Profit from the crisis and earn up to
4 times more from gold
Right now gold is in the midst of a long-term bull market.
A bull that started in 2001 – when gold hit bottom at $255 an ounce – driving the yellow metal up to today’s price of over $1,100. That’s an increase of more than 330%.
Impressive? You bet.
Especially when you consider that during this same time period, both the S&P and Dow averaged negative performances – down 2% and 13%, respectively. And this despite the record rally both indices have experienced since March 2009.
As the Wall Street Journal recently reported, “Thanks to global economic concerns… [Gold’s bull market] could continue for years. The financial crisis will have a long-term, positive impact for gold as a shelter from economic uncertainty.”
But this is nothing new. Gold has always performed well in times of crisis. During the Great Depression, gold and gold stocks were among the few assets to skyrocket in value. What’s more, gold is an ideal hedge against inflation, due to its superior ability to hold its value.
According to the Minneapolis Federal Reserve, since 1935, the dollar has lost 93.5% of its purchasing power. But take a look at how well gold has held up:
In 1935, when an ounce of gold was worth $35, you could buy:
§ a top-quality tailored suit for $19.75 – or 0.56 ounces of gold
§ a family car for $500 – or 14.3 ounces of gold
§ a house for $7,150 – or 204.2 ounces of gold
Today, with gold at $1,060 an ounce:
§ that same top-quality, tailored suit costs $600 – or 0.56 ounces of gold
§ the family car now costs $15,000 – or 14.2 ounces of gold
§ the house averages $181,100* – or 204.6 ounces of gold*
It’s easy to see that while the value of the dollar dropped like a stone, gold predictably stayed constant and held its own.
But as good as gold is at building and preserving your wealth, an even smarter way to profit from the ongoing crisis is to exploit gold’s slingshot effect and maximize profits from the inevitable rise in gold.
Simply by using the power of leverage, you can increase gold’s gains by 4-1 or more. All without having to touch risky options, gold futures, or junior mining companies.
Take a look at the upshot that gold’s slingshot effect has had on these various large-cap gold mining stocks:
| Stock | 2001 Low | Current Price* | % Gain | Leverage to Gold |
| Kinross | $1.53 | $20.44 | 1,235% | 3.5 to 1 |
| Lihir | $3.12 | $31.53 | 910% | 2.5 to 1 |
| Minefinders | $0.78 | $11.15 | 1,329% | 3.7 to 1 |
| Randgold | $4.60 | $84.85 | 1,744% | 4.9 to 1 |
| Royal Gold | $2.69 | $48.37 | 1,698% | 4.8 to 1 |
| Gold | $255.00 | $1,151.90 | 351% | 1 to 1 |
| * As of Jan 1/2010 | ||||
Now, let’s take a closer look at just one stock from Casey’s Gold & Resource Report – Randgold. I recommended Randgold to my subscribers in December 2007, when gold was valued at $839.60 an ounce.
This table shows gold’s slingshot effect at work, by comparing the performances of Randgold to physical gold:
| Randgold vs. Gold | Date | Price | Current Price* | %Gain | Leverage to Gold |
| Randgold | 12/07 | $35.65 | $84.85 | 138% | 3.7 to 1 |
| Gold | 12/07 | $839.60 | $1,151.90 | 37% | 1 to 1 |
| * As of Jan 1/2010 | |||||
You may be wondering how this stock in the Casey’s Gold & Resource Report beat gold’s impressive increase by nearly 4 to 1 in less than two years.
And more importantly, how a prudent investor like you can do the same.
The answer is pretty simple.
There’s no alchemy involved, and no tricks either. It’s what I’ve been telling you about. A naturally occurring event in the gold market that I’ve learned to capitalize on. A crucial one that many investors know nothing about. I call it…
“Gold’s slingshot effect”
This slingshot effect, when combined with the Casey Research team’s twenty-five-plus years of expertise, becomes an unbeatable way to profit from today’s – and tomorrow’s – surge in gold prices.
Investing in large-cap gold miners, mutual funds, and ETFs is a great way to protect and rebuild your retirement fund, because this provides more leverage than simply buying the precious metal itself.
So how does leverage work?
Let’s say that it costs a gold producer $500 to mine an ounce of gold, while gold itself is priced at $1,000 an ounce. If bullion prices rise by $100, gold moves up by 10%. But for the gold producer, that same $100 increase translates into a 20% profit, as the profit per ounce jumps from $500 to $600.
This chart shows gold’s impressive increase since the beginning of the bull market in 2001:
But this chart, which follows a basket of large-cap gold mining stocks, perfectly illustrates the power of leverage.
Gold’s slingshot effect has been the driving force behind the steady gains earned so far in Casey’s Gold & Resource Report. Gains that we at Casey Research believe will continue in the coming months and years.
I’ll tell you all about it in this letter. But first let me explain…
Why gold, and why now?
With gold’s dramatic rise in price, you may be wondering if you’re too late to get in on the profits. Let me assure you that the answer is, “No.”
Outside of the investing community, how many people do you hear talking about gold? How many of your friends and family own gold? How many parties have you attended where gold is on everyone’s lips?
| Gold fever returns. A quadrupling of gold prices in eight years and a doubling in four has certainly opened a lot of eyes.-CBC News |
My guess is, virtually none. And for investors like us, that’s a good thing.
With the help of Casey’s Gold & Resource Report, you could be profiting from the current gold bull, long before the idea even enters the minds of the masses – as I’m certain it will.
You see, this predictable phenomenon isn’t just reserved for gold. Every bull market eventually hits a Mania stage. It’s not a case of “if” but of “when.”
Don’t just take my word for it. The recent real estate boom and the dot.com craze speak for themselves.
You might also remember the long line-ups at bullion dealers and coin shops in late 1979 and early 1980. This was when the masses got gold fever, when your neighbor was handing out gold stock tips, and when your cab driver knew the location of every gold shop in town. Their frenzied buying pushed gold up to a record $873 U.S. an ounce, making fortunes for early investors.
And this is a story that will soon be retold. When once again the crowd starts rushing in, a mania for gold and gold stocks will begin. And we’ll be ready. We’ll ride this wave to the top, ever watchful for our cue to quietly cash out before the golden bubble bursts.
No rush like a gold rush
Despite gold’s 350% trip up the profit ladder, the yellow metal still has legs to run – and those legs are long. Even though fortunes have already been made in the gold market over the last nine years, the biggest profits have not yet been realized.
You see, there are three stages that make up a gold bull market:
1. The Stealth Stage – which helps gold find its shine.
This is the early stage of the bull market. A time when gold has been so beaten up by the previous bear market that nobody wants to talk about it. The result: many gold mining companies sell for less than their cash in the bank, allowing hard-core contrarians to buy solid gold stocks at almost giveaway prices. This earns them their first major windfall. Another name for the Stealth stage is the “Easy Money” stage, because almost anything you buy in this phase will make you a lot of money, and with very little risk. During the current bull market, the Stealth stage ran from 2001-2006.
2. The Wall of Worry (our current stage) – where the savvy investors leave the crowd behind.
The second stage begins when investors start selling their gold stocks to realize the often huge profits the Stealth stage provided. Prices of most gold companies get temporarily driven down, casting a dark cloud over the mood of most investors and market observers.
They worry that the golden bull might soon collapse. Every drop in gold prices is incorrectly predicted to be the end of the gold bull. Basically, they worry that anything that can go wrong will go wrong. But despite all the fear, the market slowly climbs the Wall of Worry. For the early investor, this phase of the market is almost as good as the Stealth stage. Because even though the easy money has been made, the vast majority of investors will not have even considered buying gold, this makes this stage exceedingly profitable for those who do invest.
3.
| The power behind the coming Mania phase will drive these stocks like the contents of Hoover Dam trying to fit through a garden hose.-Doug Casey |
4. The Mania Stage – where fortunes are made.
The Mania stage begins when the crowd starts rushing into gold. These “trend followers” don’t walk – they run to get on board with any stock that seems to be headed up. This is a sweet sight for anyone already invested in gold. The frenzied buying sends the yellow metal price soaring and, thanks to the slingshot effect, gold stocks go through the roof.
Right now we are nearing the end of the Wall of Worry. But in China, the Mania stage is just getting started. Line-ups are spilling out of the doors of banks and post offices, and from the new official mint stores that have opened all across the country. Lines of ordinary people, frantically buying up gold…
1.3 billion People can’t be wrong
Right now, there’s a striking difference between how Chinese and Americans view gold. While most Americans haven’t even thought about gold, 1.3 billion Chinese are literally lining up to convert their savings into this precious yellow metal.
Have you ever heard a TV or radio ad from the government encouraging you to buy gold? Does your bank sell gold bars? Can you buy gold coins at your local post office? Are gold mints popping up in every neighborhood?
For the Chinese, this is reality. And as I write, the buying frenzy continues to grow.
Why? As Bloomberg says, “Gold is the hedge against currency devaluation” – it can’t be diluted, debased, or destroyed. This is why demand tends to pick up when inflation does.
Now that our government claims the recession is over and green shoots abound, it wouldn’t encourage you to buy gold.
But this is exactly what the Chinese government is doing.
They’re advising their citizens to put at least 5% of their savings into gold and silver – to safeguard their wealth. And this isn’t just hollow advice. Since 2003, the Chinese government has increased its gold holdings by 76%, and now owns 30 times more gold than it held in 1990.
As the value of the dollar continues to decay and inflation creeps closer, the Chinese won’t be caught off guard. No matter what the U.S. government does, or what happens with the U.S. economy when inflation strikes, the Chinese will be ready.
The question now is, will you?
If you get into the market now – before the Mania stage moves into full swing – you’ll be perfectly positioned to pocket staggering returns.
What’s more, thanks to unprecedented government spending in response to the economic crisis, the Wall of Worry phase is being pushed into high gear – virtually assuring a surge in gold prices and speeding up the arrival of the highly profitable Mania stage.
The government’s folly can
Become your fortune
The government’s free-flowing fiscal stimulus has created a massive increase in the money supply. The Fed has already spent about half of the $1.75 trillion in assets it’s promised to buy.
And it’s only going to get worse.
Since the beginning of the crisis, the Fed has spent, lent, or guaranteed $11.6 trillion.
Since the spending began last fall, the dollar has fallen 15% – which is bullish for gold, and even better for gold stocks.
The result, according to Bloomberg, is: “The world’s money supply has increased and gold hasn’t kept pace. We’re now in a period where gold is catching up.”
Bad for the economy… great for gold
There’s a lot of newly printed money sloshing around. The result: the economy looks less devastated than it did earlier in 2009.
But don’t be fooled into thinking that the crisis is behind us and happy days are here again.
The inevitable fallout has simply been delayed by a torrent of government stimulus. Despite the cheerleading in Washington and on Wall Street, MarketWatch reports, “We have barely begun to address the fundamental problem that led to the crisis in the first place.”
And that problem is debt.
The government, corporations, and American families are all in hock up to their eyeballs. It’s no wonder MarketWatch says, “When compared with the size of the economy, U.S. debt levels are off the charts.”
While most people are looking optimistically at the recent surge in the Dow and S&P, these indices don’t paint a realistic economic picture. Here are three other markets that do, and all of them are flashing red:
Bonds: Yields on U.S. Treasuries have plummeted to historic lows. The 30-year bond is yielding 4.7%, which is well below long-term averages. A drop of this magnitude is a strong signal of tougher times ahead, making the stock market’s sunny vision of a swift economic recovery hard to swallow.
| When measured against a basket of currencies from the U.S.’s trading partners, the dollar is now only around 7% above its lowest point since 1971.-The Wall Street Journal |
The Dollar: Years of loose money and budget policies have provided the dollar with a rough ride on world markets. Since 2007, the greenback has dramatically weakened – reaching an all-time low against the euro and a 31-year low against the Canadian dollar.
Gold: The same policies that are sinking the dollar have pushed gold up more than 350% in the last eight years. The Washington Times sums it up nicely…
“Dollar slides, investors hedge, gold soars”
Historically, during times of economic turmoil, people turn to the safety of gold. Why? Because, as I mentioned earlier, gold holds its value. This makes it an ideal hedge against the wealth-stealing forces of inflation.
| Gold has long been a traditional hedge against inflation, and demand for gold tends to pick up when inflation does.-CBC News |
But whether you’re a new investor to gold or a seasoned pro, you may be feeling confused by all of the noise coming from the media.
On the one hand, Federal Reserve Chief Ben Bernanke says the recession is over… Apple and Goldman Sachs report corporate earnings are up… MarketWatch says, “U.S. stocks hit new closing highs for year”… and Google “sees green shoots of U.S. recovery.”
But on the other hand, The Wall Street Journal reports consumer bankruptcies soared 41% from September, 2008… The Financial Times says unemployment has risen to a 26-year high of 9.8%… “U.S. mortgage delinquencies set record,” according to Reuters… The Independent reports on a beaten-down dollar, whose reserve currency status is under global attack… the Federal Reserve’s Supervisory Capital Assessment Program shows top U.S. banks could lose $599 billion in two years… and The Globe and Mail asks, “Green shoots or yellow weeds?”
It’s no wonder prudent investors like you are searching for answers.
The truth is, if the economy truly was recovering the way the government and media would have you believe, the dollar would move up and the price of gold would plunge. The chart below clearly shows that the opposite is happening:
And this chart also shows the inverse correlation between gold and the dollar. When one moves up, the other heads down. Right now, gold is clearly on the winning side.
What’s more, Nick Barisheff of Bullion Management Services recently reported that “gold will continue to increase in price as long as its mine supply is lower than the increase in the money supply.” Right now, “mine supply increases by about 1.5% annually.”
Take a look at how the government’s response to the crisis has more than doubled the money supply:
| The U.S. government has printed so much money that the monetary base has swelled from $800 billion to $1.7 trillion. This is the largest expansion in history and a staggering devaluation of the dollar. It means that the U.S. government has created 2.1.dollars for every 1 dollar there was in America one year ago. |
With the mine supply increasing at a meager 1.5%, while the money supply has more than doubled, you can see why we at Casey Research believe the price of gold has nowhere to go but up.
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