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At the risk of sounding like I'm on
happy pills, I'm going to use four charts to demonstrate a simple path you
can use to make a lot of money with only modest effort and capital.
How much money?
Would it seem out of the question that,
with only four trades, one about every ten years, you could turn $35 into
$100,000? Well, you could have...
Step #1: Be sure the trend is your
friend
Global investment markets are extremely
complex. However, if you take a hard, invariably contrarian, look at the
bigger picture, there are times when you can spot larger trends in motion
that are likely to stay in motion.
Casey Research Chief Economist Bud
Conrad compiled the chart below that shows being directionally correct on a
mega-trend is exceptionally profitable. String together a few of these
mega-trends and there is a private plane and mansion in your future.
Of course, the odds are microscopic but
not impossible that anyone made those exact trades at exactly the right time,
but the lesson holds water nonetheless: catching big trends early can pay off
in a very big way.
Step #2: Be sure you are right, then go
ahead
Davy Crockett, in the War of 1812, was
heard to say "Be sure you are right, then go
ahead." Important words indeed, with special relevance for investors
looking to make extraordinary returns. After all, once you have settled on
the trend to play, it will do you no good if you don't take action.
But what is the current trend?
In today's economic environment, the big
money is being made in the natural resource sector with a focus on the junior
gold stocks.
But isn't the bull trend
in gold a bit long in the tooth?
Certainly, the easy money was
made by those who invested in the gold stocks before 2000. It was during this
time that my partner Doug Casey, in the pages of the International Speculator,
was a lonesome voice urging his readers to back up the truck on the quality
gold plays. The following is from the November 30, 1999 edition of that
letter (the lead article of which was devoted to urging readers to dump their
over-appreciated dot.com stocks):
"The price of gold has drifted down
somewhat, resting at $292 at the moment - about halfway between its low of
$252 and high of $325. Was the move a flash in the pan or the start of
something big? I remain a steadfast bull. Nobody knows what gold is going to
do tomorrow; but I'm betting that in this cycle it's not just going through
the roof, but to the moon."
Since 2000, of course, gold has better
than doubled, but the quality gold stocks have gone up much more... 400%,
1,000% or more (we just closed out one position, recommended in August, 2001
with a 4,329% gain). So, that was the easy money.
But we remain convinced that the big
money in the gold bull trend is still ahead. Take a look, for instance, at
the chart just below. As you'll see, over the last 137 years the shortest
gold bull market has lasted 10 years. By that measure
we are only about halfway there.
And, for reasons I'll touch on now, we
don't think this bull trend will be among the shortest... but very well could
be among the longest... and strongest.
Why the Gold Trend Is Well Intact
There are many compelling reasons for
this gold trend to surprise everyone with its persistent strength. But, in
the interest of space and time, let's cut to the chase.
The only real reason for gold to go
higher is if investors feel that it will hold its value better than other
forms of money. For instance, if you lived in Zimbabwe today and were offered
an ounce of gold or a brown paper bag of rapidly depreciating Zimbabwean
dollars, what would you take? (Hint: take the gold; inflation in Zimbabwe is
so bad that a roll of toilet paper now costs over $200,000.)
But the world doesn't trade off the back
of the Zimbabwean currency unit. That honor belongs
to the U.S. dollar which, as you are no doubt aware, has evolved into the de
facto reserve asset of virtually every central bank in the world today.
That the unbacked
currency of one country is now the core holding of all the countries in the
world is unprecedented in the history of the world.
Books have been written about how it
happened. The short version of this fascinating story is that it came about
as a direct result of the U.S.
being the "last man standing" after World War II. In 1944, as the
war wound down, delegates from 44 war-battered countries gathered at Bretton Woods, New Hampshire, and after some arm
twisting,
[Ed. note: unsure of editing; should read "war-battered"]
agreed to accept the role of the U.S. dollar as the currency of global
commerce. The decision to make the greenback the supreme currency was made
easier because, as a component of the agreement, the U.S. agreed
to make it always redeemable for gold.
Unfortunately, when dealing with
politicians, "always" has a different meaning than to regular
folks; in 1971, when faced with a run out of dollars, Richard Nixon
unilaterally canceled the dollar's gold
convertibility. From that moment on, the U.S. dollar became an abstraction,
backed by nothing at all... and unrestrained by anything other than political
whim.
As you can see from Chart Three
below, the creation of dollars since Nixon ended convertibility has been
stunning.
There are many implications attached to
this global flood of unbacked money. But the
primary thing to ponder while looking at the chart is the definition of
inflation. It is not the increase in the price of consumer goods, but
rather an increase in the number of currency units. Of course, in time,
consumer prices rise as a consequence of too many dollars chasing too few
"things."
And don't forget that we have already
seen some of the impact of all these dollars... in the dot.com bubble, in
real estate, in oil and other commodity prices. Soon, once the Chinese and
other emerging market companies stop selling the U.S. cheap goods as the Japanese
had done before them we'll see consumer prices rising too.
There is, in the chart above, an
extremely important nuance, one that you can ignore to your peril, or
understand to the core of your DNA and profit from the gold trend. Namely,
the underlying reason for all that growth in money. Simply put, it is due to
the nature of democratic politics. Expressed as a motto, it would be "He who promises the most money, gets the most votes."
Since the end of gold convertibility,
there have been no limits on what the politicians can promise or what they
can spend. A fresh example is provided by the sub-prime credit crisis, in
response to which the government has gone on record stating they would
provide "unlimited" credit to banks.
Monster chickens, the product of decades
of proliferate spending, will eventually come home
to roost on a shaky house of cards. The monetary crisis that will follow will
eliminate the U.S. dollar as a serious competitor to gold... the only asset
that has withstood the test of time as money. And we are not talking decades,
but millennia.
Step #3: Be timid when others are
bold... bold when others are timid
Any number of the investors who entered
the gold trend early look at the price action of the
yellow metal over the last year which has been flat to slightly down and
worry that this is a sign that this gold bull market is over and are stepping
aside from the gold shares.
What they are doing is letting their
emotions run their investment portfolio, a classic reaction during the
"Wall of Worry" stage of any bull trend. They have made big money
in gold shares, they understand the fundamental arguments, yet declining
prices or volatility in the shares (which is especially prevalent in the
summer months) gets them to thinking, then worrying, then selling.
Big mistake. Look at the chart below. It
is the price of gold during the height of the last major gold bull market. Notice
the long, almost two year, decline right in the heart of the trend.
That is what we are looking at now... a
very normal, to-be-expected consolidation phase -- understanding that fact
opens the door to big profits. Right now you have the unique opportunity to
buy the very best junior gold companies at a Wall of Worry discount, in
essence taking an extraordinarily profitable, time
machine trip back to an earlier point in this long trend.
Step #4: Buy right, sit tight
Most importantly a decision point
arrives concerning what stocks to buy in order to make the most of this
trend. And here we have two paths from which to choose.
The first, more conservative path, is to choose from among the big gold stocks the
larger producers that will find favor with the big
money institutional players and hedge funds. These giant mining concerns
will, when things get rolling, offer you solid double- and even triple-digit
returns. In the last resource share bull market, triggered by a series of
major discoveries in the mid-90s, for instance, Kinross went up 197% over a
two year period; Barrick went up 57%; and Newmont 74%.Nothing to sneeze at when compared to
"traditional" investment sectors.
The second, and most exciting path,
however, is the one referenced earlier the better quality junior exploration
stocks. These are the junior Canadian stocks overseen by seasoned exploration
geologists many of whom used to work for a major who use their knowledge and
investor capital to find prospective new geology. When they find something,
they typically joint venture it to a major company who spends the high-risk
money on follow up drill programs. Or, they will sell their projects, or even
companies, lock and stock for a barrel of money from the majors.
Returning again to the mid-90s resource
stock bull market provides a measure of the potential of the junior
exploration companies: Cartaway, up 26,040%; Arequipa Resources, up 5,692%; Francisco Gold, up 3,350%.
Over the last few years, a record amount
of money has gone into exploration programs around the globe, money which
will start coming back in the form of major discoveries in the next year or
two. Pick up your shares now, then plan on holding
them as this gold bull trend regains momentum. In other words, buy right, sit
tight... and you'll come out a whole lot better than just alright.
Conclusion
So, there you have it; an easy four-step
way to turn a little money into a lot, with relatively little work.
In fact, if you agree with me on the
trend and how to best profit from it, then all that's required is for you to
take the time to learn more about the junior gold exploration companies. Although
it will take some dedicated time before work in the morning, or after you get
home in the evening... the pay-off can be breathtaking.
Furthermore, given the financial turmoil
gripping the world just now, gold related investments provide extremely
important diversification of risk. In times of crisis, gold shines
particularly bright.
But don't put off getting on board this
trend; the slow summer months, with Wall of Worry concerns helping to push
great companies down, make this the right time to build a portfolio that
makes the most out of this trend... a trend we expect to remain in motion for
at least 5 more years, and maybe longer.
That spells opportunity of a very rare
sort. Don't miss it.
By : David Galland
Managing Editor, BIG GOLD
from CaseyResearch.com
Caseyresearch.com
David Galland is the managing editor of BIG GOLD,
a new publication from Casey Research dedicated to helping investors profit
from the developing bull market in precious metals--with an easy-to-maintain
portfolio of conservative mid- to large-cap gold producers and
near-producers. You can learn about BIG GOLD and
its unusual 6-month money-back guarantee by clicking right here.
Information
contained herein is obtained from sources believed to be reliable, but its
accuracy cannot be guaranteed. It is not intended to constitute individual
investment advice and is not designed to meet your personal financial
situation. The opinions expressed herein are those of the author and are subject to change without notice.
The information herein may become outdated and there is no obligation to
update any such information. The author,
24hGold, entities in which they have an interest, family and associates may
from time to time have positions in the securities or commodities discussed.
No part of this publication can be reproduced without the written consent of
the author.
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