Weekend Edition
The Best of The S&A Digest
November 17, 2009
 The latest call for gold prices... $6,300 an ounce. And this prediction didn't come from a newsletter writer or a crazed libertarian pundit.
It came from Dylan Grice, an analyst with the French investment bank, Societe Generale. Grice says, as we well know, investors are buying gold to protect themselves from a decline in the dollar because they don't trust the Federal Reserve... The U.S. government has already begun monetizing its debt and will likely keep rates near zero for years.
And where does Grice get $6,300?
The U.S. owns nearly 263 million troy ounces of gold (the world's biggest holder) while the Fed's monetary base is $1.7 trillion. So the price of gold at which the U.S. dollar would be fully gold-backed is currently around $6,300. Gold is very cheap – at current prices, the USD is only 15 percent gold-backed.
It's like an old friend I haven't seen in years. I used to publish the same number every month in an old newsletter I wrote many years ago. I doubt gold and the dollar will ever line up in this fashion, but it's useful for gold speculators to know that, in order to make the dollar an honest currency, gold will have to soar.
Our natural resource expert, Matt Badiali, sees a good buy in a World Dominating gold miner...
Jamie Sokalsky, CFO of Barrick Gold, thinks the giant, global gold miner will have record profits in the last three months of 2009. That's what he told Reuters at the RBC gold conference in London.
That's not exactly a stretch, with the price of gold hitting new highs practically daily. But Sokalsky has another reason to be optimistic: Starting in September, Barrick bought out $5.1 billion worth of hedge contracts, about a third of its total.
Barrick's hedges required it to sell gold at a discount to the gold price – around $570 per ounce. That sort of deal works great when the gold price is bouncing up and down within a range. But when gold is in a bona fide bull market, hedges can kill you.
Between March 2009 and September, the company underperformed the AMEX Gold Mining Index by around 30%. I knew once the hedges started to come off, Barrick's shares would go up like a helium balloon.
That's why I told S&A Resource Report readers earlier this month that Barrick was the best value among the large gold producers. It's up 22% since then... with more to come.
Matt likes the big gold producers to profit on gold's "bona fide" bull market. But you'll get a lot more leverage out of the smaller miners, particularly those with a tailwind. Matt has identified some fantastic gold opportunities that have China's government filling their sails. He thinks they'll return hundreds of percent in this market. Click here to learn more.
Lots of people realize the government is propping up the banks with their repeated bailouts. But most folks don't understand the real way the government is saving the banks.
It's not the shares the feds bought (and paid too much for). It's the whole system of paper money.
The government is deliberately keeping short-term interest rates super low, so the banks' funding costs almost disappear. Then, by running a huge budget deficit and spending record amounts of money on domestic programs, the government insures inflation (and longer-term rates) will remain high.
The banks make money on the spread between short-term rates and long-term rates.
And just to make sure nothing goes wrong, the Fed has promised to buy $1.75 trillion (yes, that's trillion) worth of mortgages, many of which come directly from troubled banks like Citigroup.
In short, there's no way these banks can lose.
And here's the best part... According to the Congressional Budget Office, this secret plan to save the banks is free. No line item anywhere in the budget accounts for interest-rate manipulation or the Fed's mortgage buying. It's all "free."
But of course, there is a real cost. The value of our currency goes down with every new dollar the Fed prints and with every dollar of new deficit spending. But the politicians can all pretend inflation doesn't exist. When it shows up in our economy, they can lay the blame on "speculators" and oil companies.
Regards,
S&A Research
Stansberry & Associates produces the daily S&A Digest, which comes free with a subscription to one of our premium products. To learn more about a risk-free trial subscription click here. |
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S&P 500 |
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Sprint Nextel |
S |
+26.23% |
Regions Financial |
RF |
+12.16% |
E*Trade Financial |
ETFC |
+10.14% |
Countries |
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Russia |
RSX |
+4.09% |
Brazil |
EWZ |
+3.14% |
Israel |
ISL |
+3.00% |
Sectors |
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Gold Mining |
GDX |
+5.49% |
Clean Energy |
PBW |
+3.87% |
Agribusiness |
MOO |
+3.63% |
Commodities |
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Silver |
- |
+6.17% |
Nickel |
- |
+5.38% |
Soybeans |
- |
+5.27% |
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S&P 500 |
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Jacobs Engineering |
JEC |
-16.45% |
Autodesk |
ADSK |
-10.86% |
Smith Intl |
SII |
-7.85% |
Countries |
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Turkey |
TKF |
-4.12% |
Japan |
EWJ |
-2.63% |
Chile |
CH |
-1.22% |
Sectors |
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Insurance |
PIC |
-1.24% |
Biotech |
PBE |
-1.17% |
Nuclear |
NLR |
-0.82% |
Commodities |
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Sugar |
- |
-2.11% |
Natural Gas |
- |
-1.73% |
Coffee |
- |
-1.72% |
Source: Bloomberg, Yahoo, StockCharts, XLQ 11/12–11/19.
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