Monday, April 25, 2011

The Last Stage of Gold Bull Market: Mania

By Luke Burgess
Every major gold bull market in modern history has exhibited the same three basic stages:
1. Currency Deflation Stage
2. Investment Demand Stage
3. Mania Stage 
The result:
A gradual, constant rise in gold prices at the beginning...
Followed by a sudden and dramatic spike towards the end.
Take a look at the 1970s gold bull market chart below, as an example of this phenomenon:
So far in today's gold bull market, we've seen the first two stages...

During the first stage of a gold bull market, gold prices go up because the value of the dollar goes down.
We've already experienced this very phenomenon over the last nine years — in the form of a 32% drop of the US Dollar Index between the summer of 2001 and spring of 2010.

In the second stage, gold prices continue to grow due to increased investment demand.

Seeking to protect their wealth by getting rid of devaluating dollars, and attracted by the modest gains of the first stage of the gold bull market...
Investors start to load up on gold, which further snowballs the price of higher still.
This is already happening.
With the introduction of the popular gold ETFs and other securities, investment demand has had incredible strength since the beginning of this gold bull market, growing in terms of both tonnage and dollar value.
And it continues to increase steadily...
Again, the first and second stages of a gold bull market generally return considerable gains.
Gold prices in this bull market, in fact, have increased as much as 449%.
But it's the third and final stage of a gold bull market that can turn everyday investors into instant millionaires.

Stage Three: MANIA

During the third stage of a bull market, full-on buying mania turns the gradual ascent into a sudden explosion.

To see how something like this might look today, here's what the 1970s pattern I showed you up above looks like when applied to the modern gold market:
A sudden spike in demand, the beginning symptoms of which we're already starting to see today, could multiply gold prices by 100, 200, 300, as much as 400% from today's levels in the next 30 months.
And this isn't just me making these observations.
No matter where you look, experts in this field tend to agree...
Now, if you think that these predictions are shocking...
Or that the theory is controversial...
You couldn't be more wrong.
In fact, because it's always been a hedge against inflation, and a universally-accepted method of storing wealth...
Gold prices have followed one of the most predictable patterns known to economics.
So what happened in the 1970s, while dramatic, wasn't unusual or even surprising.
And it's exactly the same set of circumstances we're looking at today.
Devaluation of currency... increased investor demand...
Only this time around, there's one factor we have to consider that wasn't even on the horizon back during the last gold boom of 30 years ago.
And this factor is big and powerful enough to turn this into the biggest bull market in history.

China's Gold Fever
 You hear about this raging economic powerhouse almost everyday in the news...
But what most people don't know is that despite all their cash, despite their vast manufacturing capacity...
The Chinese lack the single asset that they need to provide stability to their economy, confidence to their regime, and ultimately, achieve parity with the West.
They lack the single asset that governments have depended on for centuries to ride out recessions and cushion the effects of years of inflation on reserve currencies...
The Chinese lack gold.
Just look at this table to see what I mean:
World Official Gold Holdings: December 2009
Compared to the established Asian, European, and North American economies, China sorely lacks in the one area that may be most important to them in the coming years.
Looking closely at their foreign reserves, you'll see that they would have to multiply their gold holdings by a factor of 45 just to catch up to the United States.
And as you read this, that's exactly what they're doing.
China is working overtime to even out the gap separating them from the world's old-guard economic leaders.

And it's not just giant government-operated financial institutions that have flooded into this newly opened market...

The biggest single segment of buyers may prove to come from the emerging pool of China's private investors.
You see, Chinese families save between 30% and 40% of their annual earnings (on average).
That's up to eight times the rate at which their American counterparts save.
And yet — up until now — the Chinese domestic gold markets still lagged behind the United States and Europe by a factor of five.
But just like their respective banking institutions, these individual investors are rapidly closing the "gold gap."
Since last year, domestic demand for net gold investments in China has increased by121%.
According to UBS, the world's second largest manager of private wealth assets:
"The international gold market is now paying a lot more attention to China's gold demand, not just from an official reserve asset perspective, but also private demand..."    
      All this activity from two of the world's second biggest economy has contributed to recent rises in gold prices.
      The real explosion in gold value, however, is yet to come... And mostly likely, it will be of a magnitude never seen before.
      Just think about this:
      If China's domestic gold consumption were to match U.S. levels, the world would have to produce an extra 12.4 million ounces of gold.
      That's more than China itself  — the world's single biggest producer — turns out in a year.
      And considering that world gold production has dropped 8 out of the past 10 years, producing an extra 12 million ounces of gold per year to meet the demand will prove difficult, if not impossible.
      Such a milestone would push prices higher than ever.
      So, no matter who you listen to...
      The conclusion is almost always the same:
      It's highly unlikely that you'll be looking at a bull market like this one ever again in your lifetime.
      It really will be one for the books.
      Now, I know what you're thinking...
      With trillions of dollars already made available by China to close the gold gap with Japan, Europe, and the United States...
      You might be tempted to get on the bandwagon and pick some up for yourself.
      But don't go running off to your local gold or coin dealer or jeweler just yet... There's something you should know first.
      You see, there's another method of investing in gold.
      It's a method used mostly by professional investors, financial institutions, billionaire tycoons and guys like my friend who called me to Mexico...
      This method does something that almost no stock, bond, or certificate can do...
      This strategy doesn't just track the price of gold dollar for dollar, cent for cent; this strategy will actually multiply gold's earning potential.
      It's not hard to do...
      Actually, you can buy this investment just like any other security you buy using your online brokerage account.
      But used correctly, this investment can return 18x the profits of gold.
      So if gold rises by a miniscule 6%...
      The value o f  your investment more than doubles!
      Let me explain exactly how it works...
      Ground Floor Investing: Gold
      Early Investors Turn Every $9k into $40,000 per Quarter
      Since 2008, gold's price has gone from $1000/ounce to about $1250 an ounce...
      That's an increase of 25%.
      Compared with the DOW — which has lost 12% in that same timeframe — that's not bad.
      In fact it illustrates perfectly what I said about gold holding its value when other investments do not.
      But look at this...
      Here is a list of 10 well-performing gold stocks from within that same time span:
      • Animas resources - up 410% in 10 months
      • Romios Gold - up 610% in 5 months
      • AUEX Ventures - up 295% in 5 months
      • Terraco Gold - up 333% in 3.5 months
      • Miranda Gold - up 221% in 2 months
      • Midway Gold - up 461% in 4 months
      • Paramount gold - up 583% in 7 months
      • Starcore International Ventures - up 366% in 2 months
      • Evolving Gold Corp - up 410% in 1 month
      • Southern Arc Minerals - up 770 in 3 weeks
      On average, that's a gain of 446%...
      Which means that mining exploration has outpaced gold's progress by a factor of 18!
      And with an average hold time of less than four months, mining exploration doesn't just beat physical gold in terms of profit...
      It delivers these profits far more quickly.
      In fact mining exploration is one of the fastest-moving sectors out there.
      And with gold prices rising, and expected to double — maybe even triple — in the next few years, more and more of these companies are emerging to take advantage of the raging bull market.
      But even within this super-performing class of stocks, there are standouts that make the rest look ordinary by comparison.
      And these standouts don't get to where they are by just being lucky, or merely with good timing...
      There has to be something fundamentally different about them to set them apart from an industry that's returned more triple-digit retur ns than just about any other industry.
      And that's exactly what I want to talk to you about today.
      Because the gold company I'm about to tell you about isn't just riding the next precious metals bull market...
      It's redefining the very way in which all of these companies may one day do business.
      Setting the Curve
      How One 'Nonconformist' Gold Company Yielded a 6,300% Gain in Less than 2 Years
      In my entire career, I've only heard of one other mining company that's done this.
      And against the odds of it ever happening twice in my lifetime, I made a promise to myself that I wouldn't miss my shot if and when lightning struck again.
      That was three years ago.
      In all honesty, I was fully expecting to have to wait at least another ten or fifteen.
      So when I first heard about it just a few weeks back, I was understandably thrown off guard.
      Twice in five years... Who would have guessed?
      You see back in 2005, a tiny gold company by the name of Rochester Resources Ltd. adopted a mining doctrine that's unusual, to say the least...
      Many experts didn't bother with such soft terms as "unusual," however, and just called what Rochester was doing "reckless."
      But in the 21 months after Rochester initiated the program, the company's stock went from $.03 to $2.75.
      For those of you who like percentages, that's a 9,100% gain.
      That means that you could have seen a $1 million return for every $11,000 you put in.
      Remarkable, right?
      Here's how they did it...
      Companies working in the gold and metals sector are typically defined by the three distinct stages of mine development:
      • Exploration — where geologists initially identify mineralized rock and estimate the size of a resource base;
      • Development — the development of deposits into producing mines;
      • Production — the actual process of mining and processing.
      But instead of following this traditional approach...
      Rochester Resources did something unprecedented.
      It skipped the Exploration Stage and moved from the directly into Development.
      This move was dubbed reckless by competing firms, as this hit-or-miss practice had been virtually unheard of since the initiation of modern exploration.
      But Rochester had a methodology that was anything but hit-or-miss...
      And based on painstaking geological and earth-penetrating radar analysis, the company was confident that it could skip the costly and time-consuming exploration drilling.
      This is what resulted in the 21 months that followed:
      2010 rct chart
      That means that anybody who invested $1,000 on July 18th would have had over $91k by December!
      It was one of the truly legendary gold investments when it came around.
      But if you missed out on it, don't spend another moment worrying about that.
      You see, Rochester's blew up way back in 2005.
      And this was back before the economy tanked...
      Back when institutions and individuals were far more interested in buying stocks than gold...
      Today, things couldn't be more different.
      Gold is one of the hottest assets out there.
      And the historic gains Rochester made in those 16 months are about to be eclipsed. 
      The New Gold Mining Paradigm: Skip the Core Samples
      Right now, a new mining-exploration company is getting ready to trump Rochester's history-making 2006 run.
      This mining outfit is located in Nevada, dead center within a cluster of some of the most active gold mining sites on the planet.
      But with at least $345 million in assets, this tiny $9.3 million company is on the very brink of becoming one of the big players in the gold game.
      Crunching those figures alone, and subtracting the cost of production...
      Investors buying this stock at today's price of 22 cents will effectively buying gold for $50.54/ounce.
      That's 96% off today's over-the-counter rate!
      I'll show you exactly how the math works out in just a second...
      But before I do, I want to emphasize that, unlike a vast majority of the mining exploration companies you may hear about from time to time, this outfit's expectations and promises aren't based solely on the raw mineral concentration estimates...
      They're based on an actual planned production schedule.
      Here's a quick overview:
      Thanks to studies performed by a previous owner, this company expects an annual gold production of about 36,000 ounces.
      That means that with a projected $450/ounce price of production for gold, it has already shown the intention to deliver current stockholders 150% profits — each year over at least the next eight years. 
      And that's without taking into account the expected leaps in gold price...
      Or allowing for any new discoveries made as their property in Nevada is developed.
      Based on average mineral concentrations of lands lying just adjacent to this property, however, this company's guarantees are extremely conservative.
      To get an idea of what could realistically be lying in wait, just look at what some of this company's next-door neighbors are pulling out of the ground:
      • Chimney Creek Mine - annual gold production: 222,500 ounces
      • Crofoot Mine - annual gold production: 82,000 ounces
      • Sleeper Mine - annual gold production: 256,000 ounces
      • Fortitude Complex - annual gold production: 254,500 ounces
      • McCoy/Cove Mine - annual gold production: 214,000 ounces
      • Barrick Goldstrike - annual gold production: 207,000 ounces
      • Newmont Gold Operations - annual gold production: 1,467,800 ounces
      On average, that's almost 10 times what the execs at my new gold mining discoveryclaim they will produce.
        Historically, the area has proven so fertile for gold, in fact, that some of the world's biggest and most profitable mining companies have been relying on it for years.
        Here are just a couple:
        • Coeur D'Alene Mines - net worth: $1.4 billion
        • Kinross Gold Corporation - net worth: $12.2 billion
        • Newmont Mining Corp - net worth: $30.2 billion
        • Hecla Mining Company - net worth: $1.34 billion
        • Barrick Gold Corp - net worth: $44.6 billion
        Low-balling earnings estimates isn't exactly a new things in mining exploration.
        In the interest of keeping the stock price from shooting through the roof too early, company executives sometimes like to keep their estimates low.
        But taking into account average mineral densities in the region...
        And annual production rates of similar operations in the immediate vicinity... 
        This company could easily triple their most conservative production estimates within just two years.
        And factoring in the expected rise in gold price to around $3000/ounce (an approximate 240% gain over today's price), their "proven 150%" annual returns are likely going to be substantially higher...
        When I say "substantially," I mean as much as nine times higher — around 1350% per year!
        Over the eight-year production run, that's a total gain of 10,800%.
        Which means that in the just next two years, you could easily bank 2700% — or 27 times your initial investment!
        That's not a typo and it's not a clerical error.
        Like I said a moment ago, it's the equivalent of buying gold at 96% off today's market price!
        It's so good, in fact, that if you buy in now, before gold prices rise any higher...
        This could quite possibly be the last time you ever have to trade a stock in your life.
        But I have to warn you...
        Gold stocks of this kind have been proven to follow an historically-predictable path.
        It looks something like this:
        A good example of this in action is one of the top-10 gold companies operating in the world today: Goldcorp (NYSE: GG).
        091010goldcorpAs of today, my new gold-mining recommendation looked like this:
        The conclusion is pretty self-evident here...
        Just remember this, because this mining outfit was designed, from the ground up, to operate on an efficient, high-speed schedule...
        You may have only weeks, maybe just days before the price starts to rise.
        After that, with the help of onsetting mania-buying, the gains will start rolling in.
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