Gold Headed Back To $1,216 High

The bull market for Gold and precious metals powers ahead with strong upward gains as Gold heads back to new historic highs surpassing the $1,216 mark set in early December. Regular readers of the Austin Report may recall that a year ago we forecast Gold would be trading up to $1,000 and then surpass $1,200 in 2009. That was a rather bold forecast when Gold was trading around $850 and world Stock Markets were in a liquidity meltdown.

After all was said and done, 2009 proved to be a great year for precious metals! And we topped our forecast high of $1,200. Overall, Gold increased in value by 24%. Silver gained 53%. (Keep in mind that Silver lost value during the Stock Market crash while Gold was one of the few investments in the winning column in 2008. For those of you who’ve been poised to buy Gold and Silver, but waited, we urge you take advantage of the current price dip– this may be your last chance to buy precious metals at these price levels for many years to come.

As you consider reallocating your money in 2010, please remember that the investment world has changed completely. We live in a very different America.

• Some 15.4 million Americans are out of work. The consumer driven economy is on life support.
• Businesses have suffered suffered through a two year recession, the worst since the Great Depression.
• The Federal Government spent $1.5 Trillion and promised to save a million jobs, yet 3.4 million jobs were lost in 2009.
• Government stimulus spending is estimated to represent 30% of the country’s GDP in 2009.
• Obama and the Democrats forecast another $1 Trillion will be added to the Federal debt load this year.

Conclusion: At some point, the U.S. Government borrowing and spending on bailouts must end. The nation will be left with the weakest currency, the largest debt in world history, and a massive inflation problem.

One year ago, we were in a total financial collapse as Lehman Brothers went bankrupt, Bear Stearns imploded, Merrill-Lynch was sold off to Bank of America, and Washington Mutual was seized. The mortgage industry was nationalized through a Government take over of Fannie Mae and Freddie Mac. The DOW had fallen from a lofty high of 14,164 in October of 2007 to hit a low of 6,443 in March 6, 2009 one year ago.

Total Bear Market losses for the DOW were 55% from peak to trough. Even today, with the DOW trading |
at 10,600, we are still down 25% and everyone knows a second sell-off is coming.

Wall Street banks that were said to be “too big to fail,” were saved by U.S. taxpayers injecting $500 Billion in the TARP program. Apparently, they took a lot of the money and bought stocks, because the money does appear to have ended up stimulating loans to small businesses to save jobs.

In less than a year and a half, the Federal Government (Democrats) assumed control of the mortgage banking industry. The world’s largest insurer, AIG, lost control to Washington politicians. Then, the Government bailed out the auto industry and took control of General Motors. Then, GE was barely saved from bankruptcy by a Government bailout. I could list all the financial disasters of the past year, but it’s too depressing. Now, the liberal Congress is seizing control of the health insurance and health care industries as well.

In this climate of socializing one American business after the other, the future of the U.S. Stock Markets, Bond Markets, as well as Interest rates are at the mercy of the political system. From our point of view, Gold and Silver have never looked more inviting to the thoughtful investor who realizes how radically the investment world has changed in the past year.

140 U.S. Banks Failed in 2009– Another 552 More on Watch List
It’s no wonder consumer confidence is lower today, a year after the financial crisis began to unfold. Nothing has been fixed in the banking industry, things only look better because of the shady accounting practices and transfer of banks, failed loans to the American taxpayers. We are convinced that both in the U.S. and United Kingdom, the banking crisis is far from over. The problems are simply rolling over to became a currency and inflation crisis. If you think the banking problems are over, then listen to this.

In 2009, 140 U.S. banks failed. FDIC vaults are nearly empty. Soon the FDIC will be forced to go to sound
member banks to borrow $45 Billion to cover the coming losses from the bad banks.

In 2010 more banks are expected to fall in masses. The FDIC is broke, having spent $28 Billion so far on the bank crisis. This has been the costliest year ever for bank failures. But the FDIC report gets worse. They now predict another 552 banks are on the “watch list” at a high risk of being unable to pay back depositors. Yes, this is a tough, unstable environment for investors to survive in today when you don’t know if your bank is next to fail. In 2010, many of us are praying for a “return of capital”, much less a return on our money.

We’re certain Stocks will face another year of economic uncertainty, higher risks, and continued volatility. No doubt, money can be made in stocks in 2010, but choose your sectors carefully. Exit quickly if the markets begin to fall.

Right now, there’s still lots of cash parked on the sidelines looking for both safety and higher yields. Not long ago, cash in U.S. Dollars would have been the safe haven of choice. But, cash parked on the sidelines today is earning nearly 0% interest in bank money market funds (of which some 552 banks are expected to fail). Then there’s the threat of inflation overhanging longer term CDs or Bonds. My friends can’t get excited about 4% interest on Five Year U.S. Government debt when we think even a single 10% year of inflation is imminent over the next five years. (We expect to see 3 or 4 years of 10% plus inflation.)

From our perspective, the outlook for 2010 remains unclear despite the fact that the long, harsh, two- year U.S. recession has temporarily abated thanks to massive, unprecedented Government borrowing and spending of $1.5 Trillion Dollars in fiscal 2009. In the future, the biggest risk to all of our money is the coming loss of buying power of the Dollar due to Government spending and doubling the money supply. An increase in the money supply is, by definition inflation. Inflation is always the politician’s path of least resistance in a crisis– print up more money, double the money supply, and destroy the future buying power of anyone who dared to live within their means and save money for a rainy day– or a modest retirement.

How to Thrive and Prosper
Let’s summarize why we remain a worry wart today:  The U.S. economy has contracted by greater than 10% in retail sales and industrial production. Other key areas of our economy are showing contractions of 25%…  like housing activity and durable goods. A double-dip recession is likely in 2010 making these numbers even worse.

These are Great Depression levels of economic shutdown at 25% and a serious cause
for concern about continued unemployment in the U.S. for years to come.

Despite massive U.S. Government bailouts and spending programs, the effects of the shrinking economy weigh heavily on traditional investments. Many investors are just looking to survive with our life savings intact without losing buying power to inflation or a currency crisis. That’s where the value of owning Gold Coins and Silver Dollars is important in 2010.

Good Times for Gold & Silver
The economic climate is one in which we believe the bull market for Gold and other hard assets will continue to outperform most traditional investments including U.S. Stocks, Bonds, Homes, or Commercial Real Estate.  We believe the on-going bull market for Gold and Silver has quite a way to go in breadth and length of time. Inside this exclusive Austin Report, we’ll show you why:

• Government borrowing and spending is out of control exactly like it was in the 1970s. In fiscal 2009 alone, we added $1.5 Trillion Dollars to the national debt that U.S. taxpayers now owe.

• We fear inflation is imminent, hyperinflation very likely. We see no way around politicians using inflation to steal wealth from the middle class and the wealthy alike. We see even higher inflation levels than we suffered in the 70s and 80s. Annual inflation rates ranged from 11% in 1974 to peak at 13.5% in 1980, destroying the life savings of anyone who held U.S. Dollars.

• Over 7 Million Americans are unemployed today. But, according to the Associated Press, 15.4 Million Americans are also under-employed. Over 22 million workers are in crisis, a level you would only expect during a depression, like the Great Depression. Unemployment is why the U.S. consumer-driven economy contracted so rapidly and has little chance of recovering in 2010.

Bad Times Ahead for the U.S. Dollar
Yes, things are bad. But, the ultimate crisis we see is coming– a loss of confidence in the U.S. Dollar as the world’s reserve currency. In 2009, anyone holding U.S. Dollars lost 15% of their buying power. In the year ahead, if Washington doesn’t stop spending and running up debt, all of us may face the risk of a total U.S. Dollar collapse. That’s where we’re headed and that would turn the financial world into a tailspin. Few investments would be safe in a worst-case scenario.

Yes, the facts are somewhat frightening. That’s why we continue to recommend a “common sense” approach to preserving and protecting wealth.

We feel the Bull Market for Precious Metals is far from over– and provides us with an ideal place to park wealth for a while. In fact, we believe Gold, Silver, and other strategic defensive assets will perform well for some time onto the future. We know it takes a long time (decades) to recover from a market crash and a Great Depression. What America is experiencing today will be worse before it gets better. Politicians will muck up an already disastrous situation. We all face what is quite likely to be a long, cruel decade of adversity. In 2010 and beyond, we will see high unemployment rates, rising taxes, and the inevitable inflation caused by a Government who is borrowing and spending us and our children into the poorhouse.

Profits Still Ahead for Gold and Silver
At this writing in early January, precious metals are hot. Gold has stampeded back toward the $1,216 an ounce all-time high. Silver’s just under $19 an ounce. We were comfortable enough with these levels to personally move in another $100,000 into Gold and twice that into Silver. We can[‘t see any direction but up if the Government continues to act with such reckless abandon. While we enjoyed the 24% gains we had on our Gold investments and 53% on our Silver, we don’t expect to see recent past performance at these levels in 2010. Frankly, we don’t care. Our personal investment in precious metals is designed to preserve our family’s wealth from the coming waves of inflation, from the next downturn in the U.S. Stock Markets, and from the inevitable Bond disaster that could strike at any moment.

Long-term the money we have saved by avoid Stocks and investing in precious metals will make a huge difference in the lifestyles my wife and I will enjoy in retirement. We are certainly not willing to gamble with our futures hoping Stocks would somehow go up in value 10% a year for the next five years, when they ended the entire decade of 2000 -2010 down by –3.7%.

When we compare for ourselves the success we’ve had in Gold, we’re quite happy to let our Gold sit idly by in safety deposit box, doing nothing, averaging 19.42% gains every year for the past five years. We don’t trust our Merrill-Lynch advisor nor are we to pay them 1.5% a year to “play” the Stock Market for us. Maybe we know too much and are not willing to bet on a quick economic recovery to keep Stock prices up. Yes, we love our Gold and Silver! We love to talk about any investment these days that’s multiplied 4 times in value, but–

It may surprise you to learn that in the Gold Bull Market of the 70s, Gold prices finished 24 times higher
and Silver peaked at 33 times the starting price suggesting prices today still have a long way to go up.

Maybe you are one of our clients who has enjoyed the ride up and watched your investments in precious metals multiply by 400%. You too are probably quite happy with your decision. More than likely, you are in the group of investors who has noticed Gold is moving higher and wondering if you should own precious metals. Today, in our opinion, most investors are still watching and wondering what to do with their life savings.

Is it just too late to get in on the Bull Market run for precious metals? It’s our opinion that Gold and Silver are currently still in Phase 2 of a Bull Market and have not yet entered the most profitable Phase 3. And this leads us to believe that we have years of gains still ahead for both Gold and Silver..

Anatomy of a Market Bubble
Now that we’ve suggested we are still in Phase 2, let’s take a few paragraphs here to discuss the three phases of an anatomy of a bull market, any bull market. Let’s start by looking at the NASDAQ Stock Market from 1990 till 2000. In less than 10 years, this NASDAQ rushed through all three phases of a bull market. Here’s how a bull market typically evolves.

Phase 1 Denial – Most people are disinterested despite prices rising for new technology Stocks. Dot com stocks are all the latest rage on Wall Street.

Phase 2 Wall of Worry – The public becomes aware and wonders if they should invest. New Mutual Funds are created for a variety of new technology stock categories and internet start-up companies. Most people worry and wonder if they’ve missed the boat as professionals begin to invest in this hot market. More money moves in, prices continue to rise for years. There continues to be a wall of worry, most people sit on the sidelines.

Phase 3 Euphoria – Suddenly, everyone you know is talking about getting rich, retiring early thanks to the NASDAQ. Everywhere you go, the Cable Stock channels are talking about high tech. Even the kid who works behind the meat counter at the grocery store is telling you how he’s getting rich in Tech Stocks. Prices multiply to levels that can’t be justified or sustained in the long run, yet NASDAQ Stock prices keep going up in the frenzy until the crash. The wise among us, sell their Stocks and walk away quietly. They were the ones who bought in Phase 1 and 2, before all the hype started.

Then the Bubble Bursts
One day, without warning, NASDAQ Stock prices fell 10%. Everyone thinks its just another small correction. No problem. Most people don’t sell. Prices fall 20% and the people who arrived in Phase 3 don’t want to sell and lose money. Early investors can afford to wait and see. After all, their stock broker keeps on telling them to “buy and hold, this is just a correction, stocks always go back up.” Eventually, the NASDAQ that peaked over 5,000 becomes a miserable bear market as prices eventually fall to under 1,300 less than two years after the peak. Many people have lost everything as dot com companies went bankrupt and closed their doors forever. The wild Phase 3 of euphoria ends. A few people end up rich, others go broke.

“On average from the peak to the trough, NASDAQ investors lost more than 80%
of their money on the speculative high-tech, dot com bubble.”

It’s a sad reality for the Stock Market, but bubble markets have been the norm over the past 20 years. We feel the Federal Reserve has somehow conspired with Banks and Washington to flood the world with paper dollars to keep Stocks from a total meltdown. Each time the Stock Market had a hiccup, more money magically appeared to cover-up the growing crisis.

All this did was blow up the balloon larger making the eventual economic crash a disaster of Great Depression proportions. You saw it happen in 2009 as the DOW fell from 14,164 to hit a trough of 6,443 just two years later.

So, that’s where we are today. Millions of people across the planet have sold their Stocks and will never buy them again ever. The huge leverages used by the Wall Street Bankers to inflate Stock prices have ended. The world continues to deleverage from investments. As they do, the excess money that’s already out there parked in CDs and Money Market Funds earning next to nothing has begun moving into precious metals. We see it happen every day here at Austin Rare Coins & Bullion. And this is just the beginning of institutional money
flowing into Gold, Silver, and eventually commodities– the nest hedges against inflation and the safest place to park money on the sidelines.

Gold Is Not in a Bubble Yet
An entire generation of baby boomers have never seen or experienced a Stock Market Crash of the proportions we’ve seen twice since 2001. Many of us forgot the Crash of 1987 when the meltdown happened in a few days. Now, we hope you’ve learned a little more about measuring the length and breadth of a bull market by the three major Phases.

Above, you see what a “bubble” looks like at the end of a bull market as the NASDAQ went almost straight up. By contrast, the Gold graph at left shows a us with a green line– a steady march upwards with a regular series of corrections to wash out speculators.

The NOW green arrow of this graph suggests today’s Gold bull market would have at least two to three years left to prosper before we move into Phase 3. (Historically, commodity bull markets have lasted 22 years. Gold is a bit different and still only nine years into the bull market.)

What do the people who make the most money in bull markets do? They buy low and sell high. They move into a market early in Phase 2 if they can. They ride the wave up. They patiently wait until Phase 3 brings in everyone to drive prices to never imagined heights. Then, they begin to sell off in stages taking their profits. The time to buy is when Gold is still under $1,500 and begin selling once you’ve enjoyed the multiplying effect of time and a hot market. The absolutely correct moment to sell and take your profits is when everyone is absolutely convinced that Gold is headed to $10,000.

We hope you see our point. Gold has been a proven safe and exciting investment for nine years now. Most investors have hardly noticed. The news media ignored precious metals except when it hits all-time highs or hit $1,000. These are indications that the market is not frothy, not overbought, Gold is not too expensive, and Silver remains downright cheap. This is the time to vote for or against the policies of Washington and Wall Street. A vote against politicians and bankers means you have more faith in the sanity, stability, and future of Gold and Silver than you do in paper money, government debt, and paper assets.

Readers Seek Honest Opinions
As financial writers, we have the chore today of forecasting the fate of Gold and Silver for 2010 and beyond.  Since most of our predictions came true over the past seven years, including forecasts of Stock Market Crashes, the mortgage crisis, the potential for a bank implosion, $850 Gold then $1,000, and finally forecasting Gold would hit $1,200 in 2009, we feel somewhat psychic. However, have recently heard from our readers who still have lots of questions for us.

Is is too late to profit? Should we own Gold as a hedge against a falling Dollar and rising inflation? Where is inflation, we don’t see it. How bad could inflation be in the years ahead? Is Silver a good investment today since the all-time high in 1980 was $50 and Silver is trading less than half that today?

What readers are really saying to us is– “Can you help us justify investing more into precious metals? To look ahead, we need to look back at the last bull market for metals. Despite the fact that past performance is no guarantee of future value, history can prove quite rewarding. Few of us can recall clearly when Gold peaked at $850 an ounce in 1980 and Silver prices rose to an all-time high over $50 a ounce. For those of us who can, we still find the details blurry. In doing our research, we sought out Topline Graphics to analyze the current bull market for Gold. You can see Gold’s impressive run from 2001 to December 2009 when the NOW ARROW hits the  $1,200 level. The black line tracks the spectacular 1970s Gold rise.

From 1971 to 1980, Gold multiplied in valued ending the decade at a price 24 times higher
than where it began the bull market.

It’s interesting also to note that all Bull Markets have periods of drifting prices, sharp declines, and quick upward movements. These are very normal events and price dips will often offer the key moments in time to add to your holdings.

We have drawn several opinions from looking at this Gold chart.

• First, it took a long time for Gold to quadruple in the 1970s. It’s taken almost eight years for prices to quadruple from 2001 to 2009.
• We are clearly past Phase 1 and we feel Phase 3 has yet to arrive. We’re still in the “worry” stage but may be leaving it in 2010.
• Today, there’s nowhere near the level of market mania that drove up Gold prices by 2,400% in the 1970s… at least, not yet.
• In the coming Phase 3, the most profits will be made in the least amount of time.
• The chart also implies we have three to four more years for Gold prices to rise in the early Phase 3 stage.

It is our opinion there’s plenty of room for Gold prices to multiply four-fold again, suggesting it’s not too late
to profit in precious metals including the white metal, Silver.

Gold Smells So Delightful
In recent weeks, there has been a scent in the air, like fresh baked, chocolate chip cookies. Gold is in the oven getting ready for another terrific year in 2010. Ditto for Silver. This leads me to believe that many of our clients are on the verge of an unexpected feast as Phase III of the current bull market begins to kick in another record year in 2010. Here are some of the more positive comments we’ve found from noted Gold authorities.

• Legendary commodities investor Jim Rogers says, “Gold prices will surge to a record $2,000 an ounce, thanks to the plunging U.S. Dollars.

• Seeking Alpha predicts, “Odds are very high you could see the Dollar have a huge leg-down early next year, an event that would catalyze a climax run in the spot price of Gold to $1,500.

•  David Tice, bear market strategist at Federated Investors says, “If people buy Gold today, they will be “very happy” two years from now.” Tice expects prices to reach $3,000.

What are these forecasts telling us? That we are quickly approaching Phase Three of the Gold Bull Market, a period in which confidence is growing, institutional investors are entering the market, and average folks are moving from the “Wall of Worry” stage and beginning to buy Gold. However, we are not quite to Phase Three yet. No one at my church, the supermarket, or people I meet on the street are telling me that Gold is the greatest investment on the planet– and you can’t lose money with Gold. That’s the kind of nonsense we hear when it’s time to sell.

While the Gold predictions we quoted above are super-positive, we haven’t read in predictions of Gold to $10,000 or Silver to $500 as will surely be coming at some time, perhaps a few years from now. At that time, we should all be selling our precious metals. For now, we expect the Bull Market to proceed onward with some time and strength to come. Let’s face the facts, no one can accurately predict where this Bull Market for Gold will go. It depends on whether or not the free market can seize control back from the politicians. Nothing even close to this intrusion in the markets has happened before in our history. This is far worse than the 1970s removal of the U.S. Dollar from the Gold Standard.

If Gold has a spectacular 24X gain like it did in the 1970s run, then Gold could surpass $6,192. Can Silver become so much in demand by investors and industry that its price catapults by 33 times as it did before 1980? Only time will tell.

I will be the first to tell you that the problem with past performance is that no two bull markets are ever identical. Despite the fact that Gold was up 24% this year and Silver surpassed gains of 53%, we don’t expect the 2010 gains to beat runaway levels. In fact, we’re projecting very conservative gains in the year ahead.

Before 2010 is over, we see Gold hitting an all-time high of $1,500. Silver will try to cross the $25 level– and just might make it.

That’s it, our forecasts for 2010 along with an interesting history lesson on the 1970s bull market. In the years ahead, we believe we will see waves of inflation, higher taxes, and the return of the death tax on the wealthy. Before everything hits, you still have time to set aside 10%, 15% or more of your savings into precious metals right now, while you still can.

You can’t afford to pass up returns like 24% for Gold and 53% for Silver. Act quickly and buy anytime you can on price dips.

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