It’s just a matter of time before core inflation starts rising alongside corn, wheat, beef and prices at the pump.

Ordinarily, the Fed would start raising rates to stave off higher prices.

But Bernanke really doesn’t want to be an inflation hawk right now. Raising rates would only make the already weakening economy weaker still. (Never good in an election year).

If Bernanke has to choose between a weaker economy and moderately higher inflation, I believe he will choose higher inflation, hoping that he can put the genie back in the bottle once the economy is growing again.

Since gold traditionally rises with inflation, that means now is probably a good time to add to your holdings.

Here are the essential facts:

At one time the world’s monetary system was based on gold. It is a universally recognized store of value. It can be bought and sold in any country.

And it is scarce. There are 4 billion ounces of gold in people’s hands, enough to fill a cube 60 feet on a side. Of this, investors own 1 billion ounces, and central banks another billion, with the remaining 2 billion ounces accounted for by jewelry and other baubles.

Last year, more than 80 million ounces were extracted worldwide. Two-thirds went to jewelry makers and the rest to bullion.

If you want to own gold that you can touch, you can buy bullion. But there will be a markup when you buy it or unload it – and fees to store and insure it. The same is true of coins, especially with numismatics.

Understand, too, that while gold has been in a major uptrend over the past few years – hitting an all-time high of $1,030.80 on March 17 – shares of the natural-resource companies that bring the gold to market have performed considerably better. That isn’t likely to change.

Over the past 50 years, major gold mining companies have risen at an annual rate of approximately 12%. That’s better than the return of the Standard & Poor’s 500 Index, although the trade-off has been head-snapping volatility along the way.

Perhaps the most conservative way to buy blue chip mining companies is to plunk for a few shares of Market Vectors Gold Miners (GDX) Exchange Traded Fund.

An ETF, Market Vectors is linked to the AMEX Gold Miners Index and owns all of the world’s leading gold and silver mining companies. That means you can capture the performance of the entire sector in a single, well-diversified investment.

The annual expense ratio is one half of 1%. The shares can be margined or sold short – and there are options available for traders.

Here are some of the stocks among the Top 10 holdings:

• Newmont Mining Corp. (NEM).
• Freeport McMoRan Copper & Gold Inc. (FCX).
• Barrick Gold Corp. (ABX).
• Anglo American PLC (ADR: AAUK).
• Harmony Gold Mining Co. (ADR: HMY).
• Kinross Gold Corp. (KGC).
• Yamana Gold Inc. (AUY).
• Gold Fields Ltd. (ADR: GFI).
• Agnico-Eagle Mines Ltd. (AEM).

Right now the economy is weak – and the outlook for inflation is poor. But this is creating plenty of profit opportunities – if you know where to look.

So pick up a few shares of Market Vectors Gold Miners ETF – or talk to a resource broker.

Tell them Ben Bernanke sent you…

Editor’s Note: Alexander Green is Investment Director of The Oxford Club and Chairman of Investment U. To get Green’s actionable investment ideas three times a week – at no charge – sign up for the Investment U e-letter. If you join for free today, they’ll send you their latest special commodities research report: “Five Million Reasons to Load Up On Coal Now – and Three Easy Ways to do it.” You’ll find out why the standardized shipping container is driving coal demand through the roof -and how that’s delivering literal “boatloads” of profits to three companies. Just click here to have your report delivered in less than two minutes. Again, the report, and the service, both are free of charge.

Alexander Green appears as a guest author on today’s Money Morning.

Source: If You’re Prospecting for Gold, Tell Them Ben Bernanke Sent You

Every morning, at seven o’clock, I make myself a cup of tea and settle down in front of my PC to read all of the morning’s stock exchange announcements. This used to be a happy half hour.

I would read of all the progress being made by the UK’s many quoted companies. I would count up those increased dividends. I would purr at higher profits. I would digest the many confident statements of chairmen and chief executives.

It was the intellectual equivalent of three Weetabix, and sent me on my daily rounds with a sense of optimism, happy that the good ship of commerce was chugging its way purposefully through calm seas with my life savings on board.

Now though things are different.

I turn on the PC with a sense of foreboding. I put an extra lump of sugar in my tea to anaesthetize the pain of profit warnings and dividend cuts. And I watch my fortunes sink.

Yesterday though was different. I was prepared for the worst. A week-end spent reading about the wrecks of Fannie Mae (FNM) and Freddie Mac (FRE), of the collapsing housing market, of mounting job losses and credit card debts had steeled me for a miserable morning.

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Take Hamworthy (LON:HMY), for instance.

This has been one of the stars of the small cap sector over the last few years, growing its profits at an annual rate of 27%. It has a bright future too, thanks to its expertise in the pumps and systems that handle gas and water on board ships.

Over three quarters of its sales are related to the production and transportation of oil and gas, and it is the latter that really underpins its prospects. The volume of LNG carried by sea is expected to rise by 10% per year until 2015. So no wonder Hamworthy’s chairman reported strong order books and ‘robust long-term growth prospects’ at yesterday’s AGM.

And another…

‘Our core business continues to prosper’ was the phrase used by another chairman, this time David Evans of Immunodiagnostic Systems (IDH), as he reported a 23% rise in earnings per share and a 20% hike in the annual dividend.

Since starting out as a distributor of diagnostic products thirty years ago IDH is now a leader in the global In-Vitro Diagnostics industry.

It exports 70% of its products, which are medical diagnostic kits. It has particular expertise in the areas of calcium dysfunction and bone diseases, such as osteoporosis, osteomalacia and Paget’s disease, but its flagship is its kits for the determination of Vitamin D in human serum.

Vitamin D is an important marker in the control and regulation of the body’s calcium reserves and is increasingly being accepted as necessary for the prevention of diseases including breast cancer, prostate cancer, colon cancer, diabetes and heart disease.

Since coming onto AIM in 2004 IDS has grown in exemplary fashion both organically and through acquisition and analysts are forecasting a big jump in earnings this year.

And here’s another…

And the third company to raise my spirits and demonstrate that not everything in the garden is withering away is SDL.

Its shares jumped after Chairman and Chief Executive Mark Lancaster told the market that results for latest six months ‘will be significantly ahead of market expectations’.

Revenues in this period were 37% higher than in 2007, with two thirds of this related to organic growth. So here is a third company that the recession is by-passing, evidence that if the product is good enough it will always succeed.

SDL’s product answers the commercial imperative that multinational organizations must deliver consistent information around the world in a variety of languages. 90% of information that is produced by a global organization is relevant to an international audience and yet, according to SDL, only 10% is delivered in their language.

SDL provides the software and services that can tackle this problem, central to which is software that can automatically translate from one language to another.

The shares of each of these three companies rose yesterday.

Each is a specialist with a worldwide reputation for excellence. In their rush to abandon the stock market, investors must take care not to throw the baby out with the bathwater. These three beautiful babies should each grow into handsome adults in the years ahead.
Regards,

Tom Bulford
for The Penny Sleuth

PS. One little-known, London-listed “killer driller” holds exclusive rights to extract a potential 10 billion barrels of oil from underneath this UK-owned territory. Find out more on this exciting penny share story here…

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