Weekend Edition
The Best of The S&A Digest
September 12, 2009
 In an interview with the London Telegraph, Cheng Siwei, former vice chairman of China's Communist Party's Standing Committee, said China has lost confidence in the dollar (nothing new there), and it is buying massive gold reserves to protect itself...
"Gold is definitely an alternative, but when we buy, the price goes up," Cheng, now a global economic ambassador for China, says. "We have to do it carefully so as not stimulate the market."
As a policy, China will buy gold on dips, creating a strong floor for the metal. China's buying – the country has doubled its reserves to 1,054 metric tons – also explains why gold has held strong despite a soaring market.
The world's biggest gold miner, Barrick Gold, hears China loud and clear... Barrick is rushing to unwind its fixed-price bullion contracts, which would expose Barrick to swings in the metal's price.
Barrick is selling 94.8 million new common shares (17% more than the original sale, announced Tuesday) to help cover the $5.6 billion charge it will take to eliminate some of the hedges it has on 9.5 million ounces of gold.
AngloGold Ashanti and Randgold Resources are buying control of a deposit in the Democratic Republic of Congo (DRC) – one of the poorest and most dangerous countries in the world – containing around $22 billion of gold.
Production in South Africa has fallen, and after eight straight years of price increases, miners are desperate for untapped reserves. The DRC is one of the last known frontiers of untapped gold reserves. If AngloGold and Randgold have even mild success, expect every mining company in the world to set up shop.
Betting against the majority usually pays off, but we're still bullish on gold. The fundamentals are too strong. As Steve Sjuggerud says, until the average American – who laughed at the idea of owning gold last year – starts e-mailing us asking us for advice, we're buying.
In a recent DailyWealth, he declared gold will stay above $1,000 this time around... Steve notes that in a real bull market, an asset will hit a new high as optimism surrounding the asset peaks – as was the case with gold in March 2008. Then, optimism wanes and the asset price falls.
Later, the asset moves sideways, shaking out all the nonbelievers before reaching a new high.
Despite the rampant inflation fears, gold hadn't closed at more than $1,000 since March, raising fears of what would happen to the metal as confidence returned to the market. Well, confidence has returned – evidenced by the S&P 500's 50% gain since March, and gold, surprisingly, has steadily marched upward. Steve writes:
People simply haven't been buying gold "hand over fist" lately. But if gold closes over $1,000 a few times, they will. Gold will be all over the news, and the average investor (who hasn't bought yet) will finally start to get in. He'll sell his stocks that have soared but have recently run out of gas... and move his money over to gold.
Gold is all over the headlines. If it stays above $1,000, the trend chasers will jump in and shove it up higher.
I think gold will hold on above $1,000 for another reason... the astronomical amount of money the Fed has printed into existence to fund the current bailout.
Last November, ace researcher James Bianco figured bailout spending at that time was equal to the inflation-adjusted cost of the Marshall Plan, Louisiana Purchase, Race to the Moon, S&L Crisis, Korean War, New Deal, Iraq invasion, Vietnam, and NASA – combined. Only World War II rivaled the bailout. And that was back in November.
All that spending originates as borrowing, and there's no way it'll ever be repaid. It'll be inflated away by the Federal Reserve's money printing. That will erode the value of the money in your pocket, in your bank account, and, yes, in your stock portfolio, too.
To take advantage of this nasty trend, I've recommended what I call "gold-backed annuities." These are the safest way to protect yourself from the coming inflation. To learn more, click here.
Regards,
S&A Research
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S&P 500 |
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Advanced Micro |
AMD |
+18.76% |
Titanium Metals |
TIE |
+18.44% |
Genworth Financial |
GNW |
+17.21% |
Countries |
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Russia |
RSX |
+7.80% |
Ireland |
IRL |
+6.85% |
Thailand |
TTF |
+5.80% |
Sectors |
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Clean Energy |
PBW |
+7.25% |
Real Estate |
IYR |
+6.79% |
Semiconductors |
PSI |
+6.23% |
Commodities |
|
|
Natural Gas |
- |
+19.36% |
Coffee |
- |
+5.67% |
Cocoa |
- |
+5.61% |
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S&P 500 |
|
|
American Intl |
AIG |
-5.49% |
Ameren |
AEE |
-5.73% |
Kraft Foods |
KFT |
-6.80% |
Countries |
|
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Israel |
ISL |
-0.30% |
Chile |
CH |
+1.13% |
South Africa |
EZA |
+2.02% |
Sectors |
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Utilities |
XLU |
+0.10% |
Gold Mining |
GDX |
+1.16% |
Health Care |
IYH |
+1.54% |
Commodities |
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Lead |
- |
-7.56% |
Wheat |
- |
-6.51% |
Nickel |
- |
-5.60% |
Source: Bloomberg, Yahoo, StockCharts, XLQ 9/3–9/10.
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