smart-money-report.com Blog

Still another reason why you should be converting dollars into hard assets — $1,000 could be worth $146 in 25 years.

Talk about pessimism:

Jim Rogers – who co-founded the now closed Quantum Fund with George Soros – told 750 global fund managers in Tokyo today that, America is “completely out of control”, there will be a 20-year bull market in commodities and that prices will be in turmoil.

And he also warned that it “made sense” if global competition for resources ended in armed conflict.

Mr Rogers told delegates to the CLSA investment forum that the prices of all agricultural products would “explode” in coming years and that the price of gold, which hit an all-time high of $964 an ounce yesterday, will continue its surge to as much as $3,500 an ounce.

Lance Lewis makes an important observation on why heavy commercial selling isn’t holding down the price of gold. In a nutshell, it’s because of the growing significance of investment demand.

The WSJ on how the government has the inflation numbers wrong.

You may have heard that there is a certain ratio of gold to silver that is supposed to be “normal.” The truth is that throughout history the gold/silver ratio has been all over the place.

You really need to read the whole thing, but especially read these three paragraphs from Steve Saville:

The stock market’s habit of shifting from one valuation extreme to another creates excellent money-making opportunities, but you won’t be able to take advantage of these opportunities if you blindly assume that the market is right or that past trends will continue. The market is like an emotional pendulum — the further it swings in one direction the closer it comes to swinging back in the other direction.

Applying the pendulum analogy to the relationship between gold stocks and gold bullion, the best time to be intermediate-term BEARISH on gold stocks relative to gold bullion is following a lengthy period during which the stocks have been STRONG relative to the bullion and the emotional pendulum has reached an optimistic extreme (extreme optimism about the prospects of gold stocks), as was the case at the end of 2003 and during the first half of 2006. By the same token, the right time to be intermediate-term BULLISH on gold stocks relative to gold bullion is when the pendulum has reached the opposite extreme (extreme pessimism about the prospects of gold stocks) in response to a lengthy period of UNDER-PERFORMANCE by the stocks, as was the case in 2000-2001 and May-2005, and as is, perhaps, the case today. The point, in a nutshell, is that the best time to buy gold stocks is after they have been beaten down to the point where they are very low relative to gold and the majority has become convinced that the metal is the better investment.

In general terms, one of the main reasons why most people aren’t able to outperform the market is that they get sucked into the market’s current emotional state. They become increasingly pessimistic when they should be getting increasingly optimistic and become increasingly optimistic when they should be getting increasingly pessimistic. Along similar lines, the time when it will be particularly appropriate to question the common knowledge and to scrutinize the horizon for signs of a trend change will be after the emotional pendulum has traveled in one direction over an extended period.

The bottom line is that gold and silver shares are really cheap and they should be accumulated.

From yesterday’s conference call:

“2007 was our best year ever, with record earnings, record cash flows, and two very accretive acquisitions,” said Peter Barnes, President and Chief Executive Officer of Silver Wheaton. “These acquisitions set us on a path to almost double our silver ounces sold by 2010, to 25 million ounces a year, and boosting our long term cash flow per share by 40% per annum. 2008 promises to be even better than 2007, with a strong silver price, the Goldcorp share overhang recently removed, and a robust potential deal flow.”

Earnings are strong and sales should get a real boost from new purchase agreements. Great company in the right business.

Richard Russell that is:

Question — Russell, do you think gold can make it above one thousand?

Answer — I do. I also believe that if gold can break out above one thousand and remains stubbornly above one thousand, it’s next long-term target will be two thousand.

It seems likely. I sure hope so.

Here is one of the better articles I’ve read in awhile on why the commodity bull has a long way to go. There is a lot that can be said, but it always gets down to world-wide supply and demand.