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Gold, Silver, Precious and Base Metals Your Best Defense!

Commodities / Gold and Silver 2010 Jul 12, 2010 - 08:31 AM GMT

By: Larry_Edelson

Commodities

Diamond Rated - Best Financial Markets Analysis ArticlePrecious and base metals are not only critically strategic commodities — but what’s happening in those markets are also blatant signs of what may well be the most urgent financial AND strategic dilemma of our time:

The threat to the cornerstone of our nation, the massive financial and debt crisis and their impact on the value of the U.S. dollar, and hence, your wealth.


So today I am going to review with you why I believe the precious and base metals sectors are critically important to your portfolio.

I will demonstrate for you that the single best defense you can take for your portfolio is to go on the offense — to use precious and base metals investments to protect your wealth from the ravages of a falling dollar and to capitalize on a myriad of wealth-building opportunities.

First, let’s review the major forces that are poised to drive gold, silver, platinum, palladium, copper, aluminum, tin and more — higher and higher.

The forces are explosive, they’re spinning off huge profits … and, they are just beginning …

WHAT ARE THOSE FORCES?

They are the three most powerful economic forces on earth today!

1. Unprecedented demand from Asia.

And … at the same time …

2. An unprecedented financial crisis and debt implosion in the U.S.

Coupled with …

3. An unparalleled bear market in the purchasing power of the U.S. dollar.

So, let’s review these forces so that you fully understand them … how they are impacting the metals markets … and why you should make metals investments a key part of your investment portfolio.

Force #1: Asia.

There’s no question that Asia’s rise in the world is unprecedented. I think everyone would agree with me on that.

And, it’s being led by China’s economy, which has grown at an average rate of about 10% for the last eight years.

Moreover, not only is it just high growth in Asia, it’s growth that’s starting from a level that saw 1.4 billion people in China — and another 1.6 billion people in the rest of Asia — emerge out of absolute poverty.

And now that China and Asia are modernizing, the standard of living of 3 billion people — nearly half the world’s population — is soaring.

I won’t go through all the stats with you. I’ll just pick one or two for now that show you how massive this trend is.

Consider, for instance, car ownership in China: Right now, even after almost two decades of explosive economic growth, car ownership in China is still only about 40 vehicles per 1,000 people, compared to 900 per every 1,000 in the U.S.

If that stat just rises to 100 cars per every 1,000 people in China — which is certainly not a stretch of the imagination — the demand for cars will overwhelm the markets for steel, aluminum, platinum, palladium, rubber, iron, you name it.

That’s just autos!

Even that pales in comparison to what’s happening to the demand for copper and other metals for housing, urban construction, infrastructure projects, and more in Asia.

And, it’s why China in particular has been on a rampage to secure natural resources, especially metals, all over the world.

The pace of China’s acquisitions of natural resource companies is exploding higher! Just look at the history …

In 2002, China made only one deal in natural resource acquisitions. In 2003, two deals. In 2004, another three deals.

In 2005, 11 deals.

In 2006, 25 deals.

In 2007, 33 deals.

In 2008, 53 deals.

In 2009, more than 166 deals, mostly in natural resources!

Asia and China’s demand alone would be enough to send metals prices higher.

But one of my major points today is that it’s not just Asian demand this time around.

Demand for metals, indeed all natural resources — what I call tangible assets, real wealth — is being multiplied many times over by …

Force #2: The great financial crisis that’s enveloped the world.

How so, when one would expect a softening of demand, due to the financial crisis?

Well, this is where you need to put your thinking cap on and see through what’s happening and what Wall Street is telling you in traditional economic-speak.

This is where you need to see through the so-called rules of thumb on recessions and economic crises and see how different today’s times are.

Not only is Asian demand soaring but it’s happening at a time when the world is awash in debt and fiat currency.

That’s particularly true of the U.S., unfortunately. The U.S. is now the most indebted nation on the planet, and those debts — $136 trillion — are having immutable consequences on today’s economy and nearly all asset prices.

Most of all, it’s changing the way they view the dollar! Hardly surprising, when you consider the facts …

arrow black Your Single Best Defense!  The officially recognized national debt is $13.1 trillion

arrow black Your Single Best Defense!  Unfunded national obligations of Social Security, Medicare, government pensions and more equal $107.8 trillion

arrow black Your Single Best Defense!  $1.6 trillion U.S. Federal deficit

arrow black Your Single Best Defense!  Another $9 trillion in cumulative deficits over the next ten years

arrow black Your Single Best Defense!  $3.5 trillion owed to foreign investors

arrow black Your Single Best Defense!  Plus, another trillion dollars for health care reform, no matter what bill finally makes it through Congress

Grand total of U.S debts: 136 TRILLION.

To give you an idea of how big that is, imagine the government could somehow pay off that debt at the rate of $100 million per day, every day starting right now.

Even at that rate, it would take more than 3,450 years before the total government debts and obligations are paid off.

Bottom line: Savvy domestic U.S. and international investors are now realizing what I’ve been warning about for years … that …

America’s massive debts are unpayable!

As a result, the favorite debt solution of central bankers and politicians will be to pay off government debts with ever cheaper currency.

Force #3: The dollar is already in the process of being devalued!

Step-by-step, international investors and international organizations are aggressively pushing to replace the dollar with a new reserve currency, ending America’s supremacy as a global economic power.

US Dollar Index

This is also why — despite recent disasters with other currencies like the British pound or the euro — the dollar is still down 32% since its high back in 2001. I repeat, it still lost almost one-third of its value in the past decade.

Moreover, it’s also why the dollar’s role as a reserve currency is being challenged all over the world, and why I believe we are now facing a final day of reckoning for the dollar.

This dynamic — a plunging dollar, a fiat paper currency losing purchasing power — is presenting investors with a whole different ball game. It means that …

If your capital is denominated exclusively in U.S. dollars and it does NOT include a strategy for protection against the falling dollar … you may be ACTUALLY LOSING MONEY WITHOUT EVEN KNOWING IT — AS YOUR MONEY GRADUALLY BUYS LESS AND LESS.

So — to truly preserve your capital and its purchasing power — you may decide you need to go on the offensive with a strategy that includes strategic contra-dollar investments that protect your wealth and allow you to grow it as well.

Just like savvy investors are doing, with tangible assets and resources that not only provide the world with the basic necessities of life, but actually rise in value as the dollars falls.

That’s especially true of precious and base metals — assets that are not only in huge demand from Asia, but that are also contra-dollar plays that typically rise in value as the dollar falls.

Bottom line: These powerful forces — Asian demand, the financial crisis, and the falling dollar — give you a triple tailwind to invest in precious and base metals — and to propel those investments higher to protect and grow your wealth.

Consider the inflation-adjusted charts for commodities like platinum, palladium, aluminum, copper and more.

Most believe that the prices of the precious and base metals are already high, or, that they’ve seen their highs just before the financial crisis hit and that they offer very little upside profit potential.

BUT NOTHING COULD BE FURTHER FROM THE TRUTH!

The FACT of the matter is that the prices of most metals remain cheap on an inflation-adjusted basis — and have loads of catching up to do on the UPSIDE!

These inflation-adjusted charts show you — in no uncertain terms — how cheap metals prices are — and how much higher they could rise, giving you tremendous profit potential to protect and grow your wealth in the years that come.

For instance, consider, just for starters, aluminum.

Aluminum

Aluminum’s peak inflation-adjusted price: Near $10,000 per metric tonne back in 1933.

Its recent price: About $2,000 per tonne.

In other words, aluminum is selling for less than about one-fifth of its prior peak value — and could rise more than 400% in price in the months and years ahead.

Or consider, tin.

Tin

Tin’s all-time peak in 1978 on an inflation-adjusted price: Near $60,000 per metric tonne.

Its most recent price: $19,000 per tonne.

It’s selling for less than one-third its peak value.

Now take a look at copper, perhaps one of the most important base metals of all.

Copper

Copper’s all-time peak in 1973-4 on an inflation-adjusted price: More than $17,000 per metric tonne.

Its most recent price: $6,700 per tonne.

Put simply, copper is selling for about 40% of its prior peak value, and can more than double in price in the years ahead, from roughly $3 a pound today to over $6 a pound!

And now, here’s platinum:

Platinum

Its inflation-adjusted high: Nearly $3,000 an ounce in 1979.

Its price today: Just a tad over $1,500 an ounce.

In other words, platinum prices are set to DOUBLE.

And then there’s palladium, whose inflation-adjusted high was, in 1917, at more than $2,000 an ounce — but is now trading for just $435 an ounce, showing it has the potential to gain more than 400%.

Palladium

Or silver, which would have to rise almost ten-fold to reach its 1980 high in inflation-adjusted terms!

Silver

And most of all, LAST BUT CERTAINLY NOT LEAST, perhaps the most important metal of all: Gold.

Gold

In fact, the most common question I get today is whether or not I think gold has reached a peak, and if not, how much higher I think it could go.

So let me answer those two very important questions, right now, head on, and then I’ll move on to show you how to get positioned to reap potential huge profits ahead, not only in gold, but in the other metals as well.

Look at the inflation-adjusted chart in gold again.

Adjusted for inflation — that is the long decline that’s already occurred in the dollar’s purchasing power — at say $1,200 gold, the precious yellow metal is actually selling at just a tad more than HALF its all-time high.

Its previous 1980 peak — in today’s dollars — is $2,271 per ounce.

In other words, gold prices could EASILY double again in just the next couple of years.

Moreover, at $1,200 an ounce, I believe gold investors are banking on the dollar’s purchasing power remaining stable — which it is not going to do.

Not with the financial crisis still roaring …

Not with governments around the world contemplating spending even more money to try and stimulate their economies …

Not with the Federal Reserve continuing to print paper dollars like there’s no tomorrow …

And not with other central banks around the world … in China, India, Russia and more — actually buying up gold reserves to protect themselves from the dollar’s inevitable decline!

That’s why I have three longer-term gold price scenarios for gold that I want you to be fully aware of.

Three Possible Gold Price Scenarios

Scenario
Potential Gold Price
I. Orderly decline in the dollar
$2,300/ounce
II. More dramatic decline in the dollar
$3,000/ounce
III. Collapse in the dollar
$5,000/ounce

First, I believe that, no matter what, gold is going to hit its inflation-adjusted high of $2,300 an ounce — at a minimum.

But that assumes an orderly decline in the dollar, and an orderly process of phasing in of an eventual new world reserve currency of some kind.

In scenario two, where the world’s currency markets continue to show the kind of volatility that’s recently occurred — with rising global uncertainty regarding the outcome, gold could eventually reach $3,000 an ounce.

And in scenario three, where the dollar falls completely out of bed and the markets take over, I wouldn’t be shocked to see $5,000 an ounce for gold.

The bottom line: Gold is showing you the major forces I’ve already outlined here for you today — that soaring economic growth in Asia coupled with the financial crisis, which is going to inevitably pound the dollar lower, devaluing its purchasing power step-by-step …

… are converging to give you an investment sector that’s perfectly positioned to not only help you protect the value of your money in the months and years ahead, but also give you multiple opportunities for profits.

The next logical question then is: How does one get set up to profit from this amazing situation?

I recommend three general steps investors should take …

Step 1: For ultimate protection, and for future profit potential, I believe that everyone should have up to 25% of their liquid investment funds in gold and gold-related opportunities.

Naturally, each investor needs to take a look at his or her individual investment needs. There’s no such thing as a one-size-fits-all portfolio. But whether you invest 10% or 25% in gold, I recommend your allocation be further subdivided into four equal units. Using a 25% allocation, here’s how it would break down:

A. I’d put about 6.25% in bullion, in ingots or bullion coins such as the American Eagle or Canadian Maple Leaf. Given the storage hassles and costs, there’s no need to put more than that in bullion.

B. I’d put another 6.25% into the SPDR Gold Trust ETF, symbol GLD, and …

C. I’d put another 6.25% divided equally amongst my three favorite gold mutual funds …

arrow black Your Single Best Defense!  Tocqueville Gold Fund (TGLDX)

arrow black Your Single Best Defense!  U.S. Global Investors World Precious Minerals Fund (UNWPX)

arrow black Your Single Best Defense!  U.S. Global Investors Gold and Precious Metals Fund (USERX)

Then …

D. I’d put the remaining 6.25% divided equally into my top-rated gold mining shares …

arrow black Your Single Best Defense!  Goldcorp Inc., (GG)

arrow black Your Single Best Defense!  Barrick Gold Corp., (ABX)

arrow black Your Single Best Defense!  Kinross Gold Corp, (KGC)

arrow black Your Single Best Defense!  Gammon Gold, (GRS)

Combined, these gold mining shares own the majority of the gold reserves in the world today, which is a great reason to own them.

Step 2: Diversify beyond gold to the other metals that are benefitting from this environment — rising Asian demand coupled with a long-term bear market in the dollar.

I consider an assortment of my favorite Exchange Traded Funds here …

arrow black Your Single Best Defense!  ETFS Physical Palladium Shares ETF (PALL)

arrow black Your Single Best Defense!  ETFS Physical Platinum Shares ETF (PPLT)

arrow black Your Single Best Defense!  ETFS Physical Silver Shares ETF (SIVR)

arrow black Your Single Best Defense!  PowerShares DB Base Metals Fund (DBB)

And …

Step 3: I would also consider the intelligent purchase of short- and long-term call options on metals companies, bearing in mind that options are not for everyone, and certainly not for ALL of your money.

They’re volatile, speculative investments. But the purchase of options has two unique advantages: First, you can never lose a penny more than you invest. And second, you get virtually unlimited profit potential!

Lastly …

Step 4: Consider active guidance in the area of metals investing, and all natural resources.

My Real Wealth Report is a perfect example, where I follow these markets intensely giving my subscribers in-depth analysis on the natural resource markets … on Asia … and what’s happening to the dollar on a monthly basis, including all my specific recommendations and timing signals.

If you’re not already a Real Wealth Report member, consider joining now. It will be the best $99 you ever spent. To join, click here now.

Best wishes for your health and wealth!

Larry

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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