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Why Gold Is Heading to $1,200 (By December…)

Ashish Advani (June 15, 2009)

Monday, June 15, 2009

Also In Today’s Letter…

By Ashish Advani Gold has dropped back below US$950 again. This is the third time in the past three weeks that gold has dropped under US$950. The pricing certainly shows us uncertainty in the market. But I believe there could be a longer-term story developing here.

And that story could lead gold right past the psychological US$1,000 barrier in the next six months. Let me explain…

The yields on the 10-year Treasuries have gone from 2.1% to just under 4% in the past six months. That’s an unprecedented rise. It’s happening because the government keeps announcing more massive deficits and bailouts.

The price of gold has also oscillated between US$750 to US$970 during the last six months. So gold seems to have a strong floor under the recent US$870 price mark. But there are inflationary forces at work here that could push gold higher…

All Inflationary Roads Lead to Higher Gold Prices…

Treasury yields continue to rise for two main reasons. First, the market is scared that we’re going to see massive inflation because of the recent unprecedented increase in money supply (read: Fed printing money).

In other words, the government is spending money they don’t have, and has to print more to meet their debt obligations.

This fear of inflation alone could push gold higher in the coming months.

Yield Continues to Climb on 10-Years…

Then there’s real inflation, which could happen. There are plenty of investors who are hoping for a recovery right now. Should we see one, then ideally, the Fed would rush into the market and raise interest rates, and effectively drain all that excess liquidity they’ve been pouring into the markets since fall of 2007.

However, realistically, if you look at the Fed’s track record, they have NEVER been able to effectively regulate inflation. And if the Fed’s past performance is any indication, then it’s likely the Fed will continue to pump money into the system long after they need to and keep the benchmark interest rates low too long. In other words, they’ll let all that cheap money float around the economy. This will lead to inflation down the road.

Any sign of inflation will send investors scurrying for gold as a hedge. That will push gold prices higher.

Our Worst Fears Realized May Be the Best Opportunity for Gold

Now let’s say for a second that we don’t see a recovery. It’s as the bears expect – we’re stuck in this recession for a while longer. Should that happen, then the Fed will continue to circulate more dollars and buy the Treasury Debt to try to prop up the economy.

Meanwhile, the government will continue to ‘assist’ the economy by interfering in matters that they’re not equipped to handle. The deficit will grow even faster. More deficits mean the government must hold more Treasuries auctions to pay for that debt.

Suddenly, we have extra Treasuries that need buyers. The world (Read: China, Japan, Europe, Russia, India, etc) will demand higher returns to buy the U.S. Debt. Higher returns will mean the U.S. dollar must drop in value.

Again, if the past is any indication, gold always rallies when the dollar falls. And if the dollar starts falling, the big industry players will make a beeline for gold. That will push gold prices higher.

As the Dollar Falls, Gold Rises and Vice Versa

A Perfect Storm for Gold…

So let’s review the three primary causes:

  1. Inflation will raise its ugly head soon (Or the fear of inflation will continue.)
  2. The Fed will print more money and the Treasury will issue more debt to finance the perpetual spiral of growing deficit.
  3. The U.S. Dollar will decline in value in response to the increased money supply and deficit. Commodity prices will rise as a result as they are priced in U.S. Dollars.

The trilogy of causes will ensure that hold prices will continue their upward accent at a fairly rapid pace in the next few months and years. I anticipate we could see gold at $1,200 by end of this year.

How to Get Your Hands on Some Gold Ahead of the Next Rally…

My friend and colleague, Eric Roseman has been predicting a gold rally since he started telling anyone who would listen to buy gold back in 2002 – both in his personal newsletters and at financial conferences around the world.

Since Eric first recommended gold at US$312 an ounce, prices have rallied over 199%. But Eric agrees with me – this is only the beginning for gold’s coming rise.

Now let’s talk about how you capitalize on higher gold prices. Over the past six years, Eric has helped his Commodity Trend Alert subscribers beat the market with a collection of gold bullion, funds, and highly specific metal stocks that capitalize on the rising prices.

Why gold stocks? As gold bullion rises, certain gold mining stocks actually do even better than the spot price. You see, a mining company may spend US$500 in expenses to extract every single ounce of gold out of the ground. If the price of gold sits at US$650, then they make US$150 in profit per ounce of gold mined.

But as gold rises, their expenses stay the same. So say gold climbed to US$1,200 this year. That means certain mining stocks would earn a hefty US$700 in profit, per ounce – without doing anything at all.

This is one of countless profit stories that Eric has found for his subscribers over the years. And his diligence has paid off. Right now, his Commodity Trend Alert portfolio is sitting on metal winners of 146%, 162% and 160%.

Not to mention his “gold-bugs” portfolio, which has rallied over 77% since just last November.

But again, it’s not too late. In just the last year, Eric has uncovered a new, easy way to buy and hold gold that he introduces in his Free report: The Fed’s Worst Nightmare. And as gold climbs to US$1,200 and beyond, this very interesting metal play has the potential to shoot up over 30 times more than the spot price.

You can get all the details in Eric’s free report here.

Yours in FX Profits,
Ashish Advani

P.S. I also have my eye on one more metal that looks to rally even MORE than gold in the coming months. I’ll introduce you to that metal tomorrow. In the meantime, you can read my colleague’s free report for more on how to play the next perfect storm for gold.

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