ll tell you how you can use this unusual situation in gold to protect yourself against the ravages of inflation, and how you can also use it to make hay for yourself, with loads of profit potential. But first …
The Powerhouse of Fundamental Forces
Driving Gold Inexorably Higher Today
The first powerful force is the world’s central bankers.
No, central bankers don’t wake up each morning with a deliberate plan to push up gold prices. But …
Higher gold prices are the inevitable consequence of their routine efforts to print money and pump-prime their economies.
I saw that happening in 2001, and it’s still happening today. That’s why I said gold was going to double to $500, and that’s why I think it could double again from here.
Few listened to me back then. Nearly everyone thought the world was heading toward massive deflation, even a depression.
But the lessons of history told me otherwise. They told me that, when confronted with the choice of deflation or inflation, the central banks of the world would invariably choose inflation.
They would slash interest rates to the bone.
They would spend relentlessly.
And they would finance their spending with copious amounts of paper money and debt.
Sure enough, that’s exactly what they did. From the Federal Reserve here in the U.S. … to the European Central Bank … to the Bank of Australia … to the Bank of Thailand … even the Bank of China … and more.
They figured they had room for all this. They crossed their fingers and hoped it would not bring back roaring inflation. And for a while, they were right. But …
They Missed the Fact That Oil Prices
Were Depressed and Ready to Surge
For 20 long years, the world’s energy needs were neglected.
Nearly everyone — investment banks, traders, and speculators — fell in love with technology instead. Money that should have gone into digging oil wells was poured into tech companies, many with nutty business models, bad accounting or both.
Result: After years of neglect, energy prices are now making up for lost time. And suddenly experts are realizing that there simply is not enough oil in the world. We’re running out.
In fact, it will be darn near impossible to catch up with the spending that’s needed to build and upgrade infrastructure.
That’s why, despite the temporary price correction after hurricanes Katrina and Rita, the long-term uptrend in crude oil prices is firmly intact.
Oil prices never broke below this big trend. And in substance, after all the ups and downs of recent months, nothing has changed.
What has changed in recent days is this: Crude oil has turned decisively higher, clearly breaking out of its recent corrective phase, and it’s back up to over $60 per barrel.
This is telling us that oil and gas prices will continue to march higher.
Moreover, they will continue to stoke the flames of inflation like bellows pumping a furnace.
That’s a powerful force under the price of gold.
The World’s Central Banks Also
Underestimated the Meteoric
Rise of India and China …
The formula is simple:
2.4 billion people in China and India +
modern desires and consumer tastes =
surging inflation and booming gold markets
China and India are pressuring gold prices both directly and indirectly.
First, they’re buying gold themselves. Second, they’re driving up worldwide inflation in natural resources all over the planet, which also drives up gold.
This is big. It’s happening right now. And it’s not going away.
How to Make Hay
Gold is the best hedge against inflation, bar none. It’s also a hedge against social and political instability, a feature of our world that, unfortunately, is in abundant supply.
My core recommendations …
First, 5% in gold bullion. Not rare coins — but gold bullion coins like the American Eagle or the Canadian Maple Leaf. You can pick them up at your local gold dealer and keep them in your bank safety deposit box.
Alternatively, buy the streetTRACKS Gold Trust (GLD).
It trades like a stock, but each share represents one-tenth of an ounce of gold.
Recommended in April in my Real Wealth Report at $42.89, it’s now trading at $50.91 for a gain of 18.6% in just under 8 months.
Buy on any temporary price weakness.
Second, gold mining shares. Nearly all are moving higher, but not all are necessarily worthy of your investment dollars.
The main reason: Some gold mining companies still hedge their gold operations by selling gold short in the futures market.
As a result, these particular companies often fail to fully participate in the upside potential for gold. They typically focus on earning a profit from mining the gold and then selling it at a prearranged price.
Examples: Barrick Gold and Placer Dome. That’s why their share prices have tended to underperform most other gold mining shares.
One of my long-time favorites: Newmont Mining (NEM). Alternatively, I like top-performing gold stock mutual funds such as …
- The Tocqueville Gold Fund (TGLDX), up over 37% since late May.
- The Scudder Gold and Precious Metals Fund (SGLDX), up over 40% since late May.
Third, for your speculative funds, take advantage of …
The Awesome Profit Potential of
Inexpensive Gold Stock Options
For instance, earlier this year, when gold and gold mining shares were trading sideways or lower, subscribers to my Gold Trader Hotline had the opportunity to enjoy a virtual ATM machine of profits — pulling gains out of this market nearly every step of the way.
Out of 24 closed trades in 2005, there were seventeen winners. That’s a 71% win rate.
The average holding period for the trades: 29 days.
Average gain before commissions (including the losers): 43.8%.
Think about that: On the average trade, each $1,000 invested grows to $1,438 — in less than one month’s time.
And remember: Nearly all of these gains were achieved at a time when the gold market was choppy or even weak!
No one can guarantee the future, but if this is what you can get in a tough gold market, imagine the profits that could be made now that gold is running away to the upside!
For example, the Agnico Eagle call options I’ve recommended to my Gold Trader Hotline subscribers (Symbol: AEM BC) have just doubled in value in less than a week.
These weren’t especially aggressive options. Nor were they safe bets. So I think they’re a fair representation of how you can profit from them.
I originally told my subscribers to buy this particular option back on August 11 when it was trading for about 80 cents.
Then, on October 1, I recommended taking partial profits when it was going for about $1.05. Not bad. But not that huge either.
This week, though, the option spiked higher in value as Agnico Eagle shares broke out to the upside. So yesterday, when this option was trading at about $2.10, I told subscribers to grab the rest of their gains.
If this option goes still higher, and we leave some money on the table, that’s fine. We have plenty of other fish to fry, and they’re jumping high.
Can you lose money? Of course you can. But because we’re talking about options, your risk is strictly limited to the amount you invest, plus any commission you pay your broker — never a penny more. Meanwhile, you can go for virtually unlimited profits …
Transform $2,625 into $12,500!
Right now, for example, I’m looking at a nice bundle of call options on three great gold mining companies. These options have tremendous upside leverage, good liquidity, and, as always, strictly limited risk.
For about $2,625, you can purchase a series of different strike prices and expiration dates that represent about $29,745 of mining shares. That’s 10-to-1 leverage!
If these shares move up as I expect they will, the leverage in these options could slam home as much as 418% in gains. Your investment of about $2,625 could be worth $12,500 (before your broker’s commissions)!
Two Years for the Price of One!
The normal one-year price of a subscription to my Gold Trader Hotline is $5,000. But with this offer, you can become a Charter Member and get two years for the price of one. That’s a savings of 50%!
However, we have only 400 Charter Memberships available with this 2-for-1 offer, and they’re going to sell fast.
When you join, the first thing I will do is rush you your Gold Trader Hotline Operating Manual. Or you can download it instantly from my website.
The operating manual gives you the A-B-Cs on how gold options work: How they provide you with incredibly powerful leverage on the upside. How they limit your risk. How you can maximize potential profits … how to reduce commission costs … what to tell your broker … and much, much more.
Once you have that down, you’ll be ready to act on all the hot profit opportunities. Naturally, because these markets move so fast, the initial recommendations you receive will depend on when you come onboard and what’s happening in the markets at that time.
Then, the second we see a hot opportunity out there in gold and mining shares, we’ll rush you an email detailing exactly how you should trade it. You should expect a minimum of about 20 recommendations over the course of a year.
On each recommendation, we will tell you exactly what to buy, when to buy it, how many contracts, what to pay for it, and precisely what to say to your broker.
The reports aren’t fancy, but they’re very readable and easy to understand. Besides, the idea isn’t to win a beauty contest; it’s to make you money.
From time to time, we also cover special situations in the mining shares of related markets, such as silver, platinum, steel, copper, and more. As long as the risk is limited and represents a fraction of the potential reward, we won’t pass up a good profit opportunity for you.
You’ll get follow-up instructions on when to “roll over†positions, take profits, add new positions, or cut a loss.
We make it as simple as possible for you to spend as little time as you want and still go after enormous profit potential, while ALWAYS limiting your risk.
If you have questions, you’ll have a special email address where you can send us your questions and we can get back to you as fast as possible with answers.
Gold’s Already Blasting Off.
No Time to Delay!
Gold has already blasted off to new 22-year highs. It has just blown past $510 per ounce — and is likely heading MUCH higher.
As I told you earlier, the reasons are clear …
— Central Banks Printing Money
— Depressed Oil Prices That Are Now Surging
— The Rise of India and China
Gold is in a powerful bull market. Options on gold mining shares could skyrocket. The $2,625 investment I just told you about could turn into as much as $12,500 — all in a matter of a few months’ time. And that’s just one set of recommendations I’m looking at.
But to be part of it, you have to step up to the plate with a modest amount of money you can afford to risk, and go for the profits that are available NOW!
To grab your special two-years-for-one slot, call us now at 800-408-0081 and mention your personal code of p446-55093 … or fax your order to us at 561-625-6685.
Yours sincerely,
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, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
© 2005 by Weiss Research, Inc. All rights reserved.
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