Aug 2008
In June 2002, I was pounding the table, telling people to buy gold at $250 an ounce... but nobody cared.
Today, in 2008, people are finally asking me about it.
The fact that people are showing interest for the first time in two decades... and that now you see gold covered much more in the mainstream financial media... tells me this bull market in gold is building steam, and getting ready to move a lot higher.
I also want to point out something else about investing in gold right now, if you are new to it: There will be short-term pullbacks in the price.
My friend Chris Weber, who became a self-made millionaire thanks to savvy investments in the last gold bull market, says:
These "down periods" are going to happen. No price goes in one direction forever without stop. When there is a correction or consolidation phase of the gold bull market, I would strongly advise anyone who does not have enough of the metals to use this time to start buying...
Before this bull market is over – and I see it lasting well into the next decade – it would not surprise me to see gold at $3,000 and silver at $187.50...
Richard Russell, who's been following the markets for about 50 years in his DowTheory Letters, agrees with what's been happening this year:
The great gold bull has broken free of its chains. The US public is unaware of the great phenomenon that is playing out before their eyes. Somewhere ahead, the US public will enter the bull market. My advice on gold, as it has been all along – ride the bull, and buy more on pull-backs.
The best financial professionals also agree...
As Michael Metz, chief investment strategist with Oppenheimer & Co., says of today's global economic situation: "You have a perfect storm that favors gold for as far as the eye can see. It's not too late to buy it..."
In this report, you'll learn about our three favorite precious metals opportunities right now – two in gold, and one in silver (and why you should own silver, too).
The first opportunity I want to tell you about is the simplest and safest way to own gold. It's perfect for part of your savings. I think it will grow steadily over the next decade and beyond. In short, every investor, no matter how young or old, should have some.
The second opportunity in this report comes from Porter Stansberry. He'll show you why you also should own some silver right now... and the easiest way to buy it.
The third opportunity we'll tell you about, from professional geologist and mining stock expert Matt Badiali, is our single favorite gold stock to buy right now. It's big, cheap, and safe... and right now, you can buy it at a double-digit discount.
So let's get started...
5 Reasons to Own Gold
& Precious Metals Now
1. Gold is still cheap, while stocks are expensive. In January of 1980, both the Dow Industrials and the price of gold were at the same level: 800. Now, nearly 30 years later, the Dow is above 10,000, and gold is around $950.
2. Governments can print money to pay off their debts and pay for bailouts... But they can't create gold or silver. For example, the U.S. government is printing tons of new money right now to get the banks to lend, and bailing out all the financial institutions that have failed recently (more will fail for sure). In other words, the supply of paper money can be infinite. But the supply of gold is extremely limited. They say the entire gold production in the history of the world could fit on the basketball court at Madison Square Garden. And it's not so easy to get it out of the ground.
3. Precious metals do well in major international conflicts. The price of gold was fixed during World War I and World War II. But silver rose by more than 100% in both world wars. Gold has risen for the duration of the War on Terrorism. It all comes back to No. 2, above... Governments ultimately print money to pay for wars.
4. Gold will rise during inflation... and during deflation. Gold rises as the value of the dollar falls. But what many people don't understand is that gold will do even better during deflation, as the government lowers interest rates and wildly prints money (creating inflation) to offset that deflation. This leads to substantially higher gold prices... which is exactly what's happening right now.
5. Gold lowers risk in your investment portfolio. In the past, gold has tended to do the opposite of stocks: It skyrocketed in the 1970s, when stocks did horribly. Then in the 1980s and 1990s, when stocks soared, gold lost more than half its value.
So right now, you want to be a buyer of gold. Here's the first way I recommend you do it:
Investment No. 1
The Easiest Way to Own Gold
There are several ways to own gold through the stock market.
You can either buy stocks of companies involved in the production of gold, shares in a gold fund, or exposure to the metal itself, in share form.
Of these three gold instruments, the third option offers the least risk: owning gold bullion in share-form.
The instrument I'm talking about is the SPDR gold shares ETF. The symbol is GLD. Each share of GLD is worth exactly one-tenth of an ounce of gold. Buy 10 shares of GLD and you own one ounce of gold. It's that simple.
When you buy the stock of mining companies, especially the juniors, you take on all sorts of additional risks... like investing in politically unstable countries, higher energy costs, labor shortages, and bad management decisions.
With this ETF, you own gold without all the baggage.
Recommendation: Buy the SPDR gold shares ETF (NYSE: GLD).
Investment No. 2
Why Buying Silver Is the Most Important Action You'll Take This Year
By Porter Stansberry
Today, after six years of dollar destruction – with more to come after the U.S. government's rescue of Fannie Mae and Freddie Mac... the IndyMac takeover... and the Bear Stearns bailout – the prices of gold and silver are getting ready to head through the roof.
When people have tangible evidence that something has gone badly wrong with the economy, they begin to hedge against it. They hoard real assets. Rich people hoard gold and silver.
Hedging is like buying life insurance. You buy insurance so that, if something terrible happens, your family will have something to live on. Likewise, you should have some exposure to gold and silver in your portfolio. And no, it's not too late to buy some – far from it.
What you want in a hedge is a lot different than what you want in an investment. With an investment, you need something that's stable, which hopefully provides a yield, and isn't going to drive you crazy with volatility. Silver is none of these things.
But it is a perfect hedge, because, when things go wrong economically – when there's a crisis – the price of silver goes bananas.
Why? Because of the silver-to-gold ratio.
Historically, when demand for silver soars because of a monetary crisis, the price rises until it's roughly equal to 16 times the price of gold. As a result, the price of silver tends to move far more than the price of gold during a monetary crisis. Today, gold trades for around $950 an ounce. Dividing $950 by 16 shows the price of silver would be $59 an ounce. But today, silver still trades for less than $20.
Said another way, silver is the best hedge against a money crisis because its price will increase many more times than gold, as the silver-to-gold ratio reverts to its historic average. Silver will once again be worth 1/16th the price of gold. It is now worth only about 1/48th.
The easiest way to get into silver is the iShares Silver Trust (AMEX: SLV). If you don't want to buy real coins, this vehicle should work fairly well.
Make sure you own a substantial amount of gold and silver. I would recommend at least a 5% position in gold and a 5% position in silver. I wouldn't allocate more than 15% of your portfolio. That should be plenty to hedge yourself.
Investment No. 3
The Best Gold Stock to Buy Now
By Matt Badiali
My favorite gold stock investment bills itself as... "The Gold Company."
You'd think shares of the so-called Gold Company would skyrocket when the price of gold rallies like it has... but that hasn't happened.
In the last three years, the price of gold has risen 88% and the price of copper (the Gold Company's other major product) has jumped a whopping 140%. Meanwhile, the Gold Company's shares are up a pathetic 19% during that same period.
So, why buy this seeming laggard? Assets.
The company produced and sold 2.4 million ounces of gold from its Nevada mines in 2006 – 43% of its total gold sales. And the company has another 33.1 million ounces of proven reserves in Nevada. That means a little less than one-third of its 93 million ounces of reserves are located in a safe, stable, mining-friendly country.
With that in mind, we can still buy the company for less than $3,500 per produced ounce of gold. That's a 39% discount to the average for smaller, mid-tier producers working in much dicier locations. Who wants to pay a premium for riskier gold production?
Personally, I'll go for big and stable.
The Gold Company is Newmont Mining (NYSE: NEM) – the world's largest unhedged gold producer.
At its current price, Newmont is a fantastic buyout target. And that is what makes it a great place to be invested now.
The mining industry is in a frenzy of consolidation – and the price of gold is well past record-breaking territory. When a company combines assets as incredibly valuable as Newmont's and an unfairly cheap market value, it will be bought.
Just consider these giant mergers:
• Rio Tinto acquired aluminum producer Alcan for $38.1 billion.
• Freeport-McMoRan bought Phelps Dodge for $22.6 billion.
• Xstrata bought Falconbridge for $18.2 billion.
• CVRD acquired Inco for $18 billion.
• Goldcorp bought Glamis Gold for $8.7 billion.
Newmont has some serious assets to tempt a potential suitor. It built three brand new mines in 2006. It put 9 million ounces of reserves into production in 2007. And the company holds 29 million square miles of land in the world's premier gold-mining districts.
The company will produce between 5 million and 5.5 million ounces of gold this year. That gives us a worst-case sales number (at $650 per ounce gold) of $3.25 BILLION. Newmont says those ounces will cost between $375 and $425 per ounce to produce. That gives us a rough gross profit of $1 billion.
The company is currently worth around $22 billion, so it's trading at 22 times earnings. However, the rising gold and copper prices will buoy its earnings. That will attract interest in a takeover. Potential suitors will look at the volume of gold ounces coming out of the ground and the potential gains of lower-cost production.
In the meantime, the company pays a small (40¢ per share annually) dividend that we will collect while we wait. And we should enjoy some capital gains even without a takeover.
The company's copper hedges expired recently, so it can finally take full advantage of its copper production. Under existing contracts, Newmont has been selling its copper at prices that don't reflect the metal's current price.
Copper prices rose 80% since January 2006. As copper stays up around $3.70 per pound, Newmont will benefit.
Recommendation: Buy Newmont Mining (NYSE: NEM) and use a 25% trailing stop. When one of the world's largest gold producers is selling at a ridiculous discount to its peers, it's time to buy.
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