Gold and Crude Oil, Two MUST-OWN Investments!
Commodities / Investing 2009 Nov 10, 2009 - 03:51 PM GMTBy: Larry_Edelson
I put out my first major buy signal in gold in early 2000, when gold was trading at about $260 an ounce. I said then that gold was an easy double, moving to at least $500 over the next two years.
I told my readers to add to their gold positions in October 2004, when gold crossed above the $400 level …
And again in September 2005, when gold blasted through $450 an ounce.
I added again, even telling subscribers to increase their core gold allocation from 10% to 25% — in September 2008, when gold closed above the $860 level.
Now, gold has thrust to within an eyelash of the $1,100 level. But gold has much more to go to the upside. My minimum target: $2,300 an ounce, with a very high probability that the yellow metal will ultimately exceed the $3,000 level, and perhaps move as high as $5,000.
Why Gold Is Poised to Rocket Much Higher
For centuries, gold has maintained a basically stable value in terms of purchasing power. That’s why investors pile into it whenever other markets look shaky.
Gold is real money. Unlike stocks or bonds, gold has no debts, no earnings, no boards of directors, no funny accounting statements, and no obligations to anyone but itself.
Gold is the purest investment in the world. While paper money can be printed or devalued at will, as is happening now ad infinitum, the same cannot be said for gold.
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| All the gold ever mined can fit into a 62.3-foot cube! |
Of course, there isn’t much gold to go around. All the gold ever mined in the history of the world (about 151,000 metric tons) can fit into a cube measuring only 62.3 feet on each side. And gold production is declining despite today’s elevated prices.
Just one example: Over the last 10 years, gold production in South Africa has plummeted more than 50%!
So, the way I see it, plunging production, rising demand — and a severe lack of investor confidence in the U.S. dollar — add up to one thing: much higher gold prices to come.
It’s why China has been buying gold.
And it’s why India recently purchased 200 metric tons of gold from the International Monetary Fund (IMF) for $6.7 billion.
That’s more than 7.054 million ounces of gold, now worth over $7.37 billion.
And it’s why, for me, gold is absolutely the most important asset to own going forward.
If you haven’t already followed my recommendations in gold, it’s not too late: Here are four primary ways to grab your stake in the only lasting form of real money there is on the planet …
First, buy bullion. For small amounts, a convenient vehicle is one-ounce and 10-ounce gold ingots. But don’t go overboard or else you’ll find yourself with transport and storage issues. For more details on how to buy physical gold, see my October 5 column.
Second, consider the SPDR Gold Trust (GLD) exchange-traded fund. Each share represents 1/10 of an ounce of pure gold. And all the costs of storing and insuring the metal are covered for you.
Third, look to gold mutual funds such as the Tocqueville Gold Fund (TGLDX), U.S. Global Investors Gold and Precious Metals Fund (USERX) and U.S. Global Investors World Precious Minerals Fund (UNWPX). You can pack them away, with a view toward holding them for at least a couple of years. In my view, these funds could double, triple, even quadruple, over that timeframe.
Fourth, invest in select individual gold stocks. But be careful here. The irony of today’s bull market in gold is that some gold mining companies may actually go out of business as the price of gold soars.
Reasons: Some still hedge too much of their gold production and/or reserves. Others don’t have access to adequate capital financing. As I always remind my Real Wealth Report subscribers, you need to be very selective when it comes to gold shares.
But Gold Is Not the Only Hard Asset You Should Own …
Not by a long shot. I believe every investor needs to follow what the world’s biggest company — with the world’s largest cash flow and biggest profits — is doing. Yes, I’m talking about CHINA.
Indeed, while the rest of the world has been consumed by the global financial crisis, China has been reaching into its deep pockets and circling the globe to corner much of the world’s oil supplies.
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| China is in the process of cornering a large portion of global oil supplies. |
Its deals are growing more ambitious as Beijing outsmarts the rest of the world and looks to meet its burgeoning oil demand. In the past decade, China’s oil consumption has doubled to 8 million barrels a day.
And it’s estimated that it could easily double again in the next decade as the number of Chinese joining the ranks of the middle-class swells.
China has now ventured into …
Kazakhstan, to build a 3,000 km pipeline to bring oil back to China.
And it will grab up to 20% of Russia’s exports by the end of 2009 when the pipeline is linked with fields near the Caspian Sea.
Chinese controlled oil output in Kazakhstan is now at about 300,000 barrels per day (b/d) — more than one-quarter of China’s total foreign production.
And to further tighten its grip on the region’s oil, China recently gave Kazakhstan a $10 billion loan repayable by future oil supplies and equity in a Kazakh oil producer.
What’s more, China’s sovereign wealth fund recently bought 11% of KazMunaiGas Exploration and Production, which is majority owned by Kazakhstan’s state oil company.
Sudan, where China produces about 225,000 b/d.
Angola, where since 2007, China has been importing about 18% of its oil needs.
China also has agreements with countries such as Burma, Iran, and Guinea, but that satisfies only a fraction — 14% — of what China needs through its overseas production.
Beijing still has a lot of oil to secure. And its three main state oil companies — CNOOC, CNPC, and Sinopec — are going toe to toe with the big boys to do just that …
CNOOC has proposed to buy 6 billion barrels of Nigeria’s oil reserves — much of which is from soon-to-expire contracts that belong to the western oil majors.
The company also recently announced it would compete with ExxonMobil to gain control of almost a quarter of Africa’s largest offshore oil field, Ghana’s Jubilee field.
In March, Sinopec made the biggest Chinese oil takeover of the year when it spent $7.6 billion to buy Swiss company Addax, which has operations in Nigeria, Gabon and the Kurdish region of northern Iraq.
Last week, CNPC, China’s largest oil and gas producer and supplier, teamed up with British Petroleum (BP) to develop Iraq’s Rumaila oil field, bringing the field’s oil production up from 1 million b/d to 3 million b/d — ultimately giving China a stake in 37% of the production or over one million b/d.
My view: Like gold, everyone should also have a core stake in black gold, oil. So if you haven’t already followed my oil recommendations, it’s not too late here either.
Here are four primary ways to get your stake in black gold …
1. The Energy Select Sector SPDR (XLE), an ETF comprised of the world’s top oil and gas exploration and production companies. Recommended previously in this column at the $42 level, XLE is now trading over $56 a share, for more than a 34% gain.
2. The iShares S&P Global Energy Sector Index Fund (IXC). This ETF invests at least 90% of assets in the underlying securities of the S&P Global Energy Sector Index. Since recommended in early August, this ETF is up almost 8%.
3. PetroChina (PTR), one of the leading Chinese energy conglomerates, a must-own for the long haul. Previously recommended in this column at the $86 level, PTR is now trading at about $125, for a 45% gain.
4. CNOOC Ltd (CEO), another leading China oil and gas company, and another must-own for a core holding in energy. Previously recommended at the $107 level, CEO is now fetching more than $153 a share, for an open gain of better than 42%.
I suggest all be bought now, if not owned, and held for the longer-haul, along with my gold recommendations.
Best wishes,
Larry
P.S. To get all of my specific gold and oil recommendations the moment I pull the trigger, subscribe to my Real Wealth Report. It will be the best money you ever spent, guaranteed!
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