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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Bull Market Exploding Higher!

Commodities / Gold & Silver Sep 13, 2007 - 12:00 PM GMT

By: Money_and_Markets

Commodities

Best Financial Markets Analysis ArticleLarry Edelson writes: The spot price of gold has just hit $716. In the futures market, the December contract reached as high as $723.50.

But no matter how you measure it, the precious yellow metal — the ultimate form of money — has blasted through its recent highs … catapulted above the $700 barrier … and is now clearing a path that could take it virtually straight to $1,000 an ounce.


And when that level is surpassed, I see nothing that could stop gold from going even higher.

This is a landmark event. It's unfolding just as I forecast it would. It's happening even though the U.S. economy is slowing, and it's sending some messages of major importance. Today, I want to tell you about them. For starters …

The Dollar May Fall More Sharply than Anyone Expects

By some measures, it's already plunged to a 15-year low in international markets, buying less than it did in 1992.

Yesterday, it hit an all-time low against the euro. It's plunged against the Japanese yen … the Swiss franc … and the British pound. It's even fallen against the Thai baht … the Philippine peso … the Vietnamese dong … and the Malaysian ringitt. Remember, some of these are the currencies of emerging markets, even third-world countries!

At the center of the dollar's weakness is the mortgage market meltdown and credit squeeze in the U.S. But don't confuse this with the cause …

Under a normal recessionary environment, the dollar typically strengthens in value. But that's not the case right now.

Reason: The Federal Reserve is pumping out money like there's no tomorrow, inflating the supply of money at the highest growth rates in 34 years. This increased money supply coupled with the falling demand for credit is causing the value of the dollar to implode.

And from what my indicators are telling me, the dollar has a long way to fall. I estimate that there's as much as another 30% of a decline coming over the next two years. That's a huge drop.

This Severe Bear Market in the Dollar Means the Dow Is Going to Get Killed

I've repeatedly warned you about this, starting back on June 28, when I said the Dow had peaked and a sharp decline to at least 11,000 was about to unfold.

That decline is now underway. To be sure, there will be sharp bear market rallies along the way, as we have already seen. These rallies can take the Dow up a couple of hundred points. Then, in a flash, they fade away and lead to lower lows.

So don't be deceived by any rallies you see. Use them as selling opportunities to get out of just about everything except natural resource stocks, which act as hedges against a falling dollar.

Indeed, as the Dow plummeted at the end of last week, many gold and natural resource stocks hit new record highs.

Another thing that gold's strength is telling you …

Inflation Will Rise Substantially In the Months Ahead!

I have absolutely no doubts about this. At first, few will understand it, because they will wonder how inflation can rise when the economy is slumping severely. But soon, they will wake to the fact that inflation is rising dramatically due to the falling dollar.

They will also begin to acknowledge the games that Washington has been playing … how they try to hoodwink the public into believing that inflation is not a problem. Example: The government's mostly rigged Consumer Price Index (CPI) announcements.

And when enough people come to terms with this, you can expect the dollar to fall even sharper, and faster, setting off even more inflation.

In just the past three weeks, for instance, the Morgan Stanley Commodity Index is up 12.7%. And much of that price surge has not yet worked its way to producers on the wholesale level — let alone to consumers on the retail level.

As I've mentioned previously, by many measures inflation is already running at close to 10%. By the time this inflation cycle passes — which won't happen for several more years — inflation could easily be approaching 15% … 18% … even 20%.

Look …

Oil Prices Just Topped $80 a Barrel!

Think about it. The world's largest economy is slumping, and that hasn't even made a dent in demand for oil. The price of oil has held firmly above the $68 to $69 per barrel level for the last two months — a solid performance by any measure. And yesterday it made a new record high, topping $80 a barrel!

There are three reasons for this:

First, on the demand side, the vibrantly growing Asian economies are offsetting the weakening U.S. demand for energy.

Second, there are serious long-term supply constraints in the energy markets.

Third, the weaker greenback is forcing the dollar price of oil up, just like it is doing in gold.

Combined, these forces are enough to send oil much higher. And I'm not even taking into account any out-of-the-ordinary supply disruptions, which can happen at any time in the energy markets.

Agricultural Prices Are Also Going Through the Roof …

Heck, in just the past five months, the price of wheat has soared an incredible 89%, and soybean prices are up 22%.

Rising agriculture prices are the result of higher inflation, and they will be the cause of further inflation. At the root of everything, though, is the increasing demand from Asia, coupled with the falling dollar and its inflationary effects.

This is something I forecast back in the beginning of 2006, and something that Sean Brodrick has been telling you about more recently.

And let me tell you, there's another major wave of rising prices coming. [Editor's note, for more of Larry's take on Phase II of the Natural Resource Boom, click here .]

Here's What I Think You Should Be Doing Now

1. Stay out of the stock market. Again, with the exception of natural resource plays and key positions to hedge against inflation and the dollar's decline, do not put any money in the stock market.

2. Stay out of the bond markets. Never mind that the Fed may be forced to lower short-term interest rates. Long-term interest rates are set to soar higher as the dollar falls and inflation rises. That means bond prices are set to plunge.

3. Be wary: The kind of economic environment we are in is ripe for negative surprises in the markets. On July 12, I alluded to one of these risks when I stated that before the end of this year that a "Terrorist hit could strike the U.S. economy hard."

Now, with bin Laden's first tape in three years released last week, and with CIA and other experts claiming it contains code signaling imminent attacks on major U.S. targets, I think you need to be on guard with your finances more than ever.

I sure hope and pray that I'm wrong on this one. But all of my indicators tell me that if al Qaeda has any plans on striking the U.S., they're going to do it now, with the markets and economy already vulnerable.

4. If you're a Real Wealth Report subscriber, keep following my recommendations. You're turning the events I just described into the greatest profit engine since commodity prices soared in the late 1970s!
Just in the past 12 months, the net gain on all closed-out Real Wealth recommendations, including losers, was $37,659.58 before broker's commissions.

Best wishes,

by Larry Edelson

P.S. If you're not yet a subscriber to Real Wealth , for whatever reason, subscribe now for just $99 a year!

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

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