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Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Ride the Gold Bull Market to Glory …

Commodities / Gold and Silver 2010 Apr 12, 2010 - 09:28 AM GMT

By: Larry_Edelson

Commodities

Best Financial Markets Analysis ArticleI’ve got some important ground to cover with you today, so let’s get started.

First, no matter what happens in the world today …


No matter what happens in the markets …

No matter how good the economic news may be …

Nor how bad it may become …

Hold on to all your core gold holdings!

Why? Because gold is a win-win investment, and because it’s now knocking on the door of its next rocket ride higher. More on that rocket ride in a minute.

First, I want to review with you why I think gold is a win-win investment: It’s because there are really only two possible economic scenarios that lie ahead …

Scenario #1: The Federal Reserve’s (and other central banks) efforts to save the U.S. economy and financial system succeed.

In the short term, that is. I doubt that they will succeed in the longer term.

But I do believe the Federal Reserve and other central banks have largely kicked the can down the road for now, and, thanks in large part to China’s economic growth, we are seeing definite signs of economic improvement, all over the globe.

So what happens next then?

The credit crunch affecting homeowners and businesses eases … money flows through the pipeline … and the trillions of paper dollars central banks have created begin to work their way through the system.

And no matter how hard central bankers try to reign them in, inflation begins to move up quite sharply.

The inflation we will see, however, will be unlike past inflations. It won’t be in wages. It won’t be in real estate prices. It won’t be in the latest tech goodies.

It will be fought in the arena of paper currencies versus tangible assets.

After all, under this scenario, the trillions of dollars worth of fiat money flooding into the global economy will be chasing fewer and fewer goods in the natural resource sector, pushing their prices inevitably higher.

Obviously, gold will continue to do quite nicely under this scenario.

Scenario #2: Government and central banks rescue efforts fail, economies slump again, sovereign debt defaults steamroll across the globe.

Bearish for gold? No way, Jose! The Fed and other central banks will just keep pumping trillions more dollars into the system, but to no avail, as they’re largely bankrupt balance sheets get exposed for exactly what they are — “Emperors and Empires With No Clothes!”

The greenback will experience the worst decline of all currencies, dramatically losing much of its purchasing power, partly due to the intentional willingness to devalue the currency coming out of Washington, and partly because all currencies will be losing purchasing power.

Gold will do quite nicely under this scenario as well.

So how high do you think gold will go in each of these cases?

In scenario 1, I see gold easily hitting my MINIMUM TARGET of $2,300 an ounce, the inflation-adjusted high that would be equivalent to what $850 gold was in January 1980, its first major record high.

In scenario 2, I see gold easily exceeding $2,300 an ounce … and heading to more than $5,000 an ounce.

Let’s Also Not Forget That Gold Demand Is Soaring While Supplies Continue To Shrink Dramatically

Many analysts are claiming that in either of the above scenarios, gold’s rising price will eventually bring oodles of new supply to the market, hence killing, or at least smothering the bull market for a while.

But in fact, the demand/supply equation in gold is heavily tilted toward rising prices, and even far worse than the long-term dire supply picture for oil. In fact, I would even venture to say that the world reached “Peak Gold Production” nine years ago.

Consider the following …

arrow black Ride the Gold Market to Glory ...  The U.S. Geological Survey — a division of the Department of the Interior — recently announced that there are now fewer than 50,000 tons of proven gold reserves left in the ground worldwide. At current mining rates, that means the world will run out of gold within 20 years.

arrow black Ride the Gold Market to Glory ...  South Africa, the world’s former top producer of gold, is experiencing some of the steepest production declines.

South Africa’s production has plunged nearly 95% from its peak to its lowest level in 86 years, while mine production there has the potential to fall even further as the credit crisis continues to impact mining companies.

Adding to the supply crunch: Big miners are simply not finding world-class deposits. Why? Simple. Because all the elephant-sized gold deposits have already been found.

And on the demand side, gold is being gobbled up in record or near record amounts in every corner of the globe.

We all know that India is the world’s largest consumer of gold. But China isn’t far behind with total gold consumption valued at $14 billion in 2009.

Indeed, according to a very recent report from the World Gold Council, China’s gold jewelry and investment demand could double in the next decade to $29 billion.

Gold is being gobbled up in near record amounts in every corner of the globe.
Gold is being gobbled up in near record amounts in every corner of the globe.

Plus, I have absolutely no doubt Beijing continues to buy gold — on the sly — on practically every dip in prices, scooping up gold in many forms, from physical bullion … to gold certificates … and even via the SPDR Gold Trust (GLD), where China has recently bought up $155.6 million worth of the gold.

Why is Beijing buying gold?

Plain and simple: It’s the best way China can hedge against the inevitable demise of the dollar.

Bear in mind, China only has about 1.6% of its total reserves in gold, compared to 70.4% for the U.S. … and 66.1% for Germany.

So if Beijing were to increase its gold reserves to just 5% of its total reserves, that would mean Beijing would buy up nearly 72 million ounces more gold. That alone would be enough to send the yellow metal to more than $2,000 an ounce.

Also bear in mind, all the gold that’s ever been mined in the history of the world is about 165,000 metric tons, or 5.3 billion ounces. And all of it could fit into a cube measuring roughly 25 meters a side.

Once Gold Closes Above $1,162 An Ounce, The Lid Comes Off

Gold is inching up on the charts, trading at $1,146 as I pen this issue. On my proprietary trading systems, $1,162 represents a critical area for gold.

Once the precious yellow metal — the world’s only real, tangible form of money and wealth — closes solidly above $1,162, the lid comes off. New record highs will be seen soon thereafter.

What if gold rallies to $1,162, but fails to close above that level? No problem. Gold would simply consolidate for a few more weeks or months, between $1,000 on the downside and $1,162 on the upside.

But I have no doubt that gold will blast off and give me that major buy signal. Just as I have no doubts whatsoever that gold is going to soar to at least $2,300 an ounce, if not higher.

As I said at the outset, hold all previously suggested gold recommendations that I’ve made for your core holdings. And get ready to ride them to glory.

Best wishes,

Larry

P.S. With gold inching closer to yet another massive breakout higher, why not join my other Real Wealth Report subscribers so you can get ALL of my recommendations. My specific picks in gold shares, alternative gold investments, oil, natural resources — and more — to help you protect and grow your money for years to come.

At $99, it is truly a bargain, and I would not be surprised if just one of my recommendations covers the cost of the membership several times over. Click here to join now.

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


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