This from Karim:

President Obama has all-but sealed the fate of the U.S. dollar.

In doing so, however, his policies – no matter whether they’re forced upon him or deliberate – have opened the floodgates for gold and gold stocks.

In fact, they’re setting the stage for the biggest rally in gold’s history.

Over the past several months, we’ve told you why you should buy gold and highlighted one of the best gold indicators you can use to determine when to buy gold. But today, we’re simply going to show you how to profit from the yellow metal…

Three Reasons Why Gold Is Headed Higher

Okay, so Obama hasn’t specifically said, “Buy physical gold,” but  he’s certainly saying it with his actions instead. Here’s why the metal is headed higher…

1. The Printing Press: The U.S. government is printing a massive amount of money every day. In fact, we’re up to $2 trillion since last November. But here are the questions we should be asking…

~ Where’s this money coming from?
~ What is supporting this huge flow of new money?

America can print money today because the world believes that one day we’ll pay it back. But we haven’t paid down our debt in decades! In fact, over the past 30 years, our debt has increased 10-fold. (We have paid the interest though and that is better than most countries).

However, each new dollar we print is like adding a tiny little bit to the price of gold. And we are printing trillions of dollars.

1. The Currency Fear Factor: Gold is going higher because people are frightened that they won’t allow themselves to fall into the dollar/yen/pound/euro trap again.

For example, did you know that gold is at new highs against the Pound and Euro? Because those two currencies have fallen sharply against the dollar, the price of gold in both currencies is much higher than the last time gold was at this level (about this time last year).

1. More Educated Investors: With the huge amount of upheaval that the economy and stock market has faced over the past year or so, we now have a greater number of educated investors, who can plainly see that gold is the asset to hold. We wondered out loud why this wasn’t the case back in October, as investors seemed to ignore the dire news coming out each day and gold prices were stagnant. They’re not ignoring it now – and readers who took our advice to buy gold are doing very well.

But because more investors have jumped on the gold bandwagon now is exactly why you should not be buying gold right now.

That is, of course, unless you’re using a strategy that allows you to make some money or reduce your cost if the shares move down. I’ll give you an example in a minute…

Mind The Gap: Why You Should Set A Buy Alert At The $800 Level

Since mid November 2008, gold prices have pretty much moved up in a straight line.

Be warned: Like any investment, this cannot last forever.

Gold will sell off for a variety of reasons: Because they need money more than jewelry… because China and India are a little bit poorer… because investors sell for technical reasons.

Gold needs to fill a gap on a chart that goes back to the $800 level. And that is when you should buy gold. But not physical gold. Let me explain…

When Gold Hits $800 Again, Here Are Four Gold Investments You Should Buy

Rather than buying physical gold – as many people like to do – you should instead buy shares in gold mining companies. This includes…

~ Goldcorp (NYSE: GG)
~ Yamana Gold (NYSE: AUY)
~ Barrick Gold (NYSE: ABX)
~ Newmont Mining (NYSE: NEM)

You could even buy a silver-based play like Silver Wheaton (NYSE: SLW).

Here’s the thing with physical gold: Unless you’re counting on it to come in handy during something like a government coup where you need to flee the country (in which case, you’d better take a donkey with you, as it will be a heavy load), there are disadvantages to owning physical gold. Ones that result in less money for you.

For example, physical gold is difficult to store. It doesn’t pay dividends. And you can’t apply professional investment strategies like covered call writing to gain additional income.

Most importantly, gold shares move up by a factor of between two times and three times more than the percentage move for gold. So if gold prices move up by 10%, you can expect gold shares to move 20% to 30%, depending on what their cost is.

Everyone Is Buying Gold… But Not Everyone Is A Pro: Here’s The Pro Way To Profit From It

Okay, so once you’ve bought some gold mining shares, how do you start milking the investment for bigger profits than most other investors? I’ll show you…

The bottom line is that not only do you want to capture the price appreciation of your gold shares, you also want to sell call options against your stock to reduce your cost and take money off the table. Here’s how it works…

Let’s say you buy shares of Silver Wheaton for $7. Using a covered call strategy, where you sell one call option for every 100 shares you own, you can get back almost 6% in cash over the next seven months – and still have the chance to more than double your money.

Think of it as a free dividend that no one else knows about.

That’s the kind of stuff we do all the time in my Strategic Income service and every so often in our Xcelerated Profits Report (XPR) newsletter.

Gold Is Going Higher… Let It Take You Along For The Ride

The bottom line is this: Gold is going to move higher. Ultimately, much higher.

There will be opportunities to buy the metal along the way – and you’re going to hear a lot of people crowing about those opportunities.

But what they probably won’t tell you is that there’s a way of not just buying gold, but buying it through a simple strategy that pays you back and also mitigates some risk.

Understand though, that gold is not going to shoot to the moon tomorrow. That’s why we’ve taken a defensive posture on two of the gold stocks I mentioned above. One is a covered call play on Goldcorp, and the other is a spread play on Yamana Gold that has allowed us to take 95% of our money off the table, yet still left us with the chance to make over 4,000% on the money we have at risk.

The question is: Are you just going to “buy gold” because everyone else is? Or are you going to really profit from gold like the pros do?

Source: Obama Says, “Buy Gold”… Three Reasons Not To Listen

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

The world’s stock markets tanked, as did some of its biggest economies. In such an environment, they thought, gold should have risen. After all, gold is widely considered to be a safe-haven investment when everything else is spiraling south.

However, Money Morning Contributing Editor Martin Hutchinson – an investment banker with more than 25 years’ experience on Wall Street and a leading expert on the international financial markets – understood perfectly what other investors did not.

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

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

That price escalation tightened household and corporate budgets, and was a primary reason why the U.S. economy posted a gross-domestic product (GDP) decline of 0.3%. With that negative growth, the third quarter was the beginning of what many experts believe will be the nation’s first recession since 2001.

However, the inflation epidemic has waned significantly, as global demand for raw materials has plummeted.

Price for such staple foods as corn, soybeans and wheat have all come down from their record highs – in near-lockstep fashion.

Corn futures are down nearly 50% from their summer high of $8 per bushel. The same is true of soybeans and wheat, with each having 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 commodities rebound – a projected slow-and-steady increase in commodity prices that will reverse the breakneck plunge below fair value that commodities have experienced for much of this year.

Our objective now: To chart the expected path of gold prices in the New Year.

This report also reveals another wild card inflationary indicator that Hutchinson believes will 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 it squeezes the supply of the particular commodity. And it does so at a time when demand continues to escalate from populations in China, India and Latin America. And higher prices equal inflation.

But Hutchinson – who correctly predicted this last run-up in gold prices – says there’s another catalyst that’s right now inherent in the U.S. economy that could help vault gold prices to $1,500 an ounce by the end of 2009. And it has to do with the much-ballyhooed $700 billion rescue plan.

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

The philosophy behind the rescue plan is elegantly simple: By providing a portion of the $700 billion to foundering U.S banks, the Treasury Department believed it could provide banks with badly needed capital, and get them to start lending money once again – jump-starting the economy in the process.

Since September 2007, U.S. Federal Reserve policymakers have cut the benchmark Federal Funds target rate 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.

Right now, banks aren’t boosting lending. Instead, they are using the cash to finance buyouts of other banks. Even so, that money will “come out” into the economy in the form of higher stock prices for banks. That will make consumer/investors wealthier, and could make them more confidence in the economy. If they’re more confident, they will spend. As that happens, 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 going have inflation. I think that’s probably wrong,” Hutchinson said. “I think gold has quite good hidden-store value.”

As gold prices increase, count on more investors leaving the sidelines to invest, too, causing the surge in gold prices to accelerate and steepen.

“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 bargain-basement gold prices.

The 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 exchange-traded fund (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 bar 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 United States, 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 is subject to market swings – as well as fluctuations in 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-oriented 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; the minimum deposit is $5,000), and Allocated (you directly own the gold you purchase, held in your own private account; $7,500 is the minimum deposit here).

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 among the best in class.

Source: Five Ways to Play Gold’s Rebound to $1,500 an Ounce

[Editor's Note: With the New Year upon us, it's a good time for investors to be looking ahead. With that in mind, Money Morning will be running installments of our "Outlook 2009" economic forecasting series into the New Year.]

This from Money Morning:

Gold hit two historic milestones in 2008.

First, in early March, the “yellow metal” hit its all-time high of $1,030 an ounce.

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

Most gold bugs were equal parts puzzled and broken-hearted. The world’s stock markets tanked, as did some of its biggest economies. In such an environment, they thought, gold should have risen. After all, gold is widely considered to be a safe-haven investment when everything else is spiraling south.

However, Money Morning Contributing Editor Martin Hutchinson – an investment banker with more than 25 years’ experience on Wall Street and a leading expert on the international financial markets – understood perfectly what other investors did not.

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

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

That price escalation tightened household and corporate budgets, and was a primary reason why the U.S. economy posted a gross-domestic product (GDP) decline of 0.3%. With that negative growth, the third quarter was the beginning of what many experts believe will be the nation’s first recession since 2001.

However, the inflation epidemic has waned significantly, as global demand for raw materials has plummeted.

Price for such staple foods as corn, soybeans and wheat have all come down from their record highs – in near-lockstep fashion.

Corn futures are down nearly 50% from their summer high of $8 per bushel. The same is true of soybeans and wheat, with each having 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 commodities rebound – a projected slow-and-steady increase in commodity prices that will reverse the breakneck plunge below fair value that commodities have experienced for much of this year.

Our objective now: To chart the expected path of gold prices in the New Year.

This report also reveals another wild card inflationary indicator that Hutchinson believes will 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 it squeezes the supply of the particular commodity. And it does so at a time when demand continues to escalate from populations in China, India and Latin America. And higher prices equal inflation.

But Hutchinson – who correctly predicted this last run-up in gold prices – says there’s another catalyst that’s right now inherent in the U.S. economy that could help vault gold prices to $1,500 an ounce by the end of 2009. And it has to do with the much-ballyhooed $700 billion rescue plan.

The philosophy behind the rescue plan is elegantly simple: By providing a portion of the $700 billion to foundering U.S banks, the Treasury Department believed it could provide banks with badly needed capital, and get them to start lending money once again – jump-starting the economy in the process.

Since September 2007, U.S. Federal Reserve policymakers have cut the benchmark Federal Funds target rate 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.

Right now, banks aren’t boosting lending. Instead, they are using the cash to finance buyouts of other banks. Even so, that money will “come out” into the economy in the form of higher stock prices for banks. That will make consumer/investors wealthier, and could make them more confidence in the economy. If they’re more confident, they will spend. As that happens, 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 going have inflation. I think that’s probably wrong,” Hutchinson said. “I think gold has quite good hidden-store value.”

As gold prices increase, count on more investors leaving the sidelines to invest, too, causing the surge in gold prices to accelerate and steepen.

“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 bargain-basement gold prices.

The SPDR Gold Trust ETF (NYSE: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 exchange-traded fund (ETF) eliminates any investor concern over storage and delivery while giving them exactly what they want – gold.

Toronto-based Barrick Gold Corp. (NYSE: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 bar 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. (NYSE:NEM) is primarily a gold producer with operations in the United States, 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 is subject to market swings – as well as fluctuations in 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-oriented 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. (NYSE: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; the minimum deposit is $5,000), and Allocated (you directly own the gold you purchase, held in your own private account; $7,500 is the minimum deposit here).

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 among the best in class.

Source: Five Ways to Play Gold’s Rebound to $1,500 an Ounce

After yesterday’s dismal earnings announcement, it would not be surprising to see shares of Newmont Mining (NYSE:NEM) deep into negative territory today. After all, the company announced a decline of net earnings of over 51%.

Even worse was the statement made yesterday by the company’s CEO, Richard O’Brien.

“Our company and our industry are currently operating in an unprecedented macro-business environment consisting of extreme commodity price volatility, uncertainty, mass portfolio liquidation, global inflation, and limited, if any, access to capital,” he told us. It is not the kind of rosy picture that screams for your investment dollars.

Even so, shares of Newmont rose on the company’s third-quarter earnings report and have been on the rise ever since.

Investors scratch their heads

There are two reasons for the continued surge in price. First, like I have said countless times over the past month, shares of just about everything have been greatly oversold and are selling at dirt-cheap prices because of it.

As investors bailed out of the market and forced liquidations kicked in, companies across all industries saw their valuations drop drastically below where they should be. Even discounting a severe recession, the prices we saw over the last two weeks were simply ridiculous.

The other reason Newmont is on the rise over the past few days is because of the market’s belief that, just as equity prices are too cheap, so are commodity prices.

O’Brien said it himself: “We believe that commodity prices are undervalued even in the short term.”

For investors bullish on the commodities industry, this is a good time to do some buying. Shares remain at discounted levels and many experts believe commodity prices will rise from today’s values.

The folks buying shares of Newmont today are certainly buying shares on the expectation that gold and copper prices are on the rise. I am inclined to believe, at least on the short-term, they are correct.

Hedging your bets

There has been a lot of demand over the past few weeks for physical possession of gold bullion. Fortunately for gold bugs, the supply is quickly getting scarce. In the short-term, there will be no remedy to the gold industry’s supply shortages.

With the credit industry in a virtual lockdown and development budgets getting slashed across many mining operations, the amount of new gold hitting the market over the next few months will be dramatically lower than demand. That is why, when I created my recent gold hedge, I created a position that will profit from this short-term phenomenon.

Like I said, traders are smart for grabbing shares of Newmont at these deeply discounted prices. The near-term shortage in gold supply will give traders a profitable position.

But this is not an investment for long-term, buy-and-hold investors. Eventually, a new supply of gold will hit the market and prices will once again be on the downswing.

As oil prices drop and the economy slows, fewer investors will use gold as a hedge against strong inflation. Within the next year or eighteen months, there will be an overly large supply of gold on the market.

That is exactly why I created my gold hedge. No matter what gold does, you can make money.

Over the next year or so, gold prices will rise and fall. Companies like Newmont Mining will remain volatile. But at prices like we are seeing this week, short-term investors can afford volatility.

Source: Newmont Mining (NEM) warns investors, share price rises

Many of the mines in ROY’s portfolio are not yet producing. When they do, and commodity prices recover, ROY stands to make serious profits.

This from The Rude Awakening:

When panic guides the financial markets, reason is an orphan. It enjoys no comfort whatsoever. It wanders aimlessly – wondering when it sorrows might end. But the sorrows do end eventually. Reason does ultimately reunite with profitable investment results. Therefore, the successful investor clings to well-reasoned tactics, even when the stock market calls him crazy. At the moment, the stock market is calling a lot of investors crazy. But successful investors use such moments to capitalize upon the stock market’s lunacy. They use these moments to buy good stocks on the cheap.

International Royalty Corp seems like a good stock that has become way too cheap.

International Royalty Corp. (AMEX:ROY) is like a big bucket of call options on more than 80 mining projects. But the great thing about these options is that they don’t expire. Only one of ROY’s projects is really producing big cash flow. A few gold mines come online in 2008. And then you have 78 other properties that could pay off down the road.

ROY is a unique company. It doesn’t operate any mines. It doesn’t own any mines. What it does is acquire royalties. Basically, ROY is like a venture capitalist of mining companies. It provides funding. Early in a mine’s life, before anybody is sure what might come of it, a miner might go to investors and partners and look for ways to spread the risk a bit.

Enter ROY. The management team at ROY takes a look at the property and runs it through their hurdles. If they like it, they come back and say something like, “OK, we’ll give you $10 million. In exchange, you pay us 3% on the gross price, minus shipping and insurance costs, of everything that comes out of this mine for the life of the mine.” Also, ROY points out, it’s up to the miner to run the place. “It’s still your mine, Mr. Miner, and any other money required will have to come out of your pocket.”

The miner says yea or nay. If it agrees, it gets its money and starts work on the mine. It may be years before the mine produces anything. It may never produce much of anything at all. Or it could turn into a huge mine… in which case, ROY’s little initial investment pays off big.

This is what happened with Voisey’s Bay, which turned into a huge nickel mine. The miner in this case is a giant – Companhia Vale do Rio Doce (CVRD). No one knows just how much nickel CVRD will get out of Voisey’s Bay. But right now, Voisey’s Bay is one of CVRD’s core assets. CVRD has sunk nearly a billion dollars into it. The mine should produce for 20-25 years yet.

Voisey’s Bay beckons comparisons with Goldstrike, a fabulous gold mine owned by Newmont (NYSE:NEM). A little royalty company called Franco Nevada had the royalty on that mine. It went up 50-fold over a decade. Shareholders who sunk some money in Franco Nevada and just sat on it got rich.

Some call Voisey’s Bay the Goldstrike of nickel…

And ROY has a piece of it. Every ounce of nickel that CVRD pulls out, ROY gets a cut. Doesn’t matter if CVRD makes money or not. Doesn’t matter what happens to mining costs. When CVRD pulls nickel out of Voisey’s Bay, a piece of the proceeds goes right in ROY’s pockets.

This makes ROY a straight-up play on metals. Higher nickel prices mean more money for ROY. More volume through the mine means more money for ROY. It’s price and volume, and that’s it.

Well, that’s not all…

Because ROY owns a portfolio of royalties, not just Voisey’s Bay. Most of them don’t produce anything right now. But they may. And most certainly, some will. Recently, ROY picked up another 16 royalties from mining giant Rio Tinto (NYSE:RTP) for $61 million in cash. It was a big acquisition for ROY, boosting its total portfolio by 20%. Now ROY owns a portfolio of over 80 royalty properties.

And so what?

Now that commodity prices are tanking, ROY’s share price is also tanking. This looks like a buying opportunity to me. Commodity prices will recover eventually. And when they do, ROY’s stock should provide ample rewards.

Source: A Good, Cheap Stock

This is because, once the threat posed by the US housing crisis has passed, the Federal Reserve will be forced to increase interest rates to fight inflation. Other countries will follow, which will deflate the commodities boom.

However, over the short-term, gold, whose movements are directly linked to inflation, is likely to bounce. Martin reckons a price tag of $1,500 an ounce for the yellow metal is entirely possible. He recommends two ETFs and four gold miners to profit from this situation…

The most important factor regulating international demand is the overall level of interest rates in terms of inflation. If “real” interest rates – netting out the rate of inflation – are high as in the 1980s, demand growth is sluggish (because the cost of capital to make new investments is high) and so commodity prices are generally low. Conversely, low real interest rates and surging inflation, such as occurred in 1973, can cause the prices of all commodities to spike upwards.

While there are signs of global demand slowing, it is nowhere near stalling. The International Monetary Fund (IMF) expects world gross domestic product (GDP) growth of 4.1% in 2008 and 3.9% in 2009. Those rates compare with growth rates of 5% or just over in 2006 and 2007. However, they are still sufficient to put considerable pressure on commodity supplies, which are already stretched by current demand.

To reduce commodity demand, and produce a real drop in prices, global interest rates would have to rise sharply. Currently, short-term interest rates are negative in real terms (below the local rate of inflation) in the United States, the European Union and Japan, and only just positive in the United Kingdom.

They are also sharply negative in India and many emerging markets and likely to become so in China, where official inflation has been suppressed pre-Olympics. With negative real interest rates prevailing almost everywhere, the global trend must be one of firm demand and accelerating inflation.

Eventually, the United States, which tends to lead the international community in interest rate matters, will be forced by accelerating inflation to increase sharply its short term interest rates – the 2% Federal Funds rate is now more than 3% below consumer price inflation (CPI) and more than 5% below producer price inflation (PPI). When that happens, other countries will follow and the commodities boom will deflate.

However, it won’t happen just yet because of the housing crisis. U.S. Federal Reserve Chairman Ben S. Bernanke wants to see home prices come to some kind of equilibrium before raising interest rates, otherwise he could produce an uncontrollable fall in house prices, causing more or less the whole U.S. home-mortgage market to default.

Since interest rates are likely to remain low for several months at least, commodity prices are likely to “bounce,” rather than remaining in a bear market. Speculative capital, of which there is still plenty, will then rush back into commodities, pushing prices up still further.

Of the various commodities, agricultural commodities are the least likely to bounce substantially, because the supply cycle is relatively short and high prices are already causing new planting. Shipping rates are also fairly unlikely to soar, as new building has been undertaken at a frantic pace in the past few years and capacity is now coming on stream.

On the other hand, metals and energy, for which finding new sources is a lengthier process, are more likely to bounce, particularly if geopolitical uncertainty continues to increase in the aftermath of the Georgia invasion.

The most upwardly mobile commodities are likely to be those whose movements are directly related to inflation – gold and silver. Gold, in particular, is one of very few commodities whose price is currently within a few percent of that last September, when Bernanke & Co. began cutting interest rates.

While the equivalent in real terms of 1980’s $850 peak in the gold price may be unattainable – that would require gold to reach $2,300 – a $1,500 price for gold certainly seems possible.

The SPDR Gold Trust ETF (NYSE:GLD) is about the most efficient way of getting a pure gold play.

As an alternative, you might consider a silver investment – the metal is currently at less than 15% of its 1980 high equivalent to $130 per ounce – the iShares Silver Trust ETF (AMEX:SLV) seems the best way to play silver directly.

You may do even better in gold mining shares. The recent declines in the gold price have caused a huge amount of air to whoosh out of gold share prices, to the extent that they now represent pretty good value.

• Barrick Gold Corp. (NYSE:ABX) is a Canadian company, with mostly North American production, plus some in South America and Africa, and copper and zinc add-ons. With a market capitalization of $29 billion, this firm has plenty of liquidity. It has a trailing Price/Earnings (P/E) ratio (on last 12 months earnings) of 15, and a forward P/E (on next 12 months) of 13. The stock is reasonably valued and has little political risk.

• Newmont Mining Corp. (NYSE:NEM) is a U.S. company, operating in the United States, Australia, Peru, Indonesia, Ghana, Canada, Bolivia, New Zealand and Mexico. It also has low political risk, but with a $19 billion market capitalization, trailing P/E of 25 andforward P/E of 14, Barrick still looks like a better value.

• Yamana Gold Inc. (NYSE:AUY) is a Canadian company with mining in Brazil, Argentina, Chile, Honduras and Nicaragua.  It has a market capitalization of $7 billion and a trailing P/E of 33, but a forward P/E of only 10. There’s medium political risk, but the firm expects to double production to 2.2 million ounces per year by 2012, primarily in Brazil and Argentina.
• Gold Fields Ltd. (NYSE:GFI) is a South African company with mining operations in South Africa, Ghana, Australia and Venezuela (of which they recently sold control to a local company). With a market capitalization of $5.7 billion, trailing P/E of 11 and forward P/E of 10, this firm is an upper-medium political risk, depending on what you think of South Africa. However, its shares have fallen a lot and are now cheap.

Source: Commodities: Bear Market or Bounce?

Gold inched upwards throughout the day, hitting an intraday high of $931.20/oz. during London trading. Prices dropped during NYMEX trading, but recovered during electronic trading before closing the day up $6.90, at $926.50/oz.. Overnight, gold has trended higher.

Platinum had another rough day Thursday. Although up early in trading in the Far East,prices declined steadily throughout the day, finishing below the $1,700 mark, down $37, at $1695/oz. Overnight, platinum has risen

Silver was up in early trading before dipping to an intraday low of $17.075/oz. during the NYMEX. The metal recovered, however, ending at $17.41/oz., up $0.05. Overnight, silver has climbed slightly. (Click here for charts)

Gold’s return to the black was largely the result of recovering crude prices, which finally posted gains after a week of heavy losses. This rise, along with stumbling US equities, was enough to push gold up despite opposition from gains by the dollar. Gold has closely tracked oil prices over the past week.

“The fundamentals haven’t changed for oil and gold,” wrote Ralph Preston of Heritage West Futures. “The washout in the metals has, for the most part, run its course. I’m comfortable wading back in.”

Mark O’Byrne, the executive director of Gold and Silver Instruments Ltd. agreed that gold prices will soon recover from their beating over the past few days. “This looks likely to be the last such sell-off prior to a strong rally into the autumn, as is typical,” he said.

“While gold has suffered strong selling in recent sessions, it is only working off an overbought position, and a correction and consolidation is healthy and normal,” O’Byrne added.

In company news, Newmont Mining (NYSE:NEM) posted a second quarter profit of $277 million, vs. a $2.06 billion loss in the year-ago period. That loss reflected $2.27 billion in write-downs.

Source: Gold and Silver Up

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

Russel argues that junior gold mining firms are most likely to discover new reserves of gold. And when they do, the big companies will come knocking with a generous offer…

Are You Going to the Junior (Gold) Prom?

By Russel McDougal

Nobody likes the junior mining companies these days. Gold, silver and commodity prices in general are all soaring. Yet the tiny explorers can hardly catch a bid. How long can this persist?

Truth be told, the juniors are set up to throw quite a party. Think back to your most memorable high school “extra curricular activity” and let’s get ready for a replay. Toss in financial rewards as a bonus.

Junior explorers are tiny, efficient and mobile. They do the heavy lifting in global resource discoveries. Especially the Canadian companies. If you’re Canadian and have a geological background you likely also have wanderlust. Have drill- will travel!

On the other hand, the larger “senior” gold mining companies have a long standing and clear cut problem. They produce gold each and every year and thereby chew through their quantified reserves.  These reserves must be replaced or the company’s reason for existence goes away.

The seniors are not the ones who find the largest percentage of gold deposits. They have been maintaining or growing reserves through mergers and acquisitions for several years now. When Newmont Mining (NEM) acquired Franco Nevada in 2002 there were zero new ounces of gold reserves created. One company simply went away and a larger company was created. The same thing happened when Barrick Gold (ABX) took out Placer Dome in 2006.

The larger gold companies do most everything through committee. They have a level of bureaucracy that isn’t present in the small companies. The juniors can act quicker in staking a property or deal making. Qualified geological personnel are in short supply due to the decades-long resource bear market of yesteryear. When a Barrick Gold geologist makes a discovery he gets a big thank you and maybe a pretty plaque. When a geologist with a tiny micro-cap explorer makes one he’s found the mother lode. He has tremendous financial incentive to succeed through company stock, options or warrants.

High quality geological talent has moved to the juniors.

I’ve been aware of this game of “reserve replacement” problems for over 10 years. The seniors need gold and they will inevitably have to come looking in the direction of smaller companies with proven goods.

The seniors don’t like to pay up, but they inevitably do. Goldcorp (GG) bought out junior Virginia Gold’s Eleonor gold discovery in a deal valued at $475 million. Those of us who bought shares early saw returns of $50 to $100 for every initial dollar invested. If you find it, they will pay. So, how are the companies doing that are designated the most significant gold finders?

You wouldn’t know it by looking at this chart that gold, silver, oil and most commodities are up significantly in the last year and a half. The shares usually show a high degree of correlation to gold prices but they are actually down at the present time. This CDNX index is the best overall representative of the Canadian junior explorers. There is a total disconnect between commodity prices and explorer prices.

Junior stocks have hit the skids over the last 12 months. When the relative strength index (RSI on the above chart) has gone near or below 50 this decade a rally has ensued. We’re there again. The juniors are oversold.

Stocks like the old Virginia Gold are best bought during such times of overall sector weakness. They are on sale.  If Buffet advocates buying “straw hats in winter” we can correspondingly buy Canadian parkas in summer.

Yes, the biggest mining companies must replace their reserves. They will be looking to quality junior projects with proven ounces in the ground. The juniors are set to throw a monster ball.

Source: Are You Going to the Junior (Gold) Prom?