Invest In Gold Stocks Right Now!

Asset classes go up and down. Precious metals are, of course, another asset class. They move with the economic tides. In the past 30 years, gold has rocketed up and plummeted down.

At several points in the past 30 years, things were so bad that gold sellers were like the proverbial Maytag repairman. They led lives of quiet desperation about which no one cared. Because like the late Rodney Dangerfield, gold got no respect.

Heck, between 1999-2002, the British government sold a large amount of its national gold, nearly 395 tonnes (metric tons), for about $275 per ounce. The Bank of England used the proceeds to purchase (ahem) "high-yielding" assets, like bonds. I suppose it seemed like a good idea to somebody. But really. In hindsight, how dumb was that? The British used to fight wars for gold (remember the Boer War, anyone?) Now they're selling gold to buy bonds? They used to hang people for lesser crimes.

Last March 2008, gold sold for over $1,000 per ounce. Then the price retreated 30% as oil rocketed from about $100 to $147 per barrel. But even though gold fell back in price, it was still selling, on average, for almost three times what the Brits took in less than a decade ago. You didn't do that with bonds. So the lesson is that we have to keep our eyes open about cycles and trends, even with something like gold.

Just in the past six months, almost every nonprecious metal asset class has been headed down. The stock markets have been tanking. Prices for everything from aluminum to zircon are way down. Oil has been bottom-fishing. The world is sliding downhill into deep recession. It's a long litany of bad news out there. Except for precious metals, which have held their own.

Lately, precious metals have been in a stealth rally. It was not front-page news, until last week when gold touched the $1,000 mark again. Operating gold miners hit lows in October 2008…and they've all been rising in the markets ever since.

Investors in a Mass Migration to Gold and Silver

What's going on? It's a worldwide trend. Investors have been flocking to gold and silver. There's a money migration going on. And I mean BIG money is migrating. It's like those herds of zebras or wildebeests or gazelles in Africa. When they migrate, the earth shakes and the ground is just a moving kaleidoscope of hides and footprints. The dust clouds blow high into the sky.

Yes, the world economy might be in a recession. People across the world are worried about their job and security for their family. But other people with big bucks are scooping up gold and silver. Those buyers are looking for investment safety.

Moneyed investors don't trust the world's governments or paper currencies. So they are going with gold and silver. The mines and mints are having trouble keeping up with demand. Exchange-traded funds (ETFs like, for example, SPDR Gold Shares, GLD are buying huge volumes of gold and silver. (And they ought to be buying more. At the margins, at least, it appears that even the ETFs are holding "paper" gold rights, as opposed to the real McCoy metal.)

Who's Holding the Metal?

Let's look at silver. In January 2006, the total silver held in ETFs was about 40 million ounces. By January of this year, 2009, the total silver in ETFs exceeds 280 million ounces. That's an increase by a factor of seven in just three years.

The story with gold is just as dramatic. Who ever heard of a gold ETF until just a few years ago? But by the end of 2008, gold holdings of ETFs reached a record level of 1,090 tonnes, according to the World Gold Council (WGC). Thus, ETF holdings now exceed those of Switzerland and many other large and important nations. (Check the listing below.) In the fourth quarter of 2008, investors purchased ETF gold interests representing 96 tonnes of gold. (Far more than the total gold reserves of Australia.) This followed the purchase of an unprecedented 145 tonnes (more than the reserves of Saudi Arabia) in the previous quarter, according to the WGC. These are astonishing levels of demand, where there was almost none just a few years ago.

Just for comparison, here are the approximate gold holdings of a list of major countries as of the end of 2008, plus the International Monetary Fund and the European Central Bank. Wow!

Gold Holding and Gold Hoarding

Much of the gold in the vaults of the worlds' central banks has accumulated over many decades. Much of the U.S. government gold reserve, for example, dates from the national gold confiscation of 1933 under President Franklin Roosevelt. Roosevelt had a compliant Congress to do his bidding. Eventually, even the Supreme Court backed him up. So what's that old expression? "It CAN happen here."

Many other countries of the world are currently buying gold, fresh from the mine. Today, China is the world's largest gold-producing nation, and its central bank is buying and building reserves. Russia, too, has a tradition of holding gold and today is acquiring gold from its own mine output and via purchases on international markets. Or look at tiny Qatar, a small nation in the middle of the Persian Gulf. Qatar had only 8 tonnes of gold about three years ago. Now it has 12 tonnes, an increase of 50% in a very short time. What do the Chinese, the Russians or the Qataris know? They know that they want gold. They can buy it. They will hold it. And they are hoarding it.

The Feel of Real Gold ― Useful Weight Gain

I've mentioned on many occasions that I like holding precious metals. I like holding metals as an investment and I just like the feel of the stuff. At the "elementary" level (yep, that's a pun), you can hold physical metals. If you've never felt the coolness and heft of a shiny gold $50 Eagle or a Canadian Maple Leaf in your hand ― let alone a fine old specimen of a $20 coin from the days of old in the U.S. ― you've missed something. Really, the only thing better than holding an Eagle or Maple Leaf is holding an entire roll of 20 of them.

When I was in South Africa last year, I visited a refining operation and actually picked up a gold brick. It was almost right out of the melting pot. The brick was still warm, and the darn thing weighed about 75 pounds. That's what I call "useful weight gain." Too bad I couldn't bring it home with me. But the armed guards at the refinery might have objected.

I've never made a formal Outstanding Investments recommendation for buying a particular kind of gold or silver coin, or ingots from this mint or that or any such thing. Those kinds of gold purchases are too hard to track in a newsletter like this. So I've recommended gold and silver miners and their shares. But over the past couple of years, I hope you've had the chance to acquire some real metal for your portfolio. Agora Financial has been banging the golden drum for at least 10 years. If you have never bought any gold, it's still not too late. I think that the recent visit to $1,000 is just the beginning of another great wave of gold buying. I won't be surprised to see $3,000 gold.

Coins and ingots are the kinds of things you keep in your bank safe deposit box or in a well-hidden home safe. Some people keep them in their "second" home safe. Why a second safe? Well, the first safe is the one with a few hundred bucks of cash and some good-looking costume jewelry in it. You would open the first safe if a robber broke into your house and held a gun to your head. (Sorry, I'm not kidding. We live in a tough world.)

And for as much as I urge you to own some gold or ingots, you should never talk about it. OK, you might tell a few family members or maybe a trusted friend or two. But the fact that you have a stash of real gold is too valuable to broadcast or advertise. As I said above, "It CAN happen here." It already has happened here. It might happen again, if things get too rough out there.

For all the talk in Washington about getting the national economy back on track and spending under control, I think you still need to keep an eye on gold and silver. Get some. Own some. Hold some.

A few days ago Byron King recommended GLD, the exchange traded fund (ETF) for gold. A Shooter was aghast…"Surprised that Whiskey is recommending the GLD ETF. The ETF takes delivery?! Are you sure? You mean they actually have all that gold in their own physical possession rather than pieces of paper promises from JP Morgan? Come on, Whiskey, I trusted you guys. I thought you were on the side of the angels, not promoting the Made-offs of this world.

"Yours,
"A concerned reader,

"P.S. Central Fund of Canada or James Turk's Gold Money would be a more honest and safe recommendation."

Many have pointed out that these funds are designed to track gold and they may not actually have any ownership or even potential ownership of what they track (though we like James Turk's Gold Money a lot, too).

Let me be clear: an ETF is just a way to profit from gold's rise, not to own gold. They're only one part of the equation; private, personal, physical ownership is something both separate and vital.

But a Shooter wonders, "How can a poor person buy gold? Can it be bought over time? Tell me [because] I would like to get started if there is a way."

You can certainly buy little bits of physical gold, but there is a monstrous premium.

As I write this an ounce of gold costs about $935 at the mouth of the mine and an actual 1-oz Krugerrand will run you about $50 over that…because that mining, transport, smelting and minting all cost money. So you can buy an ounce of gold for a little under $1000, about a 5% markup.

Gold Eagles come in half, quarter and one-tenth ounce denominations, but the premiums currently run at about 50%…or more. A tiny gram bar ― just 0.035 oz ― costs about $45…or $17 more than the $28 worth of gold in it, a 60% markup. Ouch.

So yes, a poor person can buy gold, but he's going to pay dearly for the little bit he can afford at a time. What to do then…?

And as I was typing this up, I received this e-mail:

"Over the past two months I have been watching the market and reading as many articles on silver as I can find. I, like a lot of people, do not trust the government or the stock market. I was wondering what the advantages are of physically having coins or bullion as an investment over having top stocks. I like the idea of it. Literally holding on to my investment, but am looking to get other opinions. My family all say I should just put my money into CD's and money market accounts. But I still even question the longevity of those. My gut keeps telling me to go with silver."

My gut agrees with yours. Gold is a fantastic medium for men such as Croesus, but then there's silver for the rest of us.

There's a premium on silver, too…but you still get a good amount for your money. And buying a few ounces here and there is actually within your grasp even if you only have a few fiat dollars to convert to real money at the end of the month.

The markup is usually worse with one-ounce rounds. As I write this you'd pay about $17 or $18 for a round that contains $13 of silver. Ten-ounce bars are beautiful and about $150 or so for the $130 of silver in them, certainly a better deal if you can manage it. 

Your Whiskey Bar manager is rather used to poverty and has had to purchase his metals in very modest amounts. And as much as he loves gold he's always leaned toward silver because it's what he could more easily afford.

 

Why the 21st Century Will Be a Century of Cities

"Over the past 300 years, the clambering upon this huge raft of refugees, adventurers, idealists and crooks from every land has given Manhattan always a quality of a fulcrum, so when it comes to the end of the world, most people can most easily imagine the cataclysm in the context of this island."

- Jan Morris, Among the Cities

It was pouring rain in Manhattan when I tried to begin my long journey back to my hometown in Maryland. There was a long line for cabs, and I had to get to Penn Station to catch a train. So I took a bicycle rickshaw whose driver was eager for business. "The only way to travel in Manhattan," he said. He was a stout fellow with a shaved head and bad teeth that looked like blackened pylons on an old waterfront.

I hopped in and we zipped through traffic. At one point, he crossed over the double-yellow line daring oncoming traffic. "You don't see any taxicab get away with that!" he hollered back at me after blowing through a red light. Just like being in Asia again!

It was a different way to look at Manhattan and its towering skyscrapers as far as the eye can see down any block you choose to look. Somehow, it all seemed a lot bigger in a rickshaw. Hard to believe that within six years, New York will no longer be among the world's five largest cities.

The new top five? Tokyo is No. 1, with a population (35 million) greater than all of Canada. Then follows Mumbai, Sao Paulo, Delhi... and Dhaka. Dhaka? Yes, Dhaka. It's the capital of Bangladesh.

There are some big changes afoot in the world's cities. These changes will create enormous opportunities for investors that a previous generation could barely imagine.

Consider some of these notes from National Geographic Traveler:

In the past 20 years, the world added about 3 million people a week to its urban populations

More than half of the world's populations live in cities and more two- thirds will by 2030

The fastest growing cities are all overseas: India has 40 cities with more than a million people; some Chinese cities are growing at more than 10% per year; and Africa's population should double by 2050.

"All cities are cities of the moment," says Richard Wurman, the celebrated American architect says. He is right. No city stays on top for long. In the year 1000, the most populous city in the world was Cordova, Spain. Beijing was tops in 1500 and 1800. London was the biggest in 1900, New York the biggest in 1950. Today, Tokyo.

The pace of urbanization is particularly swift in China and India. More than 25 million people move to cities each year (see the chart below).


Some of the numbers are hard to fathom. As U.S. Global Investors points out in a recent presentation, China will add more people in 15 years than the entire population of the United States. "There will be up to 50,000 new skyscrapers," the company notes, "the equivalent of building 10 New Yorks. There could be up to 170 new mass transit systems. There are only about 70 in Europe today."

This massive population shift has enormous effects on infrastructure spending. Trillions of dollars will have to go toward building power systems, roads, water and wastewater systems, ports and more.

It's like what the U.S. went through in the early 20th century - only on a much more massive scale. Historian Scott Nelson likens the current period to the Long Depression of 1873-96 vintage. Then, a banking crisis toppled Wall Street, too. Unemployment in New York hit 25%. But the Long Depression also paved the way for rising industries such as railroads, oil and steel and spawned a period of innovation and industrial growth.

As Richard Florida comments in The Atlantic:

"In 1870... America's population overwhelmingly lived in the countryside. By 1900, the economic geography had been transformed from a patchwork of farm plots and small mercantile towns to a landscape increasingly dominated by giant factory cities like Chicago, Cleveland, Pittsburgh, Detroit and Buffalo."

Depressions destroy some things and make others anew. Before the Great Depression, few Americans owned a home. But government policies created the long-term mortgage that led to the rise of the suburbs and homeownership of nearly 70% by 2004. The malaise of the 1970s created the Rust Belt, but also saw explosive growth in the Sun Belt.

Now imagine a transformation very much like America's from 1870-1900, as people moved off farms and into cities. Especially imagine it on a global scale in China and India. Future historians will wonder how we couldn't see this great boom unfolding before our eyes - the boom in the building of cities.

 

Another Lost Decade for Japan

Robert Hsu, editor of China Strategy and Asia Edge, warns that Japan's economy will worsen and its markets will go lower, so he recommends betting against it.

Make no mistake about it―the Japanese economy is toast.

The country is not only facing the worst economic crisis since World War II but also another lost decade.

And the decline has already started:

Japan's exports plunged 27% in November, the most on record, as global demand for cars and electronics collapsed.

Shipments to the US slid an unprecedented 34%, and

Sales to China have cratered, slumping the most in 13 years!

And because Japan is nearly 100% reliant on exports, especially to the US and China, the worst is clearly yet to come.

Especially when you consider that Japan's strengthening currency―which rallied about 20% against the dollar in 2008―is simply crushing Japan's biggest exporters.

Why, according to Honda Motor (NYSE: HMC), every one-yen gain against the dollar cuts its annual operating profit by 18 billion yen ($200 million).

This is why Toyota Motor (NYSE: TM) forecast its first operating loss since the company formed 71 years ago, due to the strengthening yen and weak global demand. Sony (NYSE: SNE), Nissan Motor (Nasdaq: NSANY), and NEC (OTC: NELTF) are warning of huge losses that will eliminate tens of thousands of jobs.

To top it off, Japan's 2008 fourth-quarter GDP contracted by 12.7%, and their market is expected to collapse even further.

Yoshiki Shinke, an economist for respected Dai-Ichi Life Research Institute, says, "It's very likely we'll see another double-digit decline for the current quarter."

When you add everything up, one thing is clear: The worst is yet to come.

The yen's gain of 18% against the dollar will continue to cripple the country's exports (although it has retreated from its highs against the dollar recently―Editor).

The pace of decline is exceeding the market's gloomiest predictions, with the country now reporting the deepest slide since the 1974 oil embargo.

The Japanese public has lost faith in its economic leadership, with the approval rating of Prime Minster Taro Aso falling below 10%!

Japan's stimulus package is a joke―not built around an infrastructure plan like the US has in place, but around $130 to $220 cash payments per person.

Just ask Japan's own economic and fiscal policy minister Kaoru Yosano. He warns in the Tokyo press that a rebound is all but impossible before the global economy improves.

With Japan's economy facing another double-digit decline for the quarter, we are not only officially out of the Japan market, but are embracing a shorting strategy here to add to our profits.

(Editor's Note: The UltraShort MSCI Japan ProShares (NYSEArca: EWV) is an ETF that moves twice as much in the opposite direction as the MSCI Japan index, so it will rise two percentage points for every percentage point that index falls. As a leveraged short ETF, it is only for risk-tolerant investors. EWV closed above $104 Wednesday.)