Maybe [gold] will reach $1,100 or so but $1,500 or $2,000 is nonsense.
That's what Nouriel Roubini said a few days ago at the Inside Commodities Conference in New York.
The comments from the economist credited with foreseeing the banking crisis were aimed squarely at investing legend Jim Rogers. According to reports, Roubini specifically referred to Rogers' call for $2000 gold as utter nonsense.
Since then, gold has continued to set new highs and is attracting a lot more attention from some of the best investors in the world.
The Day Gold's Fate was Sealed
Back in March, when the S&P was sliding back to 1997 levels and wiping away years of gains every couple of weeks, the prospects for gold became more attractive than ever.
In March the Fed officially announced it would be monetizing government debt. In an official announcement the Fed announced it would purchase up to $300 billion of longer-term Treasury securities over the next six months. This was in addition to its purchases of more $1 trillion worth of agency debt and mortgage-backed securities.
On top of all that, Chairman Bernanke forthrightly declared in a 60 Minutes interview the Fed was printing money.
There's no turning back from this point. The U.S. government continues to set record deficits. Even the rosiest projections - those from the Whitehouse - have the annual deficit remaining at $700 billion a decade away. The U.S. dollar is in a big hole and there are no responsible (i.e. non-inflationary) ways out of it. And gold is becoming an increasingly attractive save haven.
When our free gold report was released last March (click here to claim you're copy), the central bank's open admission of money printing was an essential condition as sealing gold's fate as an increasingly dear asset. In the report we noted, Every few decades, the right conditions come along to make an absolute fortune in gold and gold stocks. Right now the conditions are right.
Regardless of the fundamentals, some - like Roubini - see the gold run coming to an end sooner than later. Others, including some of the most successful investors in the world, see a much different story playing out.
Not Just for Gold Bugs Anymore
Since the official announcement earlier this year, it's no coincidence a number of the world's best investors have jumped on the gold bandwagon and have earned exceptional results, and they're just getting started.
Leading the way has been hedge fund manager John Paulson. The man who made too much by betting against subprime mortgages has been buying gold and gold stocks since the day gold's fate was sealed. Since Paulson's firm's disclosure in May, gold prices have risen 23% and gold stocks have more than doubled that.
But here's the thing about Paulson - he's not a hot money hedge fund manager looking for a quick score. He's always after the truly big opportunities.
As we noted back in May in the Prosperity Dispatch:
Paulson began betting against subprime mortgages in 2005. That was well before the housing market peaked and nearly two years before subprime markets started to falter in 2007.
He was right, but he was early. He stuck to his bet even though the housing market continued to do well. Eventually, it paid off.
Paulson may be getting most of the headlines for gold, but a slew of other great investors have been moving into gold.
For instance, Steven Leuthold has been on a roll lately. His Grizzly Short Fund returned 73% in 2008. Granted, it was tough not to make money being short in 2008, but 73% far outpaced the overall market's decline.
Leuthold also called a major market bottom on March 5, stating comparisons made between the credit crunch and the Great Depression were out of touch with reality.
Leuthold explained in his firm's quarterly update for shareholders of his Core Investment Fund:
As mentioned in our last quarterly letter, the Core Fund established a small position in Physical Metals (now about 2% in Gold and a little less than 1% in Silver).We plan to add more when (if) prices come down from current lofty levels. We continue to be concerned about the long term prospects of currency debasement inflation (a run on the dollar). Essentially, this holding is viewed as an insurance policy, and will likely be increased in coming months.
The line-up of newly minted gold bugs doesn't stop there. One of the greatest traders in the world, Paul Tudor Jones, has recently declared his interest in gold.
Jones, who built Tudor Investments into an asset management powerhouse with $11 billion under management, recently told his fund investors:
I have never been a gold bug. It is just an asset that, like everything else in life, has its time and place. And now is that time.
As one would expect, rising inflation suggests higher gold prices, especially when the Fed is perceived to be behind the curve. Gold appears to be cheap. In our view, gold's value should increase as its scarcity relative to printed currencies increases.
Now, it's only a matter of time until the herd piles in. Big institutions still have very little exposure to gold and most retail investors still haven't even considered it yet. But there's still time left to get in.
Two-Step Strategy to Making a Fortune in Gold
Everything is in place for gold. And as gold makes incrementally new highs and rebounds from the eventual and unexpected corrections, there will be more opportunity.
But at this stage in gold's run, there's a simple two step strategy to make a fortune in gold in the next few years.
Step 1) Make a plan to buy gold and gold stocks over the next three to five years
Step 2) Stick to the plan
That's the beauty of getting in something relatively early. Gold has made a good run over the last eight years, but the biggest money will likely be made in the next eight years as a lot more money piles into the utter nonsense that is gold.
Chief Investment Strategist, Q1 Publishing
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