This from Eric:

The flaming embers of inflation have already landed atop the thatched roof of American finance. And yet, investors can still buy inflation insurance on the cheap. In the next 1,373 words, we’ll examine a few of these “insurance policies”to assess their virtues and drawbacks.

Since a powerful new inflationary trend is very likely to occur, the prudent investor should probably take steps to guard against it. “But wait a second!” some readers be saying. “What if a powerful deflationary trend occurs first?”

Good question. It might. But we’d begin preparing for inflation anyway. Why not prepare for the near-certain arrival of inflation, rather than the uncertain timing of it.

If an infallible clairvoyant told you that your house would burn down in one of the next five years, would you say to yourself, “Gosh, maybe I should try to figure out which year it will be and not buy fire insurance during the other four years.”

You might actually guess correctly, in which case you would have saved yourself four years worth of insurance premiums. But you might guess incorrectly, in which case you would have lost your house.

Your call.

To this market observer, inflation seems like a near-certainty. Not an absolute certainty, mind, you, just a near-certainty, sometime within the next three years. So why not beat the rush to buy inflation insurance? Why not buy some now?

The nearby chart displays a sampling of inflation hedges, and how they performed during the last eight years of the infamous 1970s. Gold was clearly the standout winner. But we’d put an asterisk next to this result, due to a performance-enhancing assist from the U.S. government. During most of the preceding four decades, the US government had been artificially suppressing the gold price, while also forbidding private citizens from owning it. Therefore, once the government stopped its meddling, the gold price partied like a teenager whose parents had just left town.

Aside from gold, very few assets managed to keep pace with inflation, as measured by the Consumer Price Index (CPI). Hard assets like the CRB index of commodity prices and the Swiss franc did outpace the CPI, but stocks and bonds both lagged miserably.

Skipping ahead about 30 years, we can see that the modern versions of the 1970s inflation hedges have performed quite poorly during the last 14 months. Clearly, inflation is not a widespread concern. But that’s part of the reason it concerns us, and also part of the reason why we’d be inclined to take action now, while inflation hedges remain relatively cheap.

Our contrarian instincts lead us –rightly or wrongly – to distrust the consensus, especially when the consensus trusts in an idea as stupid as deflation…just kidding. We don’t think deflation is stupid, just unlikely. (More precisely, we suspect that deflationary indicia will be seasonal, like daffodils. For a while, they will seem to be everywhere. Then, just as suddenly, you won’t be able to find a single one).

So with that biased and unscientific preface, let’s sweep through a Reader’s Digest review of ETFs that might provide some kind of hedge against inflation:

1. Gold – The “Old Faithful” of hedges. It’s always worked before. Enough said. ETFs like the SPDR Gold Trust (GLD) provide easy access. With a $30 billion market capitalization, this is the “go-to”gold ETF. The next largest entrant is the iShares Comex Gold Trust (IAU) with a market cap of $2 billion. Both ETFs enable an investor to buy gold with a mouse-click. No muss. No fuss. But purists may wish to buy bullion coins like Krugerrands or Maple Leafs. As a gold investment, bullion coins have the advantage of being shiny, pretty and portable. But they have the disadvantage of costing 6% to 10% more than bullion itself, while also being so shiny and pretty that someone might want to steal them.
2. Gold Stocks – The bastard brood of gold and the stock market. As inflation hedges, gold stocks can be somewhat unpredictable and capricious. Over a multi-year span of time, they tend to reflect that gold side of their heredity. But during shorter time spans, gold stocks can behave much more like stocks than like gold…and that’s not always a good thing. That said, ETFs like the Market Vectors Gold Miners (GDX) provides a handy way to buy a basket of gold stocks.
3. Commodities –Like gold, a basket of commodities that includes crude oil, copper, wheat, gold etc. tends to provide a very reliable hedge against inflation. Unlike gold, a basket of commodities provides diversification across multiple assets and therefore, much lower volatility than gold. The largest commodity ETFs available are the PowerShares DB Commodity Index Tracking Fund (DBC) and the iShares S&P GSCI Commodity-Indexed Trust (GSG). DBC holds only six commodities: Crude oil, heating oil, aluminum, corn, wheat and gold. GSC holds a much broader collection of commodities.
4. Commodity-focused stocks. See comments on #2 above. The iShares S&P North American Natural Resources Sector Index Fund (IGE) provides broad exposure to commodity-focused stocks. Alternatively, the DWS Global Commodities Stock Fund (GCS) is a small closed-end fund that holds a similar portfolio. But GCS is selling 12% below its net asset value, which means that a buyer at the current quote controls one dollar worth of resource stocks for only 88 cents.
5. Non-Dollar Bonds – The Swiss Franc performed quite admirably during the last Great Inflation in the United States. But we are hesitant to bet on a repeat performance. Indeed we are hesitant to bet on ANY foreign currency as a way to hedge against US inflation. The Swiss economy, for example, no longer features a bunch of pocket-watch-toting gnomes guarding vaults full of gold bullion. Instead, the modern Swiss economy features pocket-watch-toting gnomes masquerading as hedge fund managers. The predictable result is that Switzerland’s two largest banks have amassed questionable derivatives exposures that exceed the GDP of the entire country. Many other bankers speaking many other languages have achieved equally enormous feats of stupidity. No one knows how these feats of stupidity will influence the values of their native currencies. Not knowing, therefore, we are disinclined to guess. But those readers who suspect that the dollar will be one of the first currencies to go down in flames, rather than one of the last, might be interested in the one of the many ETFs that hold foreign currencies. The CurrencyShares Swiss Franc Trust (FXF), for example, holds Swiss francs. Alternatively, the dollar-phobic investor could purchase the SPDR Barclays Capital International Treasury Bond ETF (BWX) that holds a basket of bonds issued by foreign governments. Its largest allocations include a 23% weighting in Japanese government bonds, 12% in Germany and 12% in Italy.
6. TIPS –No discussion of inflation hedges would be complete without mentioning TIPS, short for Treasury Inflation-Protected Securities. [To learn more about how they work, check out the November 26, 2008 edition of the Rude Awakening]. Investors may purchase a basket of TIPS by buying the iShares Barclays US Treasury Inflation Protected Securities Fund (TIP). In theory, TIPS provide a direct and reliable hedge against inflation. But like so many other seemingly brilliant ideas, TIPS work better in theory than in practice. The first risk is an overt one – deflation might persist for longer than expected (by us). In which case, the principal value of a TIP could decline below par. And even though the holder of the TIP would receive par at maturity, the interest payments that the holder would receive between now and maturity would decline in concert with the declining principal value. The second risk is a covert one: the federal government controls the calculation of the Consumer Price Index (CPI). Therefore, if the CPI, as currently constructed, were to get out of hand and produce very high inflation readings, the government’s bean counters would probably spring into action to create a “new and improved”CPI that would deliver much lower inflation readings. It has happened before.

Thus concludes our review of inflation hedges. We hope all readers will utilize the delightful deflationary interlude we are now enjoying to prepare for what may lie ahead. Hostile inflationary forces may be amassing their forces at the borders of our economy at this very moment. In short, we think it’s a good time to risk being paranoid about the threat of inflation.

Source: Inflation Gestation

A recovery in equities indicates a pick-up in appetite for risk and may divert investment from gold, analysts said.

Spot gold slipped to $955.90/957.90 an ounce at 0941 GMT from $862.45 late in New York on Tuesday.

“The gold price is a fear indicator,” said Commerzbank analyst Eugen Weinberg. “As the chance of us seeing problems on the (equity) markets is lower than it was yesterday, some risk aversion has been taken out of the market.”

Holdings of the world’s largest gold exchange-traded fund, the SPDR Gold Trust, were also unchanged for a fourth consecutive session on Tuesday, fuelling fears burgeoning demand for gold to back ETFs may have stalled.

“There is no demand for gold other than investment demand into ETFs and into small bars and coins,” said Weinberg.

Bernanke said on Tuesday major banks should weather the recession without being nationalized. His comments that he believed the Fed could head off rising inflation was also seen as negative for gold

“If, as Chairman Bernanke believes, consumer price growth is likely to remain tepid for the next several years, then low prices are likely to present a major headwind to further gold advances,” said HSBC analyst James Steel.

Equities bounced overnight in Asia as Bernanke’s reassuring comments sparked a rebound in financial stocks. European shares tracked gains in Asia and the United States, snapping a three-day losing streak.

The dollar weakened against the euro on Wednesday, but firmed to a three-month high versus the yen. Gold typically trends in the opposite direction to the U.S. currency, to which it is often bought as an alternative asset.

However, they have moved in line in recent months as both have benefited from a flight to safety among investors.

The other main external driver of gold, oil, was steady, having shed much of the last session’s 4 percent gains.

PICK-UP

Gold buying in India has picked up as prices have retreated from the record highs they hit last week. A further dip below 15,000 rupees per 10 grams may rekindle buying interest, dealers said.

“We are getting calls for the first time after gold dipped below $1,000,” said a dealer with a state-run bank in Mumbai.

India’s buying of the precious metal tailed off as gold soared, leading some to speculate that a depression in jewellery demand could prove a major drag on prices, despite the strength of investment buying.

On the supply side, analysts say the recent increase in the gold price is likely only to slow the decline in mine production. Figures released on Tuesday showed output in South Africa fell 13.6 percent in 2008 to its lowest in 86 years.

“Long-term trends show that production in the United States, Canada, Australia and South Africa is in decline,” said Johannesburg-based Credit Suisse analyst David Davis.

“The expected increase in production from South America, Indonesia and China is unlikely to offset the decline in production from (these countries) in the long term.”

Traders will be eyeing January existing home sales data due out in the United States at 1500 GMT for clues as to the health of the economy, and further testimony from Bernanke later in the session before the House Financial Services Committee.

Among other precious metals, spot silver eased to $13.71/13.78 an ounce from $13.74. Holdings of the largest silver-backed ETF, the iShares Silver Trust, were also static on Tuesday, albeit at record levels.

Platinum was steady at $1,036/1,041 an ounce from $1,040.50. Ridge Mining PLC said its Blue Ridge Platinum unit has closed out all its hedging arrangements.

Palladium slid to $195.50/198.50 an ounce from $198.

LONDON, Feb 25 (Reuters)

Gold hit two historic milestones in 2008. First, it hit its all-time high of $1,030 an ounce in early March.

Just three months later, the price of gold for December delivery fell to $681 an ounce, a 21-month low and 33.9% drop from its record high.

Most gold bugs were equal parts heartbroken and puzzled. Global stock markets tanked alongside the world’s biggest economies. But so did gold, which is widely considered to be a safe haven investment when everything else in spiraling south.

However, Money Morning Contributing Editor Martin Hutchinson- an investment banker with more than 25 years’ experience on Wall Street and Fleet Street and leading expert on the international financial markets- understood perfectly.

“Gold is not a safe haven against recession,” said Hutchinson. “It’s a safe haven against inflation.”

In the past year, commodities prices across the board skyrocketed- especially oil, which hit a record high $147 a barrel. Corn, wheat, and soybeans all hit record highs, as well.

That tightened household and corporate budgets, and was a primary reason why the U.S. economy walked backwards over the third-quarter finish line with -0.3% annualized growth. It was the first quarter of what most economists believe will be the nation’s first recession since 2001.

However, the inflation epidemic that preceded it- and arguably contributed to it- has waned significantly, as global demand for raw materials has slumped.

Prices for staple foods such as corn, soybeans and wheat have all come down from their record highs in near tandem.

Corn futures are down nearly 50% from their summer high of $8 per bushel. The same is true of soybeans and wheat, as each have lost roughly half their value. In fact, wheat hit a 16-month low in mid-October.

As most of us noticed, gas prices have fallen 48% from their July 17 high of $4.114 a gallon.

And not coincidentally, gold has fallen 22% in that same time frame.

However, this report examines the pending “re-re-correction” of commodities- the slow and steady rise of commodities after the roller coaster of record-high inflationary highs and a sudden breakneck fall below real value- to find the charted path of gold prices in 2009.

But it also reveals another wild card inflationary indicator that Hutchinson believes carry gold prices to $1,500 an ounce by the end of 2009…

Two Catalysts For Gold’s Climb

The U.S. Department of Agriculture’s Oct. 10 Crop Production Report said acreage for a handful of staple food commodities has shrunk:

• Corn acreage fell 1.2%.
• Soybean acreage dropped 1.4%.
• Canola acreage dropped 1.9%.
• Sunflower acreage shrank 0.8%.
• And acreage of dry edible beans fell 0.7%.

That naturally translates to higher prices because a squeezed supply increases demand, especially from the growing economies and populations in China, India and Latin America.

But Hutchinson believes another caveat in the cracks of our economy’s recovery will spell a sharp rebound in gold prices… one that could catapult it to $1,500 by the end of 2009.

“The government is pumping money in so many banks, and that money has to come out somewhere,” Hutchinson said.

The U.S. government’s historic bailout pumped $700 billion into its failing banking system… all to give banks back the capital they squandered in doling out defaulting loans.

Since September 2007, Ben Bernanke and the Federal Reserve have cut interest rates nine times- from 5.25% down to the current 1.0% rate- to increase bank-to-bank lending and bank-to-consumer lending.

“The government is pumping money in so many banks, and that money has to come out somewhere,” Hutchinson said.

And by the time is does, food prices should begin ticking upward, adding another set of thrusters to gold prices.

“Everybody thinks that because we’re having a horrible recession, we’re not to go have inflation. I think that’s probably wrong,” Hutchinson said. “I think gold has quite good hidden-store value.”

Should gold reach Hutchinson’s top-range price of $1,500 an ounce, it won’t be its real value. Just like how its deflated price now doesn’t reflect real value either.

Rather, $1,500 an ounce would be the marked-up price caused by another inflation-fueled investor flood into the yellow metal.

“As gold goes up, it gets more popular and investors start piling into it,” Hutchinson said.

And if gold gets anywhere near the $1,500 mark, sell. Prices that high will likely fall back or plateau as the Federal Reserve begins raising interest rates and strengthening the U.S. dollar, Hutchinson said.

Five Ways to Play Bottom-Basement Gold

Before we get too far ahead of ourselves, let’s first look at five ways to play bottom-basement gold.

SPDR Gold Trust ETF (GLD)- formerly StreetTracks Gold- is a fund whose shares are intended to parallel the movement of gold prices. Since gold prices started falling along with gas prices, SPDR Gold Trust has stayed within a 0.5% margin of gold prices. This ETF eliminates any investor concern over storage and delivery while giving them exactly what they want- gold.

Toronto-based Barrick Gold Corp. (ABX) has 27 mines, mostly in North America and South America, and is developing or exploring 11 more. With a market cap of more than $20 billion, it has considerably more liquidity than most mining companies. Barrick is primarily a gold miner, but it also has copper and zinc mining operations. As far as investors are concerned, there are two ways to look at that: It’s not a pure play, per se, but then again, this is a company stock not a brick of bullion. Also, having operations other than gold can help stabilize the company’s bottom line in case problems arise at a gold mine.

Denver-based Newmont Mining Corp. (NEM) is primarily a gold producer with operations in the U.S., Australia, Peru, Indonesia, Canada, New Zealand and Mexico. Its reserves are hovering around 86.5 million ounces. Like Barrick, this is a mining stock play, and it subject to market swings on top of fluctuations of gold prices. That can be a significant tailwind, especially if you believe the stock market has bottomed out or is close to doing so. Hutchinson- forever a value-minded investor- warned that Newmont might be a little too pricey now. Investors may want to wait for the company’s stock price to settle before getting in.

Hutchinson thinks the best value for a gold mining stock can be found in Yamana Gold Inc. (AUY), another Toronto-based company that’s small now, but has rapidly expanding production. 

But for investors who just want gold- not an ETF or stock- the best avenue is an EverBank Select Metals Account: EverBank accounts has a minimum deposit that is 98% lower than its competitors, and its commission costs are up to 86% lower than other metals’ brokers and bullion banks. It offers two types of gold accounts: Unallocated (Your purchased gold is pooled with that of other investors, eliminating storage and maintenance costs. $5,000 minimum deposit.) and Allocated (You directly own the gold you purchase, held in your own private account. $7,500 minimum deposit.) Both types of accounts can be set up 24/7 online. But if you prefer the phone, call 866-326-6241, and be sure to give them the code 12608 when setting up an account.

We should point out that the publisher of Money Morning has a marketing relationship with EverBank, but that’s because its products are best in show.

Source: Outlook 2009: Five Ways to Play Gold’s Steady Advance

Gold slipped from a three-month high on Friday after data showed the U.S. economy had contracted by less than expected in the fourth quarter, taking some of the heat out of safe-haven buying.

Spot gold climbed 2 percent to $926.90 an ounce, its highest since Oct 10. It was quoted at $918.90/920.90 an ounce at 1406 GMT, up from $906.75 in New York late on Thursday. In the immediate wake of the data it slipped to $916.60.

Gold priced in euros hit a record high of 720.53 euros.

“On first glance the (GDP) figures are generally good, so they should be negative for gold,” Calyon analyst Robin Bhar said. “Growth is better than expected, but deflation is also stronger, so it is a bit of a double whammy for gold.”

The U.S. Commerce Department said fourth-quarter gross domestic product fell at a 3.8 percent annual rate, the lowest pace since the first quarter of 1982.

Analysts had forecast GDP contracting 5.4 percent in the fourth quarter.

Gold is still being supported, however, by interest in the precious metal as a haven from risk.

U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange were up $15.80 at $920.80 an ounce.

Market talk of China taking an interest in gold as an alternative to U.S. Treasuries, and of a European fund buying bullion, also helped support prices.

Gold has risen around 3 percent this week as investors have scrambled for the safety of gold and bullion-backed assets such as exchange-traded funds.

“The ETFs were up another 15 tonnes yesterday,” Simon Weeks, director of precious metals at the Bank of Nova Scotia, said, adding safe haven demand was driving the market.

The world’s biggest gold-backed ETF, New York’s SPDR Gold Trust , said its holdings jumped more than 10 tonnes on Thursday to a record 843.59 tonnes.

SPDR’s holdings have risen more than 63 tonnes or 8 percent since Dec 31.

European equity markets and U.S. stock index futures turned higher after the U.S. GDP data, showing a better appetite for assets such as stocks and shares.

The dollar also pared gains against the euro. A new wave of risk aversion hit the currency markets earlier on Friday, with the yen and dollar edging higher as investors worried about risk.

Although gold usually moves in the opposite direction to the dollar, the negative correlation between the two has broken down in recent weeks as both assets gained on risk aversion.

INDIAN GOLD HITS RECORD

Jewelerydemand remains hamstrung by high prices. In India, the world’s biggest bullion market, gold futures touched an all-time high of 14,448 rupees per 10 grams, deterring buyers.

Scrap sales are booming, however, as consumers cash in on the price rise.

Russia’s gold output rose by 13.3 percent to 184.49 tonnes last year, chiefly on the back of improving mine output, the Russian Gold Industrialists Union said.

Silver prices tracked gold, rising to a peak of $12.57 an ounce, their highest since Oct 1. It was later quoted at $12.44/12.50 an ounce against $12.31.

Silver ETFs have also risen sharply this year, with the largest, the iShares Silver Trust , up 660 tonnes or 10 percent in the year to date.

Among other precious metals, platinum and palladium were little changed. Platinum was at $980/985 an ounce against $972.50, while palladium was at $193/198 an ounce, against $191.50.

The world’s biggest palladium producer, Russia’s Norilsk Nickel , said its palladium output was 2.821 million ounces in 2008. It previously reported 2007 output at 3.113 million ounces.

A Reuters survey of 56 precious metals analysts and traders showed most expected the platinum group metals to post significant losses this year as the global economic slowdown pressures demand.

LONDON, Jan 30 (Reuters)

Gold fell more than 2 percent on Tuesday as a stronger dollar dented the precious metal’s appeal as a currency hedge, but the platinum group metals rallied as investors hunted for bargains.

Spot gold was quoted at $846.50/848.10 an ounce at 1444 GMT, down from $858.90 late in New York on Monday. However, it lifted off an earlier low of $838.55 as the dollar trimmed gains against the euro after a raft of U.S. data at 1500 GMT.

U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange were down $10.10 at $847.70.

VM Group analyst Matthew Turner said investors were looking to the currency markets for direction. “A lot of news on physical demand has been quite poor, and that might also be weighing on prices,” he added.

The U.S. currency rose against the euro after a flash estimate of euro zone inflation data came in weaker than expected, increasing pressure on the European Central Bank to cut interest rates.

Analysts said the prospect of an ECB rate cut at the bank’s next interest rate meeting on Jan. 15 was pressuring the single currency, and consequently gold.

A firm dollar reduces gold’s appeal as an alternative investment. However, the U.S. currency trimmed gains versus the euro after data showed U.S factory orders and pending home sales dropped by more than expected in November.

DEMAND FIRM FROM FUNDS

But while the stronger dollar and reports of lackluster jewelery sales weighed on prices, demand for the metal from exchange-traded funds — which issue securities backed by stocks of physical gold — remains firm.

ETF Securities, which operates Europe’s largest gold-backed ETF, said holdings of its Physical Gold exchange-traded commodity rose 2 percent in the week to January 2 to 1.899 million ounces.

Holdings of the world’s largest bullion ETF, the SPDR Gold Trust (GLD), held at a record 780.23 tonnes on Monday.

“Gold is holding (where it is) because of investment demand for gold ETFs, rather than demand from the physical side or as a hedge against the U.S. dollar,” said Commerzbank analyst Eugen Weinberg.

Firmer oil prices, which are holding just below $50 a barrel as supply fears were fuelled by Israel’s incursion into Gaza and a dispute between Russia and Ukraine over natural gas, also lent some support to gold.

Among other precious metals, platinum and palladium rallied to multi-week highs, shrugging off a spate of poor vehicle sales news from car makers, the major consumers of the metals.

Spot palladium was the main riser, climbing 8 percent to a six-week high of $198.50. The metal was later quoted at $194.50/199.50, against $183.50 late in New York on Monday.

Platinum also climbed more than 2 percent to $967.50, its highest level for three months. It was later at $958.50/963.50 an ounce against $946.

“With the commodities basket, people are shifting out of gold and into other commodities that have been under performing lately,” said Commerzbank trader Rory McVeigh. “And palladium is probably the biggest underperformer of the market.”

Spot silver eased to $11.11/11.19 an ounce from $11.22.

LONDON, Jan 6 (Reuters)

Gold demand has in fact exploded, and not just here and there. Everywhere. Around the world, customers have been queuing up to strip coin shops’ shelves bare. Mints have been running 24/7 and still have been forced to ration coin shipments to their dealers. ETF vaults are bulging.

Now, the World Gold Council has confirmed the trend with hard numbers for the third quarter of this year. In a page-and-a-half press release summarizing 3Q2008 activity, the WGC had to use the word “record” ten times. Some highlights:

• Dollar demand for gold in Q3 was a record US$32 billion, 45% higher than the previous record, set in 2Q2008.
• Identifiable investment demand, which incorporates demand for gold through exchange-traded funds (ETFs), bars and coins, rose to $10.7 billion (12.3 million ounces), double year-earlier levels.
• Retail investment demand rose 121% to 7.5 million ounces, with strong bar and coin buying in the Swiss, German, and U.S. markets. Europe as a whole saw an all-time record 1.64 million ounces of bar and coin buying. France became a net investor in gold for the first time since the early 1980s.
• Gold ETFs posted a record quarterly inflow of 4.8 million ounces in Q3. After the collapse of Lehman Brothers in late September, ETF inflows shot higher by an unprecedented 3.6 million ounces in only five days.
• Demand for gold jewelry hit a record $18 billion. Leading the way was India, which witnessed a rise of 65% in dollar value (1.3 million ounces) compared with 3Q2007. The Middle East, Indonesia, and China all experienced increases of more than 40% in value or 10% in weight, year over year.

At the same time that demand is setting records, supply has been unable to keep pace, falling 9.7% from year-earlier levels, the WGC reported. The drop was largely due to inaction on the part of central banks, which have increasingly shut their vault doors.

Heavy demand, declining supply… small wonder that gold prices have remained near record highs in most of the world’s currencies; that dealers have been marking up coins by 10% or even 15% (when they can get them); and that one-ounce coins still fetch bids close to $1,000 on eBay.

When will the spot price in U.S. dollars, which is set by the futures market, catch up? No one knows. But it will.

The world’s hunger for gold will only grow into a future awash in fiat currency. Gold is the ultimate and, at day’s end, the only safe haven from the kind of currency destruction that is being visited upon the dollar, the euro, even the renminbi, as governments everywhere desperately try to stave off a deflationary depression the only way they know how: by turning on the printing press.

We are in a period of intense monetary inflation. It will be followed, inevitably, by a long period of price inflation. People will be desperate to preserve the buying power of their dollars, euros, etc., and they will turn to the one thing capable of doing just that. Gold.

As gold rises, it will lift the shares of selected mining companies with it. The ones that prosper the most will be those that have positioned themselves to survive the credit crisis — by stockpiling cash, keeping production costs down, and locking up borrowed money on favorable terms.

Companies that have failed to do this will go under, unable to get credit in a frozen market. That will both diminish competition and further curb supply, and those that properly planned ahead will rake in enormous profits as gold goes through the roof. Or more likely, as Casey Research founder Doug Casey puts it, gold “heads to the moon.”

But which are the companies poised to profit the most? The ones we cover in our monthly newsletter for conservative investors, BIG GOLD.

We are dedicated to bringing you the information that will allow you profitably to pick your way through the present economic minefield. We search the world of producing gold miners, to find the best of the best. We pinpoint the investments that will not only hold on through a market downturn, but will rebound spectacularly as the commodities market recovers, which it must.

In addition, we bring subscribers the best ways to invest in physical gold, including where to find coins and bars at affordable prices in times of extreme scarcity — like right now, when mints are not minting, most dealers are out of stock, and those still taking orders are charging exorbitant premiums.

While we specialize in producing companies, we also cover such alternative gold investments as ETFs, mutual funds, royalty companies, and closed-end funds. We strive to find what’s best for you. And we answer your specific questions, each month in our BIG GOLD Responds section.

The elaborate world financial structure that has been erected over the past two decades created a humongous bubble that has now popped. What will come in the aftermath of this cataclysm cannot be foreseen, but it will be different. One thing is for certain, though, gold has been money, in all times and places, for thousands of years. The people of the world are already returning to it as the sole store of value, and that’s a trend that will accelerate in the coming years. You can count on it.

Learn how to make the trend your friend with a 3-month, no-risk subscription to BIG GOLD… and as an added bonus, receive our hot-off-the-press special report “The Crisis in Pictures” absolutely FREE of charge. Click here to continue…

Source: Gold Buyers Smash Records

This rally lasted until a few minutes after 9:00 a.m. when the boyz showed up…and that was it for the day for gold. Silver tried to rally a couple of times during the New York session, but both rallies were sold off. Both metals closed almost on their lows of the day.

The 20-day moving average for gold was taken out with a vengeance, but the 50-day m.a. did not fall…but is well within range…currently sitting at $913. On the other hand, silver did take out its 50-day moving average, and now the 200-day m.a. is well within range at $16.63. Can the bullion banks do it? Sure…as they certainly have the ability…plus a huge short positions in both metals that they’d love to cover. I have been informed that options expiry is Monday…not Friday…as I’ve been touting all week, so the boyz have an extra day to work their magic. In the last seven trading days they’ve managed to get gold down about $68…and silver $2 and change. The rest of the moving averages are but a chip shot away…and they’ve got three more days to do it.

Tuesday’s open interest for gold only showed a fall of 1,062 contracts. Since the 20-day moving average wasn’t taken out until Wednesday’s trading, we won’t see big drops in open interest until we see Wednesday’s numbers later this morning…and even then, the bullion banks can cover their tracks by going long against their own short position, as this offsets their shorts, and actually increases open interest. They’re pretty good at hiding their tracks in both gold and silver. As I said yesterday, what happens in the next three or four days won’t show up until the COT on August 1st. By that time, this whole down move will probably be over and prices could be rising again, like they were the day after options expiry in June.

Silver open interest showed a drop of 1,848 contracts. Silver’s 20-day moving average was taken out on Tuesday, so this decrease is not a surprise. We should see a larger number for Wednesday since the 50-day m.a. fell very early in the trading day. We’ll see.

The prominent NY gold commentator had this to say… “Yesterday’s (Tuesday’s) defeated breakout attempt and subsequent down $15.20 rout on Comex saw open interest fall only 1,062 lots, or 3.3 tonnes. Since there must have been considerable stop-loss selling by longs, such a modest fall suggests that the primary force yesterday was fresh selling.” (As I said above, it could be the bullion banks going long against their own short positions that creates this situation. – Ed)

“The wire services are excited by the 2% (15.33 tonne) fall in the GLD gold ETF gold holdings. However, since these holdings had been virtually static through the previous 7 business days, the most that can be said, is that the relationship between their size and gold price action, remains peculiar.

“The Gartman Letter, which was not amused by yesterday’s gold action, did not directly say if it was selling the unstopped $US gold it bought the day before. One presumes so. More significantly, the post-floor trade closing assault on gold appears to have triggered the E584 stop on the two units bought some days ago. This would not be the first time (that the) triggering (of) a deep TGL stop, put in the bottom of a raid.”

(Note to Mr. Gartman…Dennis, you did the same thing last month…went long a week before options expiry and were stopped out within an hour. I offer the same advice now as I did last month…go long the day after options expiry and you’ll be OK. You can thank me later. My consulting fee is 5% of your profits…very reasonable. Please e-mail me and I’ll tell you where to mail the cheque…LOL!)

I talk about the boyz, the PPT, the bullion banks as if they are one. In some ways they are…because they are all interfering with a free market…each in their own area of influence. The ‘8 or less’ and ‘4 or less’ traders in gold and silver in the Commercial category of the Commitment of Traders are pretty much guaranteed to be made up mostly of the ‘market makers’ on the LBMA. Right now these traders have a short-side corner on gold and silver, as they are currently short between 75-80% of the entire Comex market in both metals.

I see in a Reuters story that Iran has said that they will not “retreat one iota” over their disputed nuclear program. In a Bloomberg story, the headline reads “GM, Ford (NYSE:F) ‘On the Verge of Bankruptcy,’ Altman Says”. Altman is a finance professor at New York University’s Stern school of Business. Senator Jim Bunning told it like it was when he said that Fannie (NYSE:FNM), Freddie (NYSE:FRE) Rescue Plan May Cost $1 Trillion. That will turn out to be a conservative number too…considering that foreclosures in California soared 33% from the 1st quarter of 2008, and are running 261% ahead of year-ago levels.

Only one item today. It’s a currency intervention story from Reuters and it’s filed out of London. The title is “In FX casino, don’t bet against the central banks”. With interventions in just about every market these days, it’s hard to believe that there are still people out there that believe the gold and silver markets aren’t managed as well. As Bill Buckler at the-privateer.com says continuously….”The global paper currency system is very young. It depends for its continued functioning on the belief that the debt upon which it is based will, someday, be repaid. The one thing, above all others, that could shake that faith, and therefore the foundations of the modern financial system itself, is a rise (especially a sharp rise) in the U.S. Dollar price of gold.” The link to the Reuters story is here.

Nothing beats a little cash in a bear market, of course, and the oldest form of cash is gold. – James Grant

The day to day machinations in the equity markets no longer mean a thing. It’s time to circle the wagons. Buy as much physical gold and silver…plus quality mining stocks that you can afford the day after options expiry…and then hang on for dear life. Alice in Wonderland has nothing on this.

See you on Friday.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.

Source: And Then There’s This…Thursday, July 24th, 2008

Silver was flat right up until the gold price took off just before the NY open…and both metals rose together. Silver’s advance ran into resistance a couple of times during New York trading and the top came about an hour after the London p.m. fix. From there, it was taken down 20 cents and spent the rest of the session trying to gain it back.

Volume was pretty decent on the Comex (AMEX:IAU) in New York yesterday…but the price managers are still lurking about. However, the precious metals shares soared, with the HUI up 5.01%

As expected, gold open interest on Thursday was up considerably…it rose 7,561 contracts. As has been the case more and more frequently, silver o.i. went the other way…down 1,488 contracts.

The Commitment of Traders for silver showed that the traders in the Non-Commercial category went long an additional 2,681 contracts, plus they added 1,032 contracts to their short position. The bullion banks in the Commercial category only added 47 longs, but went short a rather substantial 3,281 contracts. In gold, the Non-Commercial (tech funds) only went long 1,506 contracts and covered 417 shorts; while the bullion banks in the Commercial category went long 7,889 additional contracts…and they went short another 9,532 contracts. The numbers indicate that volume was very light during the period. With prices rising the way they’ve been doing since the Tuesday cut-off for the COT, we should expect more deterioration as the tech funds have started to come in on the long side and the bullion banks are going short against them. Same old, same old. Can the price go higher from here? Absolutely! But, as of this writing, the bullion banks are still running the price show. The link to Friday’s COT is here.

Yesterday I received a most interesting e-mail from silver analyst Ted Butler. It’s well worth the read….”GLD added the largest one-day increase in metal today, I believe, with 46 tons (almost 1.5 million ounces or $1.4 billion). An increase was expected, but not of this magnitude. Funny thing is, I think the metal deposit increase reflects yesterday’s (Thursday) high volume of 16 million shares and not today’s (Friday) enormous 25 million shares. Today’s GLD volume was the highest upside volume in my memory (there have been a few bigger volume days, but always to the downside). We’ll see if more comes in Monday. Since June 11, GLD is up 108 tons, or almost 3.5 million ounces, and over $3 billion…versus no growth in SLV. SLV had pretty big volume yesterday (Thursday) and today (Friday) and is still due much metal to come in. This (activity) seems to confirm a flight to quality buying in metals…and further, that they have the gold to deposit, but silver just ain’t available.”

In a comment in his early Friday morning report, Bill King had this to say…” A last hour 21-handle SPU rally saved the stock market on Thursday. With insolvency fears of major financial institutions running very high, and Lehman tanking to 17.30, it’s not surprising to see impact trading in the SPUs because many people have a vested interest in keeping an appearance of calm.” That probably happened on Friday in the markets as well.

It’s the weekend, and with so much happening, I’ve got three stories for you. All of them are from The Telegraph in London, and two of them are from their international business editor, Ambrose Evans-Pritchard.

The first one has to do with G. Dubya. George had an unusual way of saying his final goodbyes to his compatriots at the just-ended G8 summit in Japan. You can sure tell he’s not running for re-election. The story is linked here.

The first Ambrose Evans-Pritchard piece warns of a deflationary collapse, as the money supplies in Britain, Europe and the US, plunge. Over the past year, global deflation has overwhelmed central banks’ attempts to reflate. In the meantime, the skyrocketing prices of the necessities of life have squeezed the world’s consumer, creating political problems throughout the globe. The article is entitled “Monetarists warn of crunch across Atlantic economies”. The link is here.

The second item by Evans-Pritchard is a warning from Bill White, chief economist of the BIS. White says that “The current market turmoil is without precedent in the post-war period…and the magnitude of the problems yet to be faced could be much greater than many now perceive.” (Memo to White: Bill, you have a keen grasp of the obvious. – Ed) The article is entitled “BIS slams central banks, warns of worse crunch to come”. The link is here.

There are disturbing trends…huge imbalances, disequilibria, risks… Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot. – former Fed Chairman Paul Volcker, 2005

This weekend’s blast from the past is one of the first C&W songs to ‘cross over’ to the pop charts…a long long time ago. RIP Patsy. Click here.

Without doubt, Hank & Ben’s Guardian Angels were looking out for the equity markets yesterday…as the Dow was only below 11,000 briefly. But, in my opinion…it no longer matters. I will pick this past week as the ‘point of no return’…the crossing of the Rubicon, if you like. Now it’s a death spiral. Hyperinflation of paper financial assets no longer seems possible, as the credit contraction really starts to bite…and the smart (and big) money has begun moving to the hard asset side of the street. A deflationary implosion appears to be gaining momentum. Could this be the first sub-zero blasts of the dreaded Kondratiev Winter?

Monday should be interesting. Enjoy the rest of your weekend, and I’ll see you on Tuesday.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.

Source: And Then There’s This…Saturday, July 12th, 2008

I use the CDNX, the benchmark index for the Canadian Venture exchange which is heavily weighted towards mining exploration issues, as a proxy for Canadian juniors. As you can see by the chart, after violent sell-offs it has repeatedly found support just below the 2400 mark – where we are now. Previous price action, and the fact that we are on or just below the 200-week moving average (orange line), would suggest that we are at an entry point now – for those that have the stomach for it. If we break that support, ouch.

The next chart shows the price of Oil (black line – USO) against Gold (blue line – GLD) against the CDNX. It’s apparent that as oil rises, the CDNX tends to decline and vice versa. (The rationale for this would be that as oil rises, mining costs rise and thus profits fall. As oil falls, costs fall and profits rise).

In the long-term, I am very bullish on oil, as you know. But in the intermediate term, it looks like we may have formed a top. The huge volume and extreme volatility we have seen over the last few weeks are one sign, another is that oil stocks have sold off quite brutally since the beginning of the month, as the next chart of the XLE, which is an ETF representing the major oil producers, shows:

Yesterday the sell-off in oil gathered pace. If we have formed an intermediate-term top in oil, and are about to see a few months of decline, I am looking at a potentially bullish scenario for juniors and we should get a decent rally. We can but hope.

AIM market makers kill their own market

In Monday’s Money Morning I had a go at AIM, in particular at AIM’s market makers. I was very surprised the amount of emails I got all saying, “Good for you,” “Somebody has to tell these people” and the like. A lot of people are clearly deeply frustrated by this market.

We have two examples this week of how the practices of AIM’s market makers kill AIM dead.

Last week I tipped Leyshon (AIM:LRL), a late-stage gold development play in China. Some huge buying came into the stock, the likes of which had not been seen since 2006.

Nor can you expect higher returns. And that’s the really cruel part.

Many so-called alternative investments, gold being the most notable, are being sold right now on the basis of recent high returns to salivating investors desperate to stop the bleeding in their portfolios.

No question, the yellow metal offers diversification; but near all time highs, its “protection” is debatable at best, when viewed against the harsh light of historical data.

Which is why, at the risk of receiving some very testy email, we have to point out that if you bought gold the last time it was this high, you’d probably regret it now. If you had invested $10,000 in gold in January 1980, the current value of your investment would be $10,600.

Now, compare that to the $279,000 you would have if you had invested that same $10,000 in the S&P 500 Index in January 1980 and you’ll see what I mean.

Does this mean that gold is worthless when it comes to riding out tough markets?

No. Not for a New York minute.

Gold remains a powerful hedge and one that every investor should think about… but for reasons that are not commonly understood.

You see, while gold has never been proven to be a statistically viable inflation protector, it has a significantly correlated 10 to 1 relationship with interest rates and bond prices which, as you know, react to inflation. Therefore, if interest rates rise by 1%, the face value of bonds should fall 10% but gold should rise by 100%.

Which suggests that 10% of the value of a bond ought to be put in gold… as a hedge.

Here’s how such an example would work.

If we allocate $10,000 to this strategy, $9,000 would go into bonds and $1,000 into gold. If rates rise by 1% (as they’re likely to do and then some), the bonds should fall 10% to $8,100 and the gold should rise by approximately 100% to $2,000. Overall, our portfolio would be worth $10,100 (give or take), which is right about where we started.

That suggests a portfolio of bonds and gold is safer than either bonds or gold in isolation.

Obviously, gold has been bid up substantially in recent months so the 100% rise we expect based on historical patterns may not be as extreme, nor may it rise another 100% from current levels, but the point remains valid – we don’t buy gold because it hedges bad times.

We buy it because gold protects the income stream we get from our bonds… particularly when the economy is facing severe inflationary pressures like it is now.

So how do we make our move and when?

Everybody has their own preferences for gold investing, including us. There are mining companies, bullion, coins and even jewelry. We prefer the SPDR Gold Trust ETF (GLD). There’s no delivery risk, it’s liquid, and you can buy and sell easily through any online brokerage. Plus, as so many residents who lived through Hurricane Katrina found out, you don’t have to worry about Mother Nature or hooligans stealing it either.

As for when to buy, now is probably a pretty good time. The U.S. Federal Reserve has only just begun to acknowledge the inflationary embers it’s been fanning for a long time. And, as usual, they’re dramatically underestimating the 9%-10% we’re feeling in our pockets. So, even if they don’t officially raise rates, odds are that the markets will anyway as traders cope with rising costs on their own.

Though, as you might suspect, there is a downside.

By taking part of the portfolio that would otherwise be placed in bonds and presumably generating income, this strategy dampens the returns we could potentially achieve with bonds.

But given gold’s protective qualities over time, we think that’s a good bet.

Source: The Best Way to Use Gold to Protect Your Portfolio and Profit