Agora Financial’s Rude Awakening

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Laguna Beach, California

• What this leading indicator for gold is telling us right now,
• Five specific precious metal plays for you to consider,
• Three gov’t mandates that could force you to make $63,359 and more…

Eric Fry, reporting from Laguna Beach, California…

A few days ago, billionaire hedge-fund manager, John Paulson, spent $1.28 billion to buy a piece of AngloGold Ashanti (AU: NYSE), the large South African gold miner. Paulson paid $32 a share for an 11.3% stake in the company. The following day, Fed Chairman Ben Bernanke delivered the shocking news that the U.S. Federal Reserve would buy up to $1.2 trillion of U.S. Treasury debt. And just like that, the price of gold soared, as did the price of AngloGold – handing Paulson a prompt $240 million profit.

But we’re guessing Paulson will hang around for awhile longer. We’re guessing the savvy investor is looking for a double on this investment, at least.

“Apparently, Mr. Paulson sees a solid-gold opportunity,” observes Byron King, the man who urged the subscribers of Outstanding Investment to buy AngloGold three weeks before Paulson made his high-profile purchase. “And Paulson, you may know, has pretty good eyesight, investment-wise. He’s the hedge-fund manager who made $10 billion in 2007 and 2008 betting that the subprime mortgage market would implode.

“Mr. Paulson’s purchase of AngloGold Ashanti is, in essence, a $1.3 billion bet that the U.S. government is pursuing a long-term policy to debase the dollar,” Byron continues. “Seems like a winning bet to us.”

AngloGold is not Paulson’s only wager on the yellow metal. He also owns 4.1% of Kinross Gold. Likewise, David Einhorn, the hedge fund manager famous for predicting the demise of Lehman Bros., is accumulating gold-focused investments (as we reported in the February 23, 2009 edition of the Rude Awakening, “Buy Gold…We Really Mean it This Time.”)

“Dollar debasement will doubtless trigger inflation,” Byron insists. “Over time, this will cause a flight from paper currencies to gold. I’ve already predicted gold at $3,000 within 30 months. I’ve heard other gold analysts forecasting gold at $4,500 within three years. So there’s a lot of room on the up-side.”

It’s true; the bullish case for gold has rarely seemed more compelling. But every investor has cause to wonder whether the bullish case for gold is also timely. Sure, gold could soar to $3,000 an ounce. But will it drop to $600 an ounce first…and stay there a while?

No one knows the answer, of course. Not even Byron King, an experienced geologist and student of financial history. Nor does John Paulson, a guy who knows how to make a few billion dollars by betting against the crowd. Nor does David Einhorn, an investor with an eye for profiting from adversity. But we’re inclined to trust the instincts of all three gentlemen. We are also inclined to trust the “instincts” of the market itself.

Six times during the last six years, gold stocks charged out ahead of gold bullion, signaling an imminent gold rally. Veteran observers of the gold market understand that major rallies usually BEGIN with gold stocks; not with the metal itself.

The chart above illustrates this phenomenon. In August of 2007, gold stocks advanced nearly 20% in three weeks, while the gold price barely budged. But during the next three months, gold soared from $650 an ounce to a new 17-year high of $825 an ounce.

A similar divergence has unfolded during the last few trading days. Gold stocks have jumped 30% – or double the gain of the S&P 500 Index – while gold, itself, has advanced only 4%.

Are gold stocks – like Lassie – trying to tell us something? We aren’t certain. But if we understand what the gold market is trying to say, either Timmy fell into a well or Ben Bernanke has incited the greatest inflationary episode in America since the 1970s.

For more on this story, Byron King shares a few relevant thoughts in the column below…

— Energy & Scarcity Investor Update —

UPDATED FOR BREAKING NEWS: EPA makes decision providing critical support for “Sonoma Grizzly Power”

Three coming U.S. gov’t mandates could force you to make $63,359 from “Sonoma Grizzly Power”

This bear hunter nearly died the day he accidentally discovered “Sonoma Grizzly Power” in 1847.

In 2009, three government mandates could allow you to harness his discovery to build yourself a fortune.

But you need to move quickly. The first mandate now appears inevitable… It could arrive as early as April 2, 2009.

—————————————

Silver and Gold
By Byron King

Have you bought your gold and silver yet? If you have time to read only this one single paragraph of today’s issue, here’s the takeaway: You ought to have at least 10% of your portfolio in gold and silver..

If you follow almost any of the publications from Agora Financial, you ought to know that in one way or another, for about 10 years, Agora has been advising people (this means you) to buy precious metals. Back then, in the good old days of Y2K, gold was selling for well under $300 per ounce. Silver was going at $2-3 per ounce. Lately, gold has been selling in the $900 range, with an excursion over $1,000 about two weeks ago. Silver is trading in the $12-14 range.

Starting in 1999, the founder of Agora Financial, Bill Bonner, told you to buy gold. Bill even helpfully labeled it “The trade of the decade.” Over the years, Agora Financial published countless essays about gold from the Mogambo Guru, who was never subtle about it. “Buy freaking gold,” said Mogambo. “Or if you don’t buy gold, buy silver.”

Many other Agora editors and contributors told you to buy gold and silver. We told you so. So where’s your gold and silver?

OK, you don’t really have to tell me how much gold and silver you bought or where you hide it. Actually, I don’t want to know. Somebody might kidnap me and torture me and make me spill the beans about your metals. Then you’d be mad at me if these desperados came and stole your stash. You’d blame me. I’d feel guilty. You’d hire some shark-toothed lawyer to sue us. And then we wouldn’t be friends anymore.

So what prompts this precious metals blast? Well, how about this e-mail from a reader named Robert in New York:

“Why are you talking so much about gold? It’s like for the last year you were discussing stocks, and now you’re a gold bug. You’re joining everybody else who is talking about gold, and it’s overbought — both the metal and the story. There are headlines in the newspapers from USA Today to The National Enquirer talking about ‘investors’ (ha, ha) rushing to buy gold. I can’t watch TV without seeing commercials for companies that want you to sell them your gold jewelry. Don’t you get it? Gold is the latest fad. Really, what’s your plan? Are you going to hoard gold and then wait for the dollar to crash and go to McDonald’s and buy a hamburger with a gold coin?”

Thanks, Robert. So you read The National Enquirer, huh?

Robert, Robert, Robert…. Some folks are destined to own gold, I suppose, and some aren’t.

I’m not recommending gold so that you can go to a restaurant, buy a hamburger and pay for it with gold. I’m recommending gold because it’s one way — and an ancient and established way — to preserve your wealth and purchasing power over time, especially during uncertain times.

Gold has history. Gold is real. Gold is solid. Gold is nobody else’s liability. Gold is quiet. Gold can be your own little secret. Archaeologists tell us that for about 8,000 years of human history, if you had gold, you could buy stuff. And if I owned a restaurant and you wanted to pay for your hamburger with a $50 U.S. Gold Eagle, I assure you that I’d take the coin and find a way to make change.

And what of the almighty U.S. dollar? Doesn’t the world love the dollar? Don’t people from Uruguay to Dubai to Shanghai dream of stuffing their mattresses with U.S. dollars? Isn’t the dollar the world’s reserve currency? Don’t the Chinese and Japanese and Arabs own nearly $2 trillion of U.S. Treasury paper? So isn’t all this talk-talk about the falling dollar just a bunch of smack? How could the dollar crash anytime soon? Impossible, right?

No, not impossible. Across the arc of history, all societies collapse, sooner or later. Especially complex societies like ours. Anthropologist and historian Joseph Tainter wrote a fine book about it, The Collapse of Complex Societies. Collapse tends to occur quickly, as complex systems simply break down and the social construct declines to a much simpler form.

More common than societies collapsing, however, is a currency collapse. It’s infrequent, but it happens. According to U.S. government statistics, the U.S. dollar has lost about 98% of its purchasing power since 1913, the year the Federal Reserve was established. OK, so 98% is not 100%. But it’s close. Just a mere 2% to go, right? And we’re working on it.

Just because the U.S. dollar has never completely failed, does not mean that a total collapse could never occur. It doesn’t mean that you should not at least hedge against that increasing possibility. Denying the possibility of a bad event won’t prevent it.

Denial can produce tragic consequences. Some of the people in the World Trade Center on Sept. 11 waited at their desks, turned off their computers and made phone calls before they started evacuating. Fatal habits? Or denial that the roof was about to cave in on them? Denial only interferes with your ability to respond to a disaster. But with a currency failure, by the time it happens, it’s too late to evacuate. You’re trapped inside a burning skyscraper.

The financial commentator, Gary North, believes, “The West’s economy really is at the edge of a leveraged disaster. The politicians know only one answer: deficit spending. The central bankers have only one significant tool: monetary inflation. The speed of events is increasing. The markets don’t reflect this yet. This gives time to a few people to get out. But the vast majority cannot get out. There are too few escape hatches open.”

Is that apocalyptic enough for you? Or is good ol’ Gary North just going over the top? He might be. But even if Bernanke and Geithner succeed in steering the economy away from complete disaster, the cost will certainly be some degree of currency debasement. In other words, even “success” would be bullish for silver and gold.

The point is that the dollar’s value is looking a little shaky. So you ought to safeguard at least 10% of your portfolio by holding gold. What should you buy? Make it a mix of bullion and gold stocks. What do I mean by bullion? Things like U.S. Eagles, Canadian Maple Leafs or South African Krugerrands. Or you can buy ingots that come in different sizes and weights, whether grams or ounces.

Gold miners should also benefit. I’d thing of leading mining firms such as Goldcorp (GG: NYSE), Kinross Gold Corp. (KGC: NYSE) or Agnico-Eagle Mines (AEM: NYSE). They have great gold output profiles, as well as good cash flow. Also keep an eye on Yamana Gold (AUY: NYSE), recovering from a share-price drop after copper prices plunged last year. And for exposure to the rising silver market, look at Silver Standard Resources (SSRI: NASDAQ).

You get the picture. Now go get some gold…and silver.

Joel’s Note: Wouldn’t you want a few Krugerrands stuffed under the mattress if you knew that, say, big government was scheming to slash your annual income by $2,927? Well, sadly enough, this could well be the case, as Byron explained recently to readers of his Energy & Scarcity Investor newsletter.

Fortunately, Byron’s figured a way to help you protect your money…and then turn it into $63,359. “Don’t get mad,” as Byron puts it, “Get paid!” Well, here’s your chance to find out more.

— Byron King’s Outstanding Investments Silver Report —

From Hulbert’s No 1-Ranked Advisory Letter Over 5 Years, Get Ready For The Precious Metals Investment That’s…

BETTER THAN GOLD!

One investment should rocket even faster than gold over the next 12-24 months… yielding at least 3-to-1 gains on every dollar invested… GUARANTEED.

In fact, I’m so sure of this, I won’t charge you a penny to show you how…

Introducing the “alternative” investment to gold, one I’m certain should soar even FASTER and FARTHER than gold, on a percentage basis, over the next year.

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[Rude Endnote: U.S. markets advanced again yesterday. The Dow closed less than 100 points from the 8,000 point mark (remember that?). The S&P 500 jumped 2.3% while the Nasdaq shot up almost 4%.

Asian markets showed a mixed reaction to the news today as most had more pressing problems at home to deal with. News that Japan’s exports fell off a cliff, down almost 50% YoY for the month of February, continued to weigh on the Nikkei 225. The beleaguered measure put on a brave face, ending down just 0.1% for the session.

Hong Kong’s Hang Seng also remained relatively unchanged while, Down Under, the Aussies enjoyed a modest, 0.8% rally to end the week.

European markets also appeared underwhelmed at the exuberance over the pond. London’s FTSE was treading water when we check a couple of minutes ago while measures in France, Germany and Switzerland were down between 0.55 and 0.75%.

Oil, too failed to breach the $55 mark and, for now, seems content to trade around $53 per barrel. Gold pulled back about $7 overnight to $926 per shiny, glorious ounce.

And so ends another week from us here at the Rude desk. Thanks for tuning in. We’ll have the usual weekend wrap-up for you tomorrow.

Until then…

Cheers,

Joel Bowman

The Rude Awakening
aussiejoel@the-rude-awakening.com