Louis James (Casey’s International Speculator):

At a recent Casey Research editors’ meeting, the team took on the question of whether the somewhat steady recovery since last February’s washout bottom in the broader markets had any of us thinking that the recession might be over. The gathering of minds included: Doug Casey, Managing Director David Galland, CEO Olivier Garret, Casey Chief Economist Bud Conrad, Senior Energy Analyst Marin Katusa (my counterpart on the energy side), myself heading the metals division, and several other editors.

Doug’s guru-vision remains locked on the disaster channel. The U.S. economic problems, he says, remain so profound and, if anything, have been worsened by the government’s actions, that Americans are headed for a significant lowering of their standard of living.

As this reality unfolds, it will send out shock waves that will impact much of the world: the Greater Depression.

And the next step, Doug believes, will be a change in interest rates. The Bright Boys in DC will resist doing this, but while they seem willing to let the dollar slide to ease their mounting debts, they don’t want it to crash. They may soon be forced to raise interest rates. When that happens, Wall Street usually moves in the opposite direction – which could be the end of the “Things Aren’t as Bad as We Thought” rally of 2009.

Bud Conrad – in proper, responsible chief economist-style – considered the question carefully and conceded that there do indeed seem to be many “green shoots” now, but still concluded that conditions will continue deteriorating. He sees the government deficits in the driver’s seat, the main variable to keep a watch on.

As the U.S. government persists with its spending spree, valiantly dousing the deficit fire with more debt-gasoline, it will continue destroying the dollar, and that will push ever more people into gold.

A year ago, Bud predicted that gold would top $1,150 by year-end 2009. His call was bolder than most forecasters’ – but he was right. Looking at the numbers today, Bud’s new baseline 2010 forecast is for gold to top $1,450. He sees a “possibility of further international instability or currency debasement as adding to that baseline.” In plain language, Bud’s confident that resource stocks of all sorts will, on average, benefit greatly from the demise of the U.S. dollar.

Somehow, I can’t shake the image of Bud singing Don’t Fear The Reaper with Blue Öyster Cult for back-up… but that’s really more like something Marin would do.

Speaking of Marin Katusa, he commented that there is money to be made in the current rebound environment, but speculators should be extremely cautious: “You should know you’re dancing with the devil in the pale moonlight. You need to make sure you know the dance steps: get in early and exit before you get the dip by the devil at the end of the song.” (Marin not only has made huge amounts of money for our subscribers, he sings in a rock band, so he knows what he’s talking about.)

My own thinking has evolved into seeing 2009 as being like the eye of a monstrous storm.

The sky has cleared substantially, and the sea looks amazingly calm, given what we’ve just been through. But it’s not over yet; the trailing edge of the storm always delivers the most damage, and that’s yet to come. Anyone fooled into abandoning shelter is taking a terrible risk.

This doesn’t mean we should stay huddled in our huts, however – it makes more sense to go out, restock supplies, repair what damage we can, and get ready for the deluge to come. The renewed fury of the storm will sink many more ships, but it will also make vast fortunes for those who invest in the ships that survive and even thrive in the tumult.

Essential strategy: For the near term, buy only an initial “tranche” (portion of your desired position) in the most storm-proof (cash-rich) companies you can find – ideally with great discovery or development stories that will deliver exciting news regardless of market conditions – and hold a good chunk of cash in reserve for the next big buying opportunity.

Nothing goes up in a straight line, as share prices over the last month have amply demonstrated. There are some great picks that have been heading up all year that are now paused in their advances. Any more correction in precious metals could put them on sale, temporarily, offering great buying opportunities with a lot of the technical (e.g., discovery) risk removed from the plays. You’ll kick yourself if you don’t have any cash on hand to take advantage of them – and kick twice as hard if you paid too much for a large whack of something that goes on sale.

Worried about sitting on cash with the U.S. dollar in a death spiral? Remember: gold is also cash, highly liquid, and with terrific speculative upside to boot.

With gold having just corrected sharply (as I predicted it would in Casey’s International Speculator), gold is unquestionably the best investment we can recommend right now – fluctuations aside, it has nowhere to go but up for quite some time. Perhaps as long as a decade.

That, plus our essential “eye of the storm” strategy as above is what we’re recommending to all our subscribers – and indeed to all investors around the world who want to not only survive the trailing edge of the financial storm still to come, but thrive because of it.

While gold has gone up 38% since last December, junior gold stocks can provide even greater gains than the yellow metal itself. Currently, for example, Louis is following eight juniors that have all the right conditions to become takeover targets by gold majors… which would drive share prices through the roof. If you want to get in early, this is the time: with our special holiday offer, you’ll save $400 on a one-year subscription of Casey’s International Speculator – but only until midnight, December 18. Hurry up and click here to learn more.

Jeff Clark (Casey Research):

In the short term, a catastrophic deflation is quite possible. But in the long term, extremely high levels of inflation are now inevitable. The situation is very serious. Gold is the best hedge against both of these things. The better part of your financial assets should be in gold, augmented by well-thought-out speculations. Doug Casey, November, 2009.

Doug Casey and the editors at Casey Research are very skeptical that we are experiencing any sort of economic recovery. In our opinion, too many economic indicators are based on faulty data and optimistic assumptions. Our research suggests that a recovery isn’t sustainable yet. And with that, we lack the foundation needed to support the rapidly rising stock markets.

Among the many reasons for our doubt is this standout:

Over the next two years, the so-called Alt-A and Option ARM loans face massive resets. Even with today’s low mortgage interest rates, most of these home loans, currently enjoying ultra-low teaser rates or pick-your-own-monthly-payment schemes, will see their monthly payments adjust higher – far higher. The result: loan losses and write-downs will balloon for banks, and mortgage holders will get hit with another wave of homeowner defaults. We just don’t see any way for the economy and markets to escape the fallout.

Even the Fed’s perpetual public smiley face can’t hide what’s happening. In their own statement last month, they said, “Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.” A clear and present danger remains in the system.

What does this mean for our favorite sector? Following the market lows in March, gold and gold stocks have, with some exceptions, mirrored the market’s moves both up and down. If the markets correct again, whether mild or severe, gold and gold stocks could get taken down as well.

There will come a point when gold stocks separate from the movements of the general markets, and we look forward to that day. But for now they’re still holding hands.

In the meantime, our view of the big-picture outlook hasn’t changed. Rising inflation and a falling dollar are baked in the cake. Price inflation follows monetary inflation, and governments around the globe have pursued an unprecedented and unsustainable policy of inflating the money supply. Monetary inflation + time = price inflation. It’ll come, and when it does, it will wipe out those who are unprepared.

But in the near term, current economic uncertainties mean heightened risk and call for caution. In other words, this isn’t the time to be aggressive with stock purchases.

So, how does one invest in this kind of environment? Is there a way to hedge your exposure against price fluctuations?

Yes! The secret lies in asset allocation.

Achieving good portfolio performance is possible without overexposing yourself to stocks. The strategy involves playing defense as well as offense.

The following tables compare the returns an investor could expect using different asset allocation models under three hypothetical market scenarios, and assumes a starting portfolio of $10,000.

      *All returns exclude commissions and taxes 

      *Cash return for 1 year of 1.55% based on use of money market account; higher rate possible with a CD, but access to your cash is restricted, and it involves fees and penalties for early withdrawal.

You can see that you’re giving up only 6.6% in gains in Scenario #1 by apportioning your portfolio in equal thirds vs. being overweight stocks. But if stocks decline while you’re overweight that category, as shown in Scenario #2, you stand to lose 16.8%.

If you don’t elect a defensively positioned portfolio at this point, and gold stocks indeed get sucked into the vortex of a general market sell-off, you’ll wish you had that extra $2,300 in cash – which buys well over 100 shares of Kinross at today’s price. And when KGC likely doubles in a couple years, as we expect, remorse may be knocking on your door.

By allocating your investments in a more defensive mode, you’re making a small sacrifice for possible profits over the next six months without sacrificing long-term returns.

You can continue to follow the thinking of the editors at Casey Research — and get specific recommendations for solid, secure gold investments — with an inexpensive subscription to Casey’s Gold and Resource Report. It comes with a free report called The Three Best Ways to Invest in Gold, and until December 18, you’ll get a free subscription to Casey’s Energy Opportunities — all for only $39. Click here to find out more.

Nevgold Resource announced that the drill rig will be turning on its Cordero gold project in Nevada. The junior is targeting high-grade feeders at around 450 meters depth. Nevgold ended the day unchanged at C$0.15.

The Evolving Gold story continued to evolve. The junior mobilized a fourth core drill rig to its Rattlesnake Hills property in Wyoming. Evolving Gold closed at C$1.29, for a C$0.18 gain.

The markets appear to be at a pivotal turning point with signs that an economic recovery is at hand driving buyers back into equities. We shall see what Monday trading has in store.

Source: Resource Stock Roundup:Monday, July 27, 2009

China’s copper imports are slowing after record purchases, likely ending an 81% price rally this year, according to Sumitomo Metal Mining Co., Japan’s second-largest smelter of the red metal.

“Excessive imports mean much of the purchased metal was just stored, raising the risk that they may sell it back to the market and depress prices,” said Koichi Kaku, general manager at Sumitomo. “Imports may have exceeded manufacturing demand by as much as 1.3 million metric tons in the first half,” he continued.

Still, a few folks remain bullish on copper’s short-term prospects. One such analyst is Jim Lennon with Macquarie in London, who recently told Reuters:

“From a stocking perspective China is not going to be as big a factor but actually from a real consumption perspective… it’s going to be a lot stronger. We don’t see an easing up in Chinese demand.”

Time will tell who is correct, but we’re betting on a short- to medium-term downward correction followed by a huge run-up when inflation kicks in.

Source: Base Metals Higher

“The debate between whether the market should focus on green shoots or current weak demand and over supply goes on,” said Phil Flynn, vice president at futures trading and research firm PFG BEST Research.

“The green shooters have had the upper hand this week, but the real test will be next week,” Flynn added.

“Although we cannot discount further gains, we are somewhat wary about jumping in on the long side at this late stage,” said Edward Meir, analyst at MF Global.

“The stock market advance, in particular, looks somewhat overextended,” Meir added.

Source: Crude Continues to Climb

The Munich-based Ifo Institute’s July German business climate index rose for the fourth-consecutive month in July, posting a reading of 87.3. Economists had forecast a rise to 86.5 from 85.9 in June.

Also, the preliminary Markit euro-zone composite purchasing managers’ index for July increased more than forecast.

The euro saw a modest jump versus the dollar after the data.

“All positive, but let’s not get carried away,” wrote strategists at Brown Brothers Harriman. “Germany’s Ifo index … is on the rise … but remains very low on a historical basis and Germany’s economy is still on track to contract by at least 5% this year.”

In economic news, U.S. consumer sentiment fell in July, according to a survey released yesterday by the University of Michigan and Reuters.

Sentiment rose to a revised 66.0 from a reading of 64.6 in early July, but was down from the June reading of 70.8.

Analysts said the report highlights depressed levels of confidence as well as likely slow growth ahead.

“The July drop-back in confidence at still-depressed levels highlights the anemic pace of growth that appears likely as we enter the early quarters of the recovery,” wrote Mike Englund of Action Economics.

“While off the lows that were recorded when panic and paralysis were the order of the day, this measure of consumer sentiment nonetheless remains severely depressed,” wrote Joshua Shapiro, chief U.S. economist of MFR, Inc.

Source: Dollar Moves Lower

Silver developed the gentlest of upward trends early in London and rode that trend through the Globex, ending just off its intraday high at $13.87/oz., up 17 cents. For the week, silver is up 3.4%. (Click here for charts)

Although profit-taking kept gold from staging a big rally this week, the yellow metal should be well supported at current levels because of dollar weakness and inflation fears, analysts said.

“We are still up here in quite a high range. We don’t see any physical buying coming in at these levels, but what is supporting it is the dollar,” said Andrey Kryuchenkov, an analyst at VTB Capital.

“The dollar’s weakness and the idea that inflation expectations are on the rise are holding gold here,” Kryuchenkov added.

In company specific news, Mineweb reported that Kinross Gold (NYSE:KGC) has recently assumed stock price leadership of the loosely-defined Tier 1 global gold stocks sector, which includes 12 companies with an aggregate market value of just under $200 billion. Kinross’s stock price fluctuated between a 52-week low of $6.85 and high of $20.98 a share, with current trades around the $20.28 mark.

Barrick, the world’s biggest gold miner by value and production, is trading nearly 25% off its 52-week high. Kinross was one gold stock chosen for investment this year by US hedge fund Paulson & Co Inc., which famously scored gains of nearly $4 billion betting against banks in 2007 and 2008.

In the past several years, Kinross has transformed itself from a stodgy, higher cost gold producer to one that increasingly reports lower costs, along with a highly convincing longer-term growth profile.

Source: Gold Pushes Through $950

Potash Corp. of Saskatchewan (NYSE:POT), the world’s largest fertilizer producer by market value, saw second quarter profits fall by 79% to $187.1 million or $0.62 per share. Stripping out a one-time gain of $115.3 million from previously impaired securities and the profit tallied $0.32 per share. The company also announced that 2009 earnings will be less than previously forecast as demand from farmers declined. This did not dismay investors as Potash ended the session up C$7.09 at C$104.59.

Brett Resources tabled an updated inferred resource of 155 million metric tons grading 1.04 gram gold per metric ton for its Hammond Reef deposit in Ontario. Brett ended the day up C$0.03 at C$0.89.

The appetite for resource related equities appears to be insatiable right now with the bigger producers receiving most of the interest. We shall see what Friday trading has in store.

Source: Resource Stock Roundup:Friday, July 24th, 2009

“The overall sentiment in the metals market has improved a lot,” said Yingxi Yu, an analyst at Barclays Capital. “It has not much to do with the dollar, but follows stock markets closely, as the second quarter’s corporate earnings were broadly better than expected, improving outlook on the economy.”

Copper supply concerns also underpinned the bullish sentiment. Violence was reported near Freeport-McMoRan’s massive Grasberg mine in Indonesia, and a power problem occurred at Anglo American’s Chilean Collahuasi copper mine, but so far neither has reported serious production disruptions.

But with copper near nine-month highs some analysts and market participants warn not to get your hopes up too much just yet.

“Despite these supply-side concerns, we find it hard to make the case for anything approaching a runaway bull market in copper (or any of the metals for that matter) given the still sluggish rate of growth noted in most economies,” said analyst Edward Meir at MF Global.

“I don’t think copper prices climbed because of a dramatic improvement in supply-demand conditions,” said Koichi Kaku, general manager of Japan’s second-largest smelter of the red metal, Sumitomo Metal Mining Co. “I’m skeptical about a strong recovery in the market.”

Meanwhile, LME copper stockpiles rose again on Thursday, up 3,225 metric tons to a one-month high of 271,725 metric tons.

Source: Base Metals Mixed

“Home sales blew the market away,” said Phil Flynn, vice president at futures trading and research firm PFG BEST Research. “Oil wants to go lower but the surge in stocks pushed it up.”

“Demand is still weak and supplies still high yet the market keeps driving us higher,” he added.

Crude has risen in six of the recent seven sessions. The rally came even after petroleum data continued to show weak demand and rising inventories.

Total inventories of crude, gasoline and other petroleum products in the U.S. rose 1.9 million barrels in the week ended July 17, up for a sixth straight week to the highest level since September 1990, data released by the Energy Information Administration showed.

Source: Crude Continues to Rally