Steady And Ready

After failing to breakthrough $650, gold consolidated at lower levels, and is now quietly strengthening.

The near-term prospects depend on the news for the dollar and the U.S. economy...and whether physical buyers start bargain shopping.

Longer-term, the gold bull market seems destined to stampede ahead for years to come, as a global megatrend — the rise of China — drives prices for all commodities higher.

Gold’s November rally was fueled by a few simple themes.

First, that the U.S. economy was rapidly decelerating, perhaps toward recession, making the dollar less attractive.

Second, that hawkish noises coming out of the Federal Reserve were nothing but bluff and bluster, and the next major move in monetary policy would be toward accommodation, to help resuscitate the economy.

And finally, that the European Central Bank would likely move to hike rates, making the dollar that much less appealing in comparison to the euro, the pound and, by inference, another currency called gold.

Each of those themes took a pounding over the last couple of weeks, as encouraging data helped spur hopes for the U.S. economy, as the Federal Reserve board reiterated their hawkish stance, and as weak European economic data doused expectations of more substantial rate hikes there.

The result: The dollar rebounded from its previously steep slide, putting a damper on gold’s rally. The assault on $650 was therefore repelled, and the metal has retreated to the $625-$630 range.

But the fact that the metal has not retreated further, and the apparent strength of the underlying support in this area, are encouraging. In fact, gold seems to be gathering for a new surge — and ready to pop higher on any new development.

Any new evidence of economic weakness in the U.S., or strength in Europe...any sign of renewed weakness in the U.S. dollar...or any increase in physical gold demand from Asia — any one of these could send gold barreling back toward $650 in a flash.

In addition, we are about to enter the new year, which has, historically, been the strongest seasonal period for gold. This is when major pension funds and similar institutions make their annual asset allocations, and gold has been a growing destination for these funds in recent years. Investors have come to expect a spring rally, and they have not been disappointed in recent years.
Regardless, I always encourage investors to focus on the longer-term trends. Focusing on short-term fluctuations will tend to drive you nuts in a volatile market like gold and resource stocks, and will often lead you to make costly decisions.

So how does the long-term picture look for gold? Frankly, it couldn’t be better. And for one overriding reason...

China’s Economic Juggernaut

Having officially joined the ranks of the world’s elite economies, China has emerged as the growth engine for the global economy.

This country of 1.3 billion people is growing at breakneck speed — its GDP has grown by nearly 10% per year for decades — and its appetite for commodities of all types is insatiable.

To see how insatiable, one need only focus on the metals sector, which has seen multi-bag rises in the prices of copper, zinc, nickel, uranium, silver and gold in the past five years. Much of those price increases are directly attributable to the Chinese economic miracle.

To date, that miracle has been primarily export-driven, with China’s low-labor costs and increasingly state-of-the-art manufacturing facilities making it a capitalist’s dream. But as the country’s economy has grown by leaps and bounds and as its trade surpluses with the Western world have grown ever larger, China has increasingly has the money to invest in internal infrastructure projects and to sustain its own middle-class consumer society.

Major undertakings likes the Three Gorges Dam, now the world’s largest, are commonplace in China, a country where investment in fixed assets likes roads, bridges and skyscrapers approaches or exceed 50% of GDP in some years.

We’re talking about an unprecedented amount of construction, the likes of which the world hasn’t seen since Japan’s post-WWII economic miracle. And with a population five times the size of Japan, China’s economic story stands to last even longer and be even more lucrative for today’s investors.

And while investing directly in Chinese companies is still a dicey game, investing indirectly, via commodities, has paid handsomely for investors in recent years. With metals prices trading at all times highs and stocks of many of the key industrial metals remaining drum tight, opportunities abound for cashing in on the Chinese juggernaut.

Many readers of Gold Newsletter have already been richly rewarded by this most macro of macro trends, and they have done so by investing in junior mining stocks, a select group of which can provide you with maximum leverage on China’s voracious appetite for raw materials.

While underlying macro trends like China’s resurgence support our stock recommendations in Gold Newsletter, most of our biggest winners come from special situations that we have identified.

The end result is that, by being on the right side of the global, macro trends, and taking advantage of special opportunities that fall in line with those trends, you can enjoy a leveraging effect that can create fortunes.

In fact, that’s precisely what it’s doing for Gold Newsletter readers right now.

And I think our biggest winners still lay ahead: I’m putting the final touches on our special year-end, double issue of Gold Newsletter, which includes the highlights from our recently concluded New Orleans Investment Conference, plus three new high-powered stock recommendations.

t’s not too late to get this issue included with your new subscription. Better yet, you can subscribe immediately through a limited half-price offer — my Holiday gift to you! Just click here to learn more

Brien Lundin is the editor and publisher of Gold Newsletter, a publication that has ranked among the world’s leading precious metals and resource stock advisories since 1971. To learn more about Gold Newsletter, visit www.goldnewsletter.com.

Mr. Lundin is also the host of the famed New Orleans Investment Conference, the world’s oldest and most respected gold investment event. This year’s New Orleans Conference will feature Steve Forbes, Jim Rogers, Dr. Marc Faber and Dennis Gartman...plus dozens of today’s top gold and resource stock analysts...and a blockbuster debate between Doug Casey and Newt Gingrich.

To learn more, visit www.neworleansconference.com.