This new bank credit is the stuff from which “money” is instantly made when someone borrows from a bank, which increases the money supply, which creates inflation in something when that new money is used to bid up the price (or prices) of part (or parts) of the existing stock of goods and/or services, the recipient of which goes out and bids up the prices of stuff that HE wants, round and around.

My Mogambo Sleepy-Time Plan (MSTP) was, alas, to no avail, and I tossed and turned fitfully all night, especially now that the far-Left, commie-think, brain-dead Obama administration – which I now refer to as The Obamaniacs – has gotten the Democrat-controlled Congress to spend a monstrous 28% of GDP, of which 13% of GDP (slightly less than half!) is borrowed money!

The Federal Reserve has two choices here. It can choose to tell Obama and the idiot Congress to go to hell because creating that much money will produce ruinous inflation, like it has always produced all the way through history, destroying the economy.

But instead, the despicable, incompetent Fed has chosen to acquiesce, and print the money necessary to buy all of that new debt! Trillions and trillions of new dollars flooding into the economy through governmental spigots! Yikes!

Perhaps this is why I am hearing a lot of things like, “The US dollar has fallen below important support at 81 on the index, and everyone expects it to fall more. This is what the guys and I were discussing while hanging around the water cooler instead of engaging in our usual banter of plotting some sick revenge against our boss, and we were wondering what you thought of this idea that the ailing dollar will go down, meaning that that other currencies are getting stronger, and we were also wondering if you would still be leaving work next Thursday at the usual time and walking down that same dark, deserted side-street to where you park your car for free instead of paying for parking like everybody else, you cheap bastard?”

Well, to the latter I say, “Not any more! Hahaha!” and to the former I say, “The dollar index is just a measure of the relative monetary stupidity of governments and their central banks. If you want to know the future of the dollar in terms of its buying power, on the other hand, then look at the dollar-price of gold, you moron!”

And on that golden note, Jim Willie of Goldenjackass.com reports, “The ratio of the 10-year USTreasury Note yield to the 2-year USTreasury Bill yield has always been highly reliable in predicting a move in the gold price.”

So the Treasury market says “gold bull market ahead!” and one of the things that tells me that we are in a bull market for gold is that, according to Barron’s, the Krugerrand is selling at the same price as the US Eagle and the Austrian Philharmonic, which is weird because the Krugerrand is one troy ounce of 22-karat gold and is only 91.7% pure gold, while the Eagle and Philharmonic are one troy ounce of 24-karat gold and are 99.999% pure gold.

So it seems that buying Eagles and short-selling Krugerrands would guarantee a profit when the price gap opens back up and people slap themselves on the forehead and say to themselves, “Wait a minute! You mean that I paid the price of an entire ounce of pure gold but I only got 91.7% of an ounce of gold? Sell!” Hahaha!

So what is the point of all of this technical analysis stuff that I do not understand, other than wasting everyone’s time? It is simply that gold is obviously getting ready to zoom, as the steepening Treasury yield curve attests, meaning that bond owners are belatedly realizing that all of this new money means that inflation will rise, making interest rates go up, handing bond holders a loss, and the longer the bond, the bigger the danger, so they are demanding higher yields.

As an interesting aside, as in, “We’re freaking doomed by a clot of corrupt government devils,” Mr. Willie says to “give credit to the USGovt statrats in their busy laboratories. They decided to ramp up the Q2 Gross Domestic Product by including all USGovt rescue funds for the big banks, including the diverse funds from the many liquidity facilities. All those funds will go directly into the GDP for Q2 as a special line item. Expect a miraculous economic recovery in the second quarter, based on vapor.”

Miraculous indeed! Hahaha! What a blatant governmental affront! What a colossal, transparent, low-IQ fraud!

I noticed that my trigger finger was twitching, my voice was bellowing in fear and outrage, my blood pressure was 500/400 and my kids were running away, crying out, “Run for the hills! Dad’s freaking out again!”

After they were gone, I calmed down in the sudden blissful peace and quiet, and it was then I remembered that gold, wonderful glorious gold, will save me like it has saved everybody else in the last 4,500 years of episodes of governmental monetary and fiscal insanity.

Even my trigger finger stopped shaking, so I used it to dial the phone and order some more gold, remarking to myself as I did that “Whee! This investing stuff is easy!”

Source: The Gold Bull Market and the Fed it Rode In On

From the air, the north end of the Carlin Trend looks like a suburban housing development – of gold mines. Most of the mines dotting this region are simply huge holes in the ground (called open-pit mines) but several of the richest mines follow the ore bodies nearly a half-mile underground.

The Leeville Mining Complex, owned by mining giant Newmont Mining, contains one such underground mine. It’s part of a huge cluster of mines located on the north end of the Carlin Trend.

The mine I visited, West Leeville, should produce about 400,000 ounces per year for six to eight years… and provide a revenue stream of about $100 million to $150 million at today’s gold prices. While Newmont technically owns this stream of gold, another company gets a steady paycheck from that production…

You see, if Nevada were a sovereign nation, it would be the world’s third-largest gold producer. The state produced 6.3 million ounces last year, 78% of U.S. gold production, and 12% of the world’s production. The heart of Nevada gold production is the Carlin Trend, which has produced more than 50 million ounces since the 1960s.

While Nevada’s mining riches are no secret to many investors, few have heard of the gold royalty business. Investing in gold royalty streams gives you a safe and diversified way to participate in the bull market in gold… without risking it all on one big strike or worrying about rising production costs.

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You see, building a large gold mine is usually a messy, expensive business.

First, you have to pay geologists to scour the Earth in search of prospective ore bodies – but that’s only after paying governments the proper permitting and licensing fees.

Let’s say you find a large body of ore after punching hundreds (and often thousands) of exploratory drill holes. Now you have to spend millions on mine infrastructure. This includes roads, mine shafts, electricity, and a smelter. In Newmont’s case with the West Leeville mine, it took six years and hundreds of millions of dollars to get it up and running.

One way a producer offsets that cost is by selling a small royalty for the life of the mine. In general, a royalty is simply the right to receive a portion of a mineral resource. It could be oil, gold, copper, or any other commodity.

The mining company gets a lump-sum payment up front, and the royalty investor gets a paycheck for the life of the mine. A royalty company may make hundreds of small investments to spread its risk and even out future payments. The royalty company then distributes a small portion of its paychecks to shareholders through dividends and invests the rest in new projects.

Investing in royalty companies is like taking the shotgun approach to mining. You get many small chances to participate in exploration, so you have the potential of a big discovery. In addition, you have minimal risk and you get a paycheck for the risk you do take.

I believe gold’s bull market will last a long, long time… and the more gold rises, the more money these royalty companies will make. If you don’t own any gold stocks, and you’re not sure how to get started, gold royalty companies are a fantastic option for the conservative investor.

Good investing,

Matt

P.S. I think royalty companies are the ideal gold investments to put in your retirement account and forget about for years. If you’d like to learn more about them and my favorite picks in the sector, click here.

Source: A Shotgun Approach to Gold Investing

Older and smarter minds than mine, minds resting in the cranium of Explorers’ League members, for instance, have been convinced that a number of major discoveries would be announced.

But so far, other than a small handful that appear to hold the stuff, there has only been one legitimate elephant bagged; by the team of Aurelian (T.ARU). Unfortunately, the carcass of that particular elephant rests entirely within the sketchy outlines of the nation of Ecuador where the locals are currently circling like a pack of hungry hyenas.

It has been our contention that what was needed to light the fuse on the junior exploration stocks would be, in no specific order:

1. Sustained higher gold prices.
2. Improving financials and free cash flow of the major producers.
3. A discovery to heat the blood of the investing community.

So far, we have had (1) and we are beginning to see (2), but (3) has proved remarkably elusive.

Now, don’t misunderstand. You can have a whopper of a bull market in these stocks without the discovery – that was the case in the 1970s bull market. But a discovery that fires the imagination can jump-start things in a big way, no question about it.

Evidence of that statement is provided by the gold share bull market of the mid-1990s, the most powerful to date, which occurred against a back drop of flat to falling gold prices. In case some of the big winners from that market have slipped from your memory, they include returns such as; Cartaway, up 26,040%; Pacific Amber, up 4,376%; Arequipa, up 5,692%, and so on and so forth.

So, What’s Going On?

According to MineWeb, Peter Munk, the somewhat unpopular chairman and acting CEO of Barrick Gold, the world’s largest gold producer, stated at the company’s recent AGM that there have been “virtually no new discoveries.”

While we might disagree around the edges of that statement, Chairman Munk is technically correct in that the level of discoveries being made is a small fraction of that needed to replace the depleting reserves of the gold producers.

In short, we appear to have reached the era of Peak Gold. Whereas a major discovery used to be 10 million ounces or more, the threshold for attention-getting discoveries these days has fallen to more along the lines of 1 to 3 million ounces… and even those are hardly falling off the trees.

Viewed from the perspective of an investor in the junior resource sector, this lack of discoveries means the fuse is lit – starting with straight-up supply and demand fundamentals – for a rocket shot tomorrow. Adding boosters to the rocket, we have a commodities bull market that shows no sign of ending anytime soon and, while the U.S. dollar will periodically rebound, it is not going to somehow reinvent itself as sound money in our lifetime.

Importantly, as you can clearly read between the lines in Chairman Munk’s words, once the majors get cashed up and serious about replacing their reserves, they are going to have to look downstream to the juniors with discoveries… even if those discoveries are below the 5-million-ounce threshold they previously required to even consider taking an ore body into production.

A Risk and an Opportunity

Of course, lowering the threshold on deposit size will require trade-offs. For example, in order to be considered for an acquisition, a smaller deposit will almost certainly have to be near surface and open-pittable. It will also have to be near good infrastructure, and located in a jurisdiction with good laws and reasonable taxation. There is, in this situation, an opportunity and a risk.

Starting with the latter, if your portfolio now includes companies going after deposits in the one- to five-million-ounce range, you need to make sure they are not in a remote location, or will require going underground or building a mill to process sulfides. (Under 1 million ounces? Fuggedaboudit!)

As for the opportunity, while the odds and the amount of exploration spending still favor that we’ll see the discovery of at least one and maybe two monster deposits in this cycle (there are a couple of companies advancing projects with that potential), and early shareholders will make fortunes as a result, there has rarely been a better time to invest in junior exploration companies with modestly sized projects in good locations. That said, you should still be focusing only on projects with at least 2 million ounces, or the strong potential of same.

In other words, take the opportunity in these down markets to focus on getting positioned ahead of the majors… that’s where the big money will be made as things gather steam again going forward.

David Galland is managing director of Casey Research, publishers of the International Speculator, now in its 28th year. The current edition includes “Courting the Majors,” a feature on what attributes the major mining companies are looking for in a junior explorer. All new subscribers are invited to give the International Speculator a three-month trial with an unquestioning 100% money-back guarantee. Learn more and sign up now to receive the current edition.

By David Galland, Casey Research

Source: Gold, What Gold?

So what’s going on with gold and gold stocks? Why have they fallen so much? And should you be a buyer or a seller now?

Gold peaked in mid-March of this year – right when JPMorgan (and the Fed) bailed out Bear Stearns. That was the defining moment… the peak in fear in the U.S. And the dollar bottomed at the same time.

The price of gold has fallen from more than $1,000 to below $900. Gold stocks have performed much worse (as you would expect… gold stocks are “levered” plays on the price of gold). The AMEX Gold Bugs Index (an index of gold stocks, under the symbol HUI) stood at 520 in mid-March. It then fell below 400 just six weeks later.

If you’ve owned gold stocks during this time, you’re all too aware of the pain this fall has inflicted. What should you do?

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Let me ask a better question… Just when is the right time to be an owner of gold and gold stocks?

I first recommended buying gold in my True Wealth newsletter back in 2002. I found a way to buy it for $250 an ounce. My basic idea was this:

When is financial catastrophe insurance the cheapest? When you haven’t had a financial catastrophe in a very long time. Gold is financial catastrophe insurance.

Back in 2002, the dollar was extremely strong, and we had no fears whatsoever about our banking system. We hadn’t worried in 20 years. Now in 2008, we have the weakest dollar in recorded history, the worst credit crunch since the Great Depression, and our president has the worst approval rating ever.

The cost of financial catastrophe insurance has soared. Gold has gone from hated to “mainstream.” For that reason, I have actually just moved my gold picks to a “hold” in Sjuggerud Confidential for the first time. I told my subscribers “I think the huge profits in gold are behind us, and the peak in fear has passed.”

Importantly, THIS DOES NOT MEAN SELL. Here’s how I see it:

When I’m sizing up an investment, I look for three things: 1) cheap, 2) hated, 3) uptrend.

Right now, gold stocks are incredibly cheap. For example, Seabridge has 50 million ounces of gold resources in the ground… Here’s some simple math: 50 million ounces of gold, at $1,000 an ounce, is worth $50 billion. Oh, and I haven’t mentioned Seabridge’s 8.2 billion pounds of copper… Keeping the math simple again, 8 billion pounds at $4 a pound is $32 billion worth of copper.

So we’re talking $80 billion worth of metal in the ground. Now I realize it costs real money to get it out of the ground… but Seabridge is selling for $800 million – just 1% of the value of its metal in the ground.

And Seabridge has no debt, no operations really… and hardly any employees. So its “carrying cost” is negligible – about 5 cents per ounce a year, according to its most recent corporate presentation.

So gold stocks like Seabridge are very cheap. They’re also hated… Investors who just got into gold – only to get slammed – are running for the hills. Once again, we’re returning to a place where no one’s in gold but the diehard “gold bugs.” And they never give up…

In the 1970s, gold fell more than 50% a few times on its way from $35 to $850 an ounce. So to me, the recent fall in the price of gold (and gold stocks) is simply a normal correction in a gold bull market.

The long-term uptrend is intact… Gold has soared from $300 to $900. And the Gold Bugs Index is up from 40 in 2001 to over 400 today… I’d say that’s a long-term uptrend!

So I believe Seabridge is still worth holding. It’s making the right moves… It’s in the process of selling noncore properties and using the proceeds to buy back shares (this helps create a price floor for the stock). Seabridge is also moving its main project toward feasibility. These moves are dressing the company up to make it more enticing to a future buyer.

Other smaller gold companies are doing similar things.

I can’t know where and when the fall in gold and gold stocks will end. I do know that it can be very painful… Based on the experience of the 1970s, we should expect to see some major downward moves during the overall uptrend.

But I still think that gold stocks are cheap, gold investments in general are hated now, and the long-term uptrend is still here. I’d suggest buying back in at the first signs the short-term trend is back in the price of gold and the Gold Bugs Index.

Good investing,

Steve