The Only Gold Indicator You Need

The Only Gold Indicator You Need

By Dr. Steve Sjuggerud

Wednesday, April 28, 2010

"So… where's the big gold bull market?" I asked John Doody over lunch yesterday.

John writes the excellent Gold Stock Analyst newsletter, where he takes a deep look into gold and the major gold stocks every month. Before starting the newsletter in the early 1990s, John was an economics professor. Right now, John and I are at a conference on Maryland's Eastern Shore.

"John, if gold is so great now, then why hasn't it soared this year?" I asked him. "It's only up like 5%."

John replied. "That's a good question… In my opinion, the primary driver of the gold price is real interest rates that investors earn on their cash."

In short, if investors earn nothing on their cash, then gold goes up. If investors earn high rates of interest on their cash, then gold goes down. As the chart below shows, that's the only gold indicatory you need to know.

Importantly, we're talking about the "real" rate of interest – after inflation. John defines the real interest rate as the interest rate on risk-free 90-day Treasury bills MINUS the inflation rate. That's a good estimate of your "real" return on cash.

As John explained, when the real interest rate is negative – when inflation is higher than risk-free interest – "cash loses purchasing power and buys fewer goods than it bought earlier in the year. When that happens, for protection, investors buy gold and drive its price higher."

Now, take another look at the chart. John explained, "Today's gold bull market and 1970s gold bull market were eras of negative real interest rates. But importantly, for 2010 to date, the real interest rate has been barely negative, as shown by the chart's red-circled area."

With the real interest rate at about 0%, gold isn't moving anywhere. And John pointed out that the Fed rarely raises interest rates as elections approach. So interest rates should stay where they are.

But eventually, John says, "A pickup in the economy will be the key to higher inflation. With the U.S. economy slowly on the mend, we could see inflation. Real interest rates would go negative and gold would rise."

One thing I like about John is, he's not the typical gold bug. He's not taking some moral stand against the government or digging a bunker full of freeze-dried food.

John simply looks at the facts. The facts say you need to own gold when the "real" interest rate is negative… almost regardless of the what's in the news.

His work shows that gold goes up when the bank's paying you nothing. That's where we are now… and that's what you need to know. John believes if the economy starts to recover before the election and inflation shows its head, the situation could get better from here for gold.

In short, gold looks good now, with low rates. And it could look better soon…

Invest accordingly,

Steve.

P.S. John has written Gold Stock Analyst for over a dozen years. He delivers the facts on gold each month, covering 75 precious metals stocks. His "Top Ten" list has an incredible track record of success. For more on Financial Forecast Free Newsletter, click here. 

The Most Important Chart in the World Right Now

By Porter Stansberry

To most people, any talk of the U.S. government debt simply doesn't mean anything.

For instance, I could tell you the annual funding costs of our national debt are approaching $4 trillion per year – that's $1.5 trillion in new annual deficits, plus $2 trillion-$3 trillion a year in short-term obligations coming due that need to be refinanced. Foreigners hold roughly half of this debt. Thus, we have about $2 trillion in foreign debt that must be repaid or refinanced each year.

But this obligation is so large that it's meaningless to most people. I could also tell you $2 trillion is 20% of our GDP, but even then, most people won't understand just how much money this is. So think of it this way... 

If you spent $1 million per day from the time of the founding of Rome – roughly 2,700 years ago – until today, you would have accumulated about $1 trillion in debt. Now, double that amount. And that's the size of our annual foreign borrowing obligation.

(Thanks to Eric Margolis for the trillion-dollar metaphor. See his essay "Spending America Into Ruin" here.)

But more important than understanding the size of this debt, it's vital that you understand its effects. In this essay, I'll show you the easiest way to track those effects... and the actions you must take to protect yourself from them.

The Barclays iShares 20+ Year Treasury ETF (TLT) tracks the value of the U.S. government long-bond market. This is the primary market the Fed was trying to support over the last year. Gold, on the other hand, is the best market-based judge of the soundness of the U.S. dollar and our creditors. The SPDR Gold Shares ETF (GLD) is an accurate proxy for the price of gold.

Look what happened to U.S. bonds (TLT) and gold (GLD) over the past year. This occurred even as the Fed was massively intervening in the credit markets. 

Note the value of the U.S. long-bond market fell by more than 10% despite the government support. And the value of gold increased by more than 10% as investors fled the dollar.

It's interesting the relative moves were nearly identical. There's no free lunch. For every penny the government prints or borrows and uses to manipulate long-term interest rates, that same penny is being taken out of the value of the U.S. dollar, as is revealed in the price of gold.

You will see lots of debates about what the coming currency crisis means. But if you can simply understand this chart, you will grasp what's happening and how to protect yourself. It's simple: The value of the dollar is collapsing as the un-creditworthiness of the United States becomes evident. That means the price of hard assets – like gold – will keep rising and the value our government's long-term obligations will fall.

The safest thing to do right now is split your savings between short-term Treasuries and gold. That's the equivalent of a "cash" position, as the gold will hedge your dollar exposure and the short-term Treasuries will mitigate the volatility of gold. You can do this through ETFs. The Barclay's iShares 1-3 Year Treasury ETF is an easy way to own short-term Treasuries. The symbol is SHY. And GLD is the most liquid gold ETF. 

I personally hold my gold in bullion coins and recommend you do the same. It's better and safer than the ETF. But for lots of people, the ETF is simply more convenient.

However you decide to take a position in gold, do it soon. I expect the divergence you see above – of U.S. debt decreasing in value, while gold increases in value – to get much bigger in the coming years.

Good investing, 

Porter Stansberry.

How to Trade Precious Metal Stocks Right Now

By Matt Badiali

When you're sending out your Christmas cards this month, gold and silver stock investors should send one to Beijing.

The people of China have helped gold and silver stock investors (and readers of my S&A Resource Report) make a lot of money this year. And they've helped make several of my predictions turn out right on the money.

Back in June, I wrote a special report, Government-Backed Gold and Silver: How to Make 10-Times Your Money in China. The report focused on how China has gone gold crazy.  

Chinese Premier Wen Jiabao started out as a geologist. He knows the value of a domestic gold mining industry and he needs to dump all those dollars. The Chinese government made huge commodity news this fall when reports leaked it was encouraging its citizens to buy gold and silver for a store of wealth. And in just the past few years, China has become the largest gold-producing country on Earth. The Middle Kingdom likes its gold.

One of my recommendations to profit on China's gold rush, China-focused producer Jinshan Gold Mines, is up 143% in less than five months. My June recommendation of a major Chinese silver producer is up over 100% in around the same time.

China also helped fulfill my prediction of a September gold breakout. In my issue that month, I detailed the past three big breakouts in the gold price since the bull market began in 2001. I said the next leg up in gold was coming soon... and it would hold above the $1,000 level. We nailed it almost to the day.

Gold staged an explosive breakout to more than $975 in the first week of September. It's enjoyed a monster $200-an-ounce move up since then. This jump has propelled most of our gold stocks to gains of more than 25% in just three months.

Of course, we can't give 100% credit to China for the big breakout in gold and silver. The rising price of gold involves a lot of moving parts. Developing nations like India are buying "real wealth" in the form of gold to escape the crumbling dollar. Giant investors – like billionaire money manager John Paulson – are buying gold, too.

But I believe the rise of China – and its citizens' knowledge of the safety of gold – is responsible (and will continue to be responsible) for a good portion of gold's rise.

Despite the big rise in gold, I don't think the metal is in a bubble like some analysts believe. My colleague Brian Hunt reminded attendees of our Alliance Conference last month to ask 100 people on the street if they own gold. Some will say they've heard something about gold in the news, but they have no idea what's driving gold higher... and almost none will tell you they actually own bullion.

That's why the latest advice I'm giving S&A Resource Report readers might sound contradictory to some. I have most of my recommended list of gold stocks as holds... and not "best buys." No, I don't think gold or silver is in a bubble. No, gold is not going to crash. I just don't think most gold and silver stocks are great buys right now.

Gold and silver stocks enjoyed a huge run recently. The Gold Miners Fund is up 36% since July. The benchmark for small resource and mining companies – the Canadian Venture Index – has gained 30% since July. I'm not finding incredible values like I did earlier this year.

Gold miners are selling for an average of 35 times future earnings right now. That's too high. I won't pay more than 20 times future earnings, even when the price of gold is on the rise (and it's much better and safer to buy gold miners for five or 10 times earnings).

For example, giant gold miner Goldcorp is a buy below $41 per share – that's about 20 times its 2009 estimated earnings. At around $40 today, it's not super expensive, but it's not a fantastic deal.

Another one to watch is gold royalty company Royal Gold. This is one of my favorite ways to invest in the yellow metal. At today's gold price ($1,125 per ounce), I wouldn't pay more than $49 per share. It's currently up around $51.

Bottom line for gold stock investors: It's been a great year. But all bull markets pull back and return some of their gains. That's what I expect to happen soon... and you'll get another opportunity to set up your portfolio for the next leg up in gold. Be ready. China needs to dump more dollars... and it's going to put many of them in gold.

Good investing, 

Matt Badiali

The Simplest Reason Gold Will Soar

By Dr. Steve Sjuggerud

When the bank pays you nothing in interest, gold goes up. And right now, the bank is paying you nothing in interest.

Why does gold go up when interest rates are low? It's simple...

The knock against owning gold has always been that, unlike cash, it pays no interest... Compound interest is almost irresistible. If you can earn 7% a year on a $10,000 deposit, in 10 years time, it will be worth $20,000. Gold will just sit there like a bump on a log.

But every so often, like right now, paper money pays you no interest... and the scales tip in favor of gold.

That's the simple version. Let's add one little tiny wrinkle to it, so you can see why gold has become irresistible now...

The forecast for inflation in 2010 is around 2%. Yet the Fed is keeping interest rates near zero. So instead of earning nothing in interest at the bank, you're actually LOSING 2% a year to inflation. That's what's REALLY happening – the REAL interest rate at the bank (minus inflation) is NEGATIVE 2%.

My longtime friend Porter Stansberry asked me to do a study of what happens when real interest rates are less than zero. The results were astonishing...

In short, when real rates are negative, gold soars and stocks stink. And when real rates are positive, gold stinks and stocks soar.  

Here are the actual results. (Note: These are COMPOUND ANNUAL GAINS.)

1973 through 1980
The median real interest rate was -1.15%.
Gold returned +32% per year.
The real return on the S&P 500 was -7% per year (not including dividends).

1981 through 2001
The median real interest rate was +2.7%.
Gold returned -3.5% per year.
The real return on the S&P 500 was +7% per year (not including dividends).

2002 to today
The median real interest rate was -0.4%.
Gold returned +18.5% per year.
The real return on the S&P 500 was -3% per year (not including dividends).

Well, there it is, plain as day. And you can see, these trends persist. 

In 2010, real rates will be negative. (Bernanke will keep nominal rates near zero... so subtracting inflation will give you a negative real interest rate.) There is essentially no chance for a POSITIVE real interest rate in 2010. Said another way, you WILL lose money in the bank in 2010. Whatever interest you earn won't keep up with inflation.

History shows, under that environment, stocks don't do well... and gold soars. There's nothing in sight to end that trend. Trade accordingly.

Good investing,
Steve.

Top gold fund manager says these stocks will rise 200-300% faster than gold

Top Gold fund manager says these stocks will rise 200-300% faster than Gold 

Mark Johnson, manager of the USAA Precious Metals and Minerals Fund - the number one precious metals mutual fund over the last 10 years - says gold stocks will gain 2% to 3% for every 1% move in gold. The fund has over 80% of its assets in mining stocks, a huge $1 billion bet on higher prices.

Its top five gold stock holdings are AngloGold Ashanti (AU), Randgold Resources Limited (GOLD), Newcrest Mining Limited, Goldcorp Inc. (GG), and Yamana Gold Inc. (AUY).

Read full article...

China Govt's Secret New  Gold investment could pay  500% over next 2 Years

The Easiest Way to Tell If Gold Is in a Bubble

By Chris Weber

When spot gold closed on September 11 in New York at $1,005.10, it was the highest price on record... though by the time you read this, it may have been surpassed.

Gold traded higher than this, back on March 17, 2008. When that day opened in Asia, the early morning Australian and Hong Kong markets pushed gold quickly up from $1,000 to a high – so far an all-time inter-day high – of $1,033.

But as Europe opened later in the day, the price fluctuated between $1,020 and $1,030. As the U.S. markets opened, the price plunged down to $1,000 and ended just three dollars more than this.

So if you are going by the closing trade of that day, which happens to be New York as time zones go, then what happened on Friday, September 11 broke the record.

This breakthrough has drawn a lot of publicity. Hedge funds are now heavily tilted toward the long side of the gold futures market. Many gold stocks sit near all-time highs. Mainstream newspapers and magazines are starting to carry stories about gold.

This bullish sentiment has led many people to ask me if gold is far too popular now... or even in a "bubble."

My answer: I see nothing like a bubble yet. Ask your friends or neighbors these questions:

"What do you think about gold or silver as an investment?" and if they answer in a positive manner, further ask: "What are the best ways to own it? How do you own it? What percentage of your assets do you have in the precious metals area?" If this seems too invasive, ask, "What percentage of a person's assets do you think should be in the precious metals area?"

That's what I do. The people I ask have no idea what I think about gold or silver. I ask just as a sort of person – maybe on the slow side and not that bright – who wants to know about the area.

From what I'm told, almost no one is in gold or silver. Maybe a few shares of Newmont Mining, but as a percentage of their total net worth, we are talking tiny here.

People who think gold is in a bubble are often people who did not see real bubbles when they happened. In the real estate boom, the easy profits were on everyone's lips. Same with the Internet bubble 10 years ago.

When I mentioned gold back in 2001 and 2002, when I accumulated it, I got looks from people as if I were crazy.

These days, the crazy looks are gone. But now I often only get answers that gold or silver may be a good investment, but they don't have any themselves. Try it yourself.

Of course, if you've been mouthing off about how great gold and silver are, you probably want to ask people who don't already know your views: They won't think you are trying to "lay your propaganda" on them. 


Granted, the public awareness of gold and silver as investments is much, much higher today than in 2001. No one was buying then, and people thought you were crazy if you told them you were. But things haven't changed in that the average person still does not own any.

When everyone you know is talking about how to make "easy money" buying gold or silver, then we may be in a different era. But right now, I think both metals have more room, and most likely much more room, to go.

Good investing,

Chris Weber.

Better than U.S. Gold

Dear Reader,

Before you buy any more gold... please read this.

Our resident geologist says buying a unique type of Chinese Gold could outperform U.S. gold over the next few years by 100% or more.

It's an eye-opening report, which I've included below.

You'll also find instructions on how to take advantage of this situation.

Good Investing,

Brian Hunt
Editor in Chief.

Why Chinese Gold could
pay 100% MORE than U.S. Gold over the Next 2 Years

Don’t by another ounce of gold until you read this report.

In short: The Chinese government has created a secret new gold investment. The last time the gov’t did something like this, investors could have made 1,084%



Dear Reader,

China has gone crazy for Gold.

In April, for example, the government's Foreign-Exchange Agency announced the purchase of an additional 16 MILLION ounces for state coffers.

And just a few months earlier, National Geographic Magazine reported that for the first time China had surpassed the U.S. as a buyer of gold jewelry.

But here's the amazing thing few investors realize...

Behind the scenes, in a move that has gone almost completely unreported in the Western press, the Chinese government has created a gold investment that could dwarf the returns of gold bullion, ordinary gold stocks, or any other type of gold investment you've heard of before.

I wouldn't be surprised if you see gains of 1,000% or more.

I realize that may sound impossible, but consider...

This is not the first time Beijing leaders have secretly created such an opportunity:

In the late 1990s, the Chinese government created two similar investments. One (to help the local insurance industry) went up more than 625% in just a few years... the other (to aid the energy sector) has gone up about 1,084% over a similar period.

But this is the first time Chinese officials have intervened in this way in the gold markets—and I expect the result will be a windfall for savvy investors over the next few years.

After all, gold is one of the only "buy and hold" investments in the world right now. It is also the only investment in the world that has gone up EVERY YEAR for the past five years straight. And, remember, China remains the fastest-growingeconomy on the planet, with the wealthiest government on Earth.

The point is, if you are interested in an extremely lucrative way to own gold, right alongside the Chinese government, this is something you should consider.

I can just about guarantee you will not hear about this opportunity in any mainstream media publication. I heard about it only because of a contact in the industry, who met recently with officials in Beijing.

I expect the word will soon get out. But until then, you have an incredible opportunity. Let me show you what's going on...

The most reliable

way to see 500%+

There's been perhaps only one truly reliable investment trend over the past 20 years.

Bull markets have come and gone. Stocks have done well during some periods... and crashed during others. Same with bonds and real estate.

But there's one type of investment that has continued to reliably pay an absolute fortune.

In short: When the Chinese government creates a new investment vehicle, by spinning off part of a government entity, early investors have made a killing.

When the Chinese government realized they needed to improve their insurance industry, for example, they broke up state-run agencies, and created China Life Insurance, the only company with a national license. Investors have made 625% in the past five years.

When the Chinese government realized they needed more industrial supplies for manufacturing, they spun off state operations and created a firm called Chalco... which paid more than 2,100% over a six year period. They did the same with mobile phones, turning state interests into a public company that has provided 583% gains since becoming available.

And they did the same thing not too long ago in the oil industry...

First oil... now Gold

In the 1980s there basically was no "oil business" in China.

But the economy at the time was growing nearly 10% per year... and the government realized they had to become a major player.

The first thing they did was open up their own reserves for exploration. A government-created and partially government-owned business called China National Offshore Oil Corporation received an exclusive right to explore, develop, and produce oil with overseas partners. Investors have made more than 837% on this company since 2001.

Next, the Chinese government rewrote the energy rules, injected billions of dollars of capital, and in 1999 spun several new businesses out of the state-run China National Petroleum Corporation (CNPC).

** PetroChina, for example, was set up with the help of Goldman Sachs. Early investors in Petro China made 1,084% in about four years.

** Another spin-off from the state-run oil monopoly was a company called Sinopec. The government still owns 70%. And investors who got in early made about 960% over a seven-year period.

The point is, China woke up to the fact that they needed to own and control as much oil as possible, to grow the economy and become a world power.

And now...

What the Chinese government did for oil over the past decade... they are today doing for gold.

This is a huge development.


You see, most investors don't realize that China is now the world's largest gold producer (they passed South Africa last year).



China is also one of the few countries in the world where known gold reserves are increasing... not shrinking.

That's why I predict that investing in China's government-created and partnered gold companies will be one of the easiest ways to get rich over the next few years.

Let me explain how it's all going down...

China's Secret Solution

For essentially the past 50 years, no one was allowed to touch gold in China... except for the government.

But today, that is changing... and in a hurry...

In short, the Chinese government wants more gold.

They realize gold is one of the only buy-and-hold investments in the world right now. And they've got a lot of money to spend... nearly $2 Trillion according to a recent report in The New York Times.

So the Ministry of Land and Resources has completely rewritten the country's mining laws (known as the Minerals and Resources Law) to encourage local and foreign companies to explore for and produce more gold.

The government has also recently created the Shanghai Gold Exchange, to allow anyone to trade gold, on the open market, without government interference.

But most importantly for you and me, the government has quietly gotten behind a handful of publicly traded gold companies.



I believe these deals could make you extraordinary amounts of money over the next few years.

Let me show you the specifics, and why I believe this could make you so much money.

Remember, this is all happening incredibly fast in China—just like it did in the oil industry, where investors in Sinopec made 360% in 10 months... investors in PetroChina made 140% in less than year... and investors in China National made 102% in five months.

Twenty years ago, China produced an inconsequential amount of gold. Today, China is the #1 gold-producing nation in the world...

And these new government deals are poised to make some smart investors quite wealthy, very soon...

Investment #1: Gold Partnering
with the government

When it comes to gold mining in China, it's a whole different world than what we're used to in America...

There's no such thing as a NI43-101 disclosure form for mining companies, like we have here at home. And instead of a handful of giant companies running the industy, like we're used to, it's basically thousands of small operations scattered across the country.

In short, it's like the American Wild West.

That's why having the government on your side can make all the difference in the world...

For example, there are two very small gold mining companies with government connections that have a very good chance at making you several times your money in the next few years...

GOVERNMENT GOLD PARTNER #1: Recently, the Chinese government helped create, and took nearly a 50% ownership stake in, a very small gold mining company, in order to develop a handful of the country's most promising gold projects.

Already, the company has two producing properties, and exploration permits for two of the countries most gold-rich, untapped areas.

What makes this investment so appealing is that normally, when you deal with investments in China, there are certain political risks.

Will the government approve your projects? Will you be allowed to explore and develop the most potentially lucrative territories?

But for this small company, the political risks are virtually non-existent. After all, the company is nearly half-owned by the government, so obviously it will have huge advantages.

That's why I believe there's a very good chance this company will eventually become one of the world's "major" developers. And if that happens, you could easily make 2,000% on a small investment stake today.

We saw what happened when the Chinese government got behind several promising oil companies. Investors made more than 1,000% gains over a several-year period.

Well, now I believe there's a very good chance the same thing is going to happen to this company in the gold business.

Consider that right now, this company sells for well under $5 a share. It was formed just a few years ago... and now has several projects in production, and several more on the way.

What's incredible, is that this company has never been written about in the The Wall Street Journal, Barron's, or any other U.S. newspaper or magazine.

GOVERNMENT GOLD PARTNER #2: The second company I want to tell you about was formed by key members of China's National Non-Ferrous Metals Industry Corporation, a state-owned company.

In other words, several Chinese government employees got together, and used their power, influence, and connections, to create a company that is now the biggest foreign gold producer in China (they also have a local Chinese partner, which maintains an 18% interest).

It's no surprise, of course, that this company (created by former government employees) became the first local-foreign company to develop a gold mine in China. Or that they are the largest gold producer in China today... and control the country 2nd largest mine.

In short, there's no foreign company in China that can get projects done like this company can. I think it's absolutely a no brainer to own the biggest foreign producer in the world's #1 gold-mining country.

Keep in mind, this is still, relatively speaking, a tiny, tiny stock. It costs less than $7 a share... and is much less than 1/10th the size of Barrick Gold, the world's biggest gold producer.

I believe this tiny company with China operations could return many times your money over the next few years. And I'm not the only one who thinks so...

A Canadian firm just bought 20% of the outstanding shares. And I believe they are probably willing to pay at least 50% more than the current share price for the rest of this small Chinese miner.

A buyout could quickly double your investment. But the truth is, I'd rather hold this company for the next few years and potentially see 500% gains or more.

And this brings me to a third government opportunity I haven't even mentioned yet...

Better than gov't-owned gold?

I've described how the Chinese government is creating partnerships and spinoffs to develop the local gold industry.

Well... they are also spending a fortune to develop the local silver industry.

In a nutshell, the government is bringing in an experienced business to consolidate small mines, and to make them more efficient and profitable (while remaining partially government-owned).

And the good news for us is, there's basically one tiny silver mining company from Canada that has quietly become the government's favorite partner.

As I'll show you, this company is growing at a wildly fantastic pace. It is extremely profitable. And yes, it has the government as a direct partner on several of it's holdings.

In the Ying mining disctrict, for example, this small Canadian company has worked with the Chinese government to consolidate a group of mines, and has since turned them into a very profitable operation.

Today, this company produces tens of millions of ounces of silver every year—all in China. It is the cheapest mining company of it's type in the world, by far. And it has partnered with the Chinese government in a handful of projects.

On each of these projects, they pay NO taxes for the first two years.

And get this: Despite operating for just three years, this company is already the largest silver producer in China-- yet today it is still completely unknown.

I cannot say this strongly enough: You may never get another chance like this in your investment career... to buy such a cheap and wildly profitable mining company at the very beginning of what I see as a huge uptrend.

Overall, this company has grown its resources by an incredible 360% in roughly four years.

That's remarkable. And impossible to do in the U.S. or Canada... or any other developed country.

That's why China is the absolute best place in the world to grow a new mining company. Better still, we have a business that has no debt, almost $70 million in cash, and in large part because they are partnered with the government, has NEVER been turned down for a mining license.

My extremely conservative estimate for this company is a 100% gain before the end of this year (remember, it's still a very small company, and costs less than $5 a share). After that, the sky really is the limit.

I would not be surprised if this company ultimately becomes one of the most profitable stocks I recommend in my entire career.

Of course, I can't promise how much any of these companies are going to return over the next few years—there's no such thing as a guranteed investment.

But keep in mind: When mining companies get in early on new territories, they have a history of making investors an awful lot of money...

* A company called Rangold was instrumental in early mining operations in Mali. It has returned 634% in roughly the past five years.

* Keegan Resources got in early in Ghana, in West Africa, and has paid investors 489% in less than a year.

* A company called Buenaventure got in early in Peru's mining business... and has paid investors 1,293% over the past decade.

* And Barrick Gold... one of the companies that has made a business of being able to get in early in places like Peru, Argentina, and Tanzania, has returned a whopping 6,700% since going public.

I believe now is the perfect time to get in early on China's mining business, especially when you can have the government on your side.

And here's how I recommend you do it...

The New Secret of Getting
Rich in the Next 5 Years

My name is Matt Badiali. I'm a geologist.

I have a Masters of Science (M.Sc.) in geology and more than 13 years of industry and research experience.

You see, for years I wanted to take my expertise in resource companies and help people understand the business... and make some good money at the same time. So, a few years ago I joined a research team called Stansberry & Associates, which includes a PhD in finance, a former CitiGroup bond trader, several Johns Hopkins scientists, the former head of a California brokerage firm, and several Certified Financial Planners and hedge fund managers.

I learned their trade. And they learned a bit of mine.

And – for the past four years – I've leveraged my knowledge of the industry to help thousands of everyday Americans see huge gains by investing in precious metals and energy-related plays.

I've been studying China's gold (and silver) industry very closely for the past few years.

As I mentioned, China is the world's largest producer of gold in the world today, and the third-largest producer of Silver.

But this industry is still in its infancy.

When China's exploration and production techniques get better, China will dominate the world's gold production in an even bigger way. You have to remember that for basically the past 50 years, China had essentially NO precious metals industry.

But now the sleeping giant is waking up.

"China represents one of the world’s great remaining unexplored gold regions." – Greg Jones, geologist working in Southern China

There are several extraordinary investment opportunities in gold and silver right now.

I hope you take advantage of them.
Good Investing,
Matt Badiali
Editor, The S&A Resource Report

Here's How China Is Fleeing the Dollar

By Matt Badiali, editor, S&A Resource Report

If you have massive coal reserves, an oil project in Kurdistan, or a boatload of gold bullion, China wants to talk to you.

The Chinese government holds over $2 trillion in reserves. The dollar is an asset that has lost 33% of its purchasing power since 2002. And with the U.S. government creating boatloads of easy credit with low interest rates, the long-term picture is even grimmer.

Those reserves are a liability, and the Chinese want out. Here's how they're fleeing the dollar...

China's coal imports are 2.8 times what they were last year. As of May, oil imports were up 14%. Imports of iron ore and copper are reaching record highs. And it's not just raw materials...

In February, China Development Bank loaned $10 billion to Petrobras (the Brazilian national oil company), $15 billion to OAO Rosneft (a Russian national oil company), and $10 billion to Transneft (Russia's national pipeline company).

So far this summer, Aluminum Corp of China invested $19.5 billion in giant base-metal miner Rio Tinto. China's national oil company Sinopec paid out over $8 billion for Addax Petroleum's oil fields in Iraq and offshore Africa. And the state-owned China Investment Corp just bought a $1.5 billion stake in metals producer Teck Resources.

China is dumping dollars for all kinds of hard assets and commodity infrastructure. It's also dumping those dollars for gold.

From 2003 to April 2009, China secretly increased its gold reserves by more than 75%. Today, it's the fifth-largest sovereign gold holder at nearly 34 million ounces. That's over 30 times the amount of gold the Chinese government held in 1990.

Right now, that much gold is worth about $32.6 billion – just 2% of China's total dollar reserves. China's frantic to exchange more of its trillions of dollars for gold. But only about $150 billion in gold bullion trades in a given year. The government can't put all its dollars to work in the bullion market without driving gold prices to the stratosphere.

That's why China is pouring resources into its domestic mining industry.

The Chinese central bank buys all the gold Chinese mines produce at a fixed price. In 2007, China produced about 9.7 million ounces of gold – making it the world's largest producer ahead of South Africa, which produced about 9 million ounces.

China's the world's third-largest country, covering about 3.7 million square miles. That land is incredibly rich in mineral wealth – it potentially holds over 320 million ounces of gold.

Only a handful of public companies are working with the Chinese government to expand the country's production. Those companies will reap huge rewards as China dumps its dollars into its domestic gold industry.

Sino Gold (SGX on the Australian Exchange), for example, is a $1.2 billion China-focused gold miner. It owns two operating mines with two more under construction. The company's remarkable ascent began in 2001, when it acquired a small project called Jinfeng. In just six years, Jinfeng went from a rough one million-ounce resource to the country's second-largest gold mine.

It would be difficult just to permit a U.S. mine in six years, let alone bring it into production.

China's government is so eager to get its hands on more hard assets, it's willing to go to almost any lengths to kickstart its mining industry. That kind of support can yield tremendous returns for smart investors.

Good investing,
Matt.

Get in early on this trend - China Govt's Secret New Gold investment

China Govt's Secret New

Gold investment could pay

500% over next 2 Years

The specifics of this opportunity have NEVER been written about in The Wall Street Journal, The New York Times, or any other U.S. newspaper or magazine.Yet this could be the easiest way to make a fortune over the next few years. The last time the Chinese Gov't created a similar investment (2002) it returned 1,084%.

Dear Reader,

China has gone crazy for gold.

In April, for example, the government's Foreign-Exchange Agency announced the purchase of an additional 16 MILLION ounces for state coffers.

And just a few months earlier, National Geographic Magazine reported that for the first time China had surpassed the U.S. as a buyer of gold jewelry.

But here's the amazing thing few investors realize...

Behind the scenes, in a move that has gone almost completely unreported in the Western press, the Chinese government has created a gold investment that could dwarf the returns of gold bullion, ordinary gold stocks, or any other type of gold investment you've heard of before.

I wouldn't be surprised if you see gains of 1,000% or more.

I realize that may sound impossible, but consider...

This is not the first time Beijing leaders have secretly created such an opportunity:

In the late 1990s, the Chinese government created two similar investments. One (to help the local insurance industry) went up more than 625% in just a few years... the other (to aid the energy sector) has gone up about 1,084% over a similar period.

But this is the first time Chinese officials have intervened in this way in the gold markets—and I expect the result will be a windfall for savvy investors over the next few years.

After all, gold is one of the only "buy and hold" investments in the world right now. It is also the only investment in the world that has gone up EVERY YEAR for the past five years straight. And, remember, China remains the fastest-growing economy on the planet, with the wealthiest government on Earth.

The point is, if you are interested in an extremely lucrative way to own gold, right alongside the Chinese government, this is something you should consider.

I can just about guarantee you will not hear about this opportunity in any mainstream media publication. I heard about it only because of a contact in the industry, who met recently with officials in Beijing.

I expect the word will soon get out. But until then, you have an incredible opportunity. Let me show you what's going on...

The most reliable

way to see 500%+

There's been perhaps only one truly reliable investment trend over the past 20 years.

Bull markets have come and gone. Stocks have done well during some periods... and crashed during others. Same with bonds and real estate.

But there's one type of investment that has continued to reliably pay an absolute fortune.

In short: When the Chinese government creates a new investment vehicle, by spinning off part of a government entity, early investors have made a killing.

When the Chinese government realized they needed to improve their insurance industry, for example, they broke up state-run agencies, and created China Life Insurance, the only company with a national license. Investors have made 625% in the past five years.

When the Chinese government realized they needed more industrial supplies for manufacturing, they spun off state operations and created a firm called Chalco... which paid more than 2,100% over a six year period. They did the same with mobile phones, turning state interests into a public company that has provided 583% gains since becoming available.

And they did the same thing not too long ago in the oil industry...

First oil... now gold

In the 1980s there basically was no "oil business" in China.

But the economy at the time was growing nearly 10% per year... and the government realized they had to become a major player.

The first thing they did was open up their own reserves for exploration. A government-created and partially government-owned business called China National Offshore Oil Corporation received an exclusive right to explore, develop, and produce oil with overseas partners. Investors have made more than 837% on this company since 2001.

Next, the Chinese government rewrote the energy rules, injected billions of dollars of capital, and in 1999 spun several new businesses out of the state-run China National Petroleum Corporation (CNPC).

** PetroChina, for example, was set up with the help of Goldman Sachs. Early investors in Petro China made 1,084% in about four years.

** Another spin-off from the state-run oil monopoly was a company called Sinopec. The government still owns 70%. And investors who got in early made about 960% over a seven-year period.

The point is, China woke up to the fact that they needed to own and control as much oil as possible, to grow the economy and become a world power.

And now...

What the Chinese government did for oil over the past decade... they are today doing for gold.

This is a huge development.

You see, most investors don't realize that China is now the world's largest gold producer (they passed South Africa last year).

China is also one of the few countries in the world where known gold reserves are increasing... not shrinking.

That's why I predict that investing in China's government-created and partnered gold companies will be one of the easiest ways to get rich over the next few years.

Let me explain how it's all going down...

China's Secret Solution

For essentially the past 50 years, no one was allowed to touch gold in China... except for the government.

But today, that is changing... and in a hurry...

In short, the Chinese government wants more gold.

They realize gold is one of the only buy-and-hold investments in the world right now. And they've got a lot of money to spend... nearly $2 Trillion according to a recent report in The New York Times.

So the Ministry of Land and Resources has completely rewritten the country's mining laws (known as the Minerals and Resources Law) to encourage local and foreign companies to explore for and produce more gold.

The government has also recently created the Shanghai Gold Exchange, to allow anyone to trade gold, on the open market, without government interference.

But most importantly for you and me, the government has quietly gotten behind a handful of publicly traded gold companies.



I believe these deals could make you extraordinary amounts of money over the next few years.

Let me show you the specifics, and why I believe this could make you so much money.

Remember, this is all happening incredibly fast in China—just like it did in the oil industry, where investors in Sinopec made 360% in 10 months... investors in PetroChina made 140% in less than year... and investors in China National made 102% in five months.

Twenty years ago, China produced an inconsequential amount of gold. Today, China is the #1 gold-producing nation in the world...

And these new government deals are poised to make some smart investors quite wealthy, very soon...

Investment #1: Gold Partnering
with the government

When it comes to gold mining in China, it's a whole different world than what we're used to in America...

There's no such thing as a NI43-101 disclosure form for mining companies, like we have here at home. And instead of a handful of giant companies running the industy, like we're used to, it's basically thousands of small operations scattered across the country.

In short, it's like the American Wild West.

That's why having the government on your side can make all the difference in the world...

For example, there are two very small gold mining companies with government connections that have a very good chance at making you several times your money in the next few years...

GOVERNMENT GOLD PARTNER #1: Recently, the Chinese government helped create, and took nearly a 50% ownership stake in, a very small gold mining company, in order to develop a handful of the country's most promising gold projects.

Already, the company has two producing properties, and exploration permits for two of the countries most gold-rich, untapped areas.

What makes this investment so appealing is that normally, when you deal with investments in China, there are certain political risks.

Will the government approve your projects? Will you be allowed to explore and develop the most potentially lucrative territories?

But for this small company, the political risks are virtually non-existent. After all, the company is nearly half-owned by the government, so obviously it will have huge advantages.

That's why I believe there's a very good chance this company will eventually become one of the world's "major" developers. And if that happens, you could easily make 2,000% on a small investment stake today.

We saw what happened when the Chinese government got behind several promising oil companies. Investors made more than 1,000% gains over a several-year period.

Well, now I believe there's a very good chance the same thing is going to happen to this company in the gold business.

Consider that right now, this company sells for well under $5 a share. It was formed just a few years ago... and now has several projects in production, and several more on the way.

What's incredible, is that this company has never been written about in the The Wall Street Journal, Barron's, or any other U.S. newspaper or magazine.

GOVERNMENT GOLD PARTNER #2: The second company I want to tell you about was formed by key members of China's National Non-Ferrous Metals Industry Corporation, a state-owned company.

In other words, several Chinese government employees got together, and used their power, influence, and connections, to create a company that is now the biggest foreign gold producer in China (they also have a local Chinese partner, which maintains an 18% interest).

It's no surprise, of course, that this company (created by former government employees) became the first local-foreign company to develop a gold mine in China. Or that they are the largest gold producer in China today... and control the country 2nd largest mine.

In short, there's no foreign company in China that can get projects done like this company can. I think it's absolutely a no brainer to own the biggest foreign producer in the world's #1 gold-mining country.

Keep in mind, this is still, relatively speaking, a tiny, tiny stock. It costs less than $7 a share... and is much less than 1/10th the size of Barrick Gold, the world's biggest gold producer.

I believe this tiny company with China operations could return many times your money over the next few years. And I'm not the only one who thinks so...

A Canadian firm just bought 20% of the outstanding shares. And I believe they are probably willing to pay at least 50% more than the current share price for the rest of this small Chinese miner.

A buyout could quickly double your investment. But the truth is, I'd rather hold this company for the next few years and potentially see 500% gains or more.

And this brings me to a third government opportunity I haven't even mentioned yet...

Better than gov't-owned gold?

I've described how the Chinese government is creating partnerships and spinoffs to develop the local gold industry.

Well... they are also spending a fortune to develop the local silver industry.

In a nutshell, the government is bringing in an experienced business to consolidate small mines, and to make them more efficient and profitable (while remaining partially government-owned).

And the good news for us is, there's basically one tiny silver mining company from Canada that has quietly become the government's favorite partner.

As I'll show you, this company is growing at a wildly fantastic pace. It is extremely profitable. And yes, it has the government as a direct partner on several of it's holdings.

In the Ying mining disctrict, for example, this small Canadian company has worked with the Chinese government to consolidate a group of mines, and has since turned them into a very profitable operation.

Today, this company produces tens of millions of ounces of silver every year—all in China. It is the cheapest mining company of it's type in the world, by far. And it has partnered with the Chinese government in a handful of projects.

On each of these projects, they pay NO taxes for the first two years.

And get this: Despite operating for just three years, this company is already the largest silver producer in China-- yet today it is still completely unknown.

I cannot say this strongly enough: You may never get another chance like this in your investment career... to buy such a cheap and wildly profitable mining company at the very beginning of what I see as a huge uptrend.

Overall, this company has grown its resources by an incredible 360% in roughly four years.

That's remarkable. And impossible to do in the U.S. or Canada... or any other developed country.

That's why China is the absolute best place in the world to grow a new mining company. Better still, we have a business that has no debt, almost $70 million in cash, and in large part because they are partnered with the government, has NEVER been turned down for a mining license.

My extremely conservative estimate for this company is a 100% gain before the end of this year (remember, it's still a very small company, and costs less than $5 a share). After that, the sky really is the limit.

I would not be surprised if this company ultimately becomes one of the most profitable stocks I recommend in my entire career.

Of course, I can't promise how much any of these companies are going to return over the next few years—there's no such thing as a guranteed investment.

But keep in mind: When mining companies get in early on new territories, they have a history of making investors an awful lot of money...

A company called Rangold was instrumental in early mining operations in Mali. It has returned 634% in roughly the past five years.

* Keegan Resources got in early in Ghana, in West Africa, and has paid investors 489% in less than a year.

* A company called Buenaventure got in early in Peru's mining business... and has paid investors 1,293% over the past decade.

* And Barrick Gold... one of the companies that has made a business of being able to get in early in places like Peru, Argentina, and Tanzania, has returned a whopping 6,700% since going public.

I believe now is the perfect time to get in early on China's mining business, especially when you can have the government on your side.

And here's how I recommend you do it...

The New Secret of Getting
Rich in the Next 5 Years

My name is Matt Badiali. I'm a geologist.

I've been studying China's gold (and silver) industry very closely for the past few years.

As I mentioned, China is the world's largest producer of gold in the world today, and the third-largest producer of Silver.

But this industry is still in its infancy.

When China's exploration and production techniques get better, China will dominate the world's Gold production in an even bigger way. You have to remember that for basically the past 50 years, China had essentially NO precious metals industry.

But now the sleeping giant is waking up.

And I hope you'll join me for what I believe will be a very profitable ride. Remember, China is by far the richest government in the world (with about $1.95 TRILLION in reserves according to The New York Times). That's one of the reasons why I think this will probably be the easiest way to make a heck of a lot of money over the next few years.

I've done a ton of research on this opportunity over the past 6 months, and have put everything you need to know about gold and silver mining in China into my latest Research Report, called: Government-Backed Gold and Silver—How to Make 10-Times Your Money in China. I will publish that report later this year.

"China represents one
of the world’s great remaining unexplored gold regions."

– Greg Jones, geologist

working in Southern China

I hope to hear from you right away. There are several extraordinary investment opportunities in gold and silver right now.

I hope you take advantage of them.

Good Investing,

Matt Badiali
Editor, A Resource Report
July 2009.

Gold Forecast Jun 2009 - Feb 2010

Gold Price Forecast

London Fix. US Dollars per troy ounce.

Month	Date	Forecast Value	50% Correct +/-	80% Correct +/-
0	Jun 2009	945.7	0	0
1	Jul 2009	924	55	123
2	Aug 2009	908	68	152
3	Sep 2009	895	76	171
4	Oct 2009	885	83	187
5	Nov 2009	891	89	200
6	Dec 2009	909	94	211
7	Jan 2010	921	99	221
8	Feb 2010	934	103	230

Updated Tuesday, July 14, 2009

All forecasts are provided AS IS, and FFC disclaims any and all warranties, whether express or implied, including (without limitation) any implied warranties of merchantability or fitness for a particular purpose.

Gold Prices
Past Trend Present Value & Future Projection
London Fix. US Dollars per troy ounce.

Looking at the Trends for Gold

The first thing I do when I sit down at my desk in the morning is check the price of gold. The second thing I do is check the price of oil.

Sure, the price for gold and oil changes all the time. Prices go up and down, for good and bad reasons. Heck, sometimes prices fluctuate and the reasoning defies logic.

Still, I watch the price points. Deep down, I’m looking to see if the prices for gold and oil are following my long-term view of what ought to happen. That is, my long-term view is that both gold and oil prices are going to rise to astonishing heights.

Scarcity rules. That’s the foundation of my investment thesis. Today, I’ll explain my thinking about gold and leave oil for another time.

Reviewing the Gold Landscape

The first thing to understand, as an old geology professor at Harvard once told me, is that “gold is where you find it.” And the second thing to understand is that no matter where you look, gold is hard to find — and getting harder.

In the past decade, gold-related exploration efforts and expenditures have increased dramatically. I’ve seen numbers adding up to tens of billions of dollars poured by mining companies into gold exploration.

But despite the best efforts of the global mining industry, world gold production has DECREASED since early in this decade. Take a look at the chart below, depicting world gold production 1850-2008.



I Love This Chart

I love this chart. I could spend all day discussing it. For example, look at the very steep rise in gold output during the 1930s. That was during the depths of the worldwide Great Depression. In both the U.S./Canada (blue area), and the rest of the world (gray area), people were digging more and more gold. The Soviets (purple area) increased their gold output too, courtesy of Joseph Stalin and his Gulag. Desperate times call for desperate measures, I suppose. Will that sort of history repeat this time around?

Falling Gold Output, Plus Monetary Inflation

Or look at that massive run-up in gold output from South Africa (green area) in the 1950s and 1960s. That was during a time when South Africa was instituting its post-World War II system of apartheid. Labor was cheap (sorrowfully cheap), and quite a lot of international investment poured into South Africa without moral qualm. The South Africans dug deep and just plain tore into those gold-bearing reef structures of the Witwatersrand Basin.

But notice how quickly the South African gold output declined in the 1970s, as the mines got REALLY deep and the rest of the world began to institute sanctions against South Africa over its apartheid system.

And then look at the gold price run-up that followed in the late 1970s. It was a time of inflation, mainly coming from the U.S. dollar. Yet world gold mine output was dropping as well. Falling output, plus monetary inflation? The gold price skyrocketed. Another bit of useful history, right?

Recent History — the Trend Is Down

Now let’s focus on more recent history, since about 1990. There were large increases in gold output from the U.S./Canada (blue), Australia (gold) and Asia (China orange, non-China open bar). By 2000 or so — the world production peak — gold prices were down toward $300 per ounce and below.

But as the chart shows, in the past 10 years, gold output has shown a marked DECLINE in the major historic gold mining regions. The prolific gold output from the U.S./Canada, Australia and South Africa has followed downward trends. Sure, these regions still lift a lot of ore and pour a lot of melt. But the production trend is DOWN.

Why the downward trend? I suppose you could call it “Peak Gold,” but that term really doesn’t convey the explanation. Let’s highlight some of the reasons for the decline.

In North America, Australia and South Africa, people have been kicking the rocks for 100-150 years. The large deposits and the high-grade good stuff have been discovered. The ore that’s “easy” to mine has been mined. The deeper ore is more expensive to dig, lift and process.

And I have to mention that over time, the culture in so-called “developed” parts of the world has gotten greener. People and policy have turned against mining in the developed world. So mining doesn’t happen where it’s not appreciated.

The flip side is that if mining is declining in the developed world, then the future of gold mining must be growing in the developing world, right? Well, yes and no. Of course, it’s true that there are more rocks to kick and ore bodies to uncover in the underexplored regions of the world. But this leads to another problem.

Development Issues in the Developing World

The U.S./Canada, Australia and South Africa all have well-established and (more or less) workable mining laws — despite the best efforts of many current politicians and regulators to screw it all up. These historically producing areas are politically stable. Overall, there’s good mining infrastructure, with road and rail networks, power systems, refining plants, a vendor base, mining personnel and access to capital.

But that’s not the case in many areas of the developing parts of the world. Political stability? Security? Infrastructure? Transport? Power? Refining? Vendors? Personnel? Capital? Everywhere is different, of course. But overall, the entire process is much more problematic. So there’s a lot more risk. When you move away from the traditional mining jurisdictions, the whole process of exploration, development and mining is more expensive.

Thus, the new gold discoveries of the future are going to lack some (if not most, or perhaps all) of the advantages of the developed mining world. That means that the ore deposits of the future will have to offer much higher profit margins, based on size and ore grade, to compensate for the increased risks. Too bad Mother Nature (or Saint Barbara, who looks after miners) doesn’t work that way.

It also means the timeline to develop the mines of the future will likely be stretched over many years while political, legal, bureaucratic, logistical and social issues are ironed out.

Future Gold Output on a Downward Trend

The key driver for the future of worldwide gold supply will be DECLINING output overall over time. Coupled with monetary inflation, you can expect to see MUCH HIGHER GOLD PRICES.

The gold that does come up will be from more distant locales, and deeper levels, or it will be more costly to process from lower-grade ores. The whole gold mining cycle will get more expensive and more risky.

Big Miners Scrambling

Some of the big gold miners — Newmont, for example — are already in a constant, squirrel cage scramble to replace their reserves lost to annual production. Newmont simply cannot grow organically. Newmont can’t “discover” enough new gold resources on its own every year. It doesn’t even try.

Newmont has a reputation within the mining business that it’s being run by accountants, not mining engineers. So the Newmont strategy is simply to go out and “mine gold on Wall Street,” so to speak. If Newmont needs reserves, the company buys a smaller miner. Indeed, Newmont has laid off most of its formerly world-class exploration department. Its in-house geologists spend much of their time looking at other peoples’ mines.

New Deposits Are Out There

There’s a strong exploration and development incentive built into all of this for smaller firms. The current business climate for gold mining has spurred the creation of many small companies that are generating prospects. The players within the industry are smart, hungry junior exploration companies.

The owners and operators of these companies, and their ilk, are bringing new ideas to the mining districts of the world. And despite the ups and downs of the daily gold price, the best of them will have their day. We just have to pick the sharpest, best-run firms… and be patient as history unfolds.

Until we meet again,
Byron W. King