I spent part of my weekend at the great Chili Cookoff in Hanover, Penn. Hanover, if you don’t know, bills itself as the “Snack Capital of the World,” due to its preponderance of companies like Utz Potato Chips, Snyder’s Pretzels and Hanover Baked Beans.
In an age where most burgs have a For Sale sign on every lawn and a plywood-covered strip mall on every corner, it’s nice to see a prosperous little town. The housing stock is inexpensive and old, but well kept, and you’d be hard-pressed to find neater yards.
Given Americans’ propensity to snack, I would imagine Hanover will continue its quite small-town existence for many years. The trend is your friend and the trend is obesity. I wish I could say the chili was all that good. But to me, chili is chili.
Of the two trends you can take to the bank in the world today, one is that Americans are fat and getting fatter, and the second is that Gold has quadrupled the returns on the S&P 500 over the past five years and will continue to outperform.
Gold has crossed the $1,000 mark and is now at an intraday all-time high. It wouldn’t surprise me if it broke out here and ran quickly to $1,450.
I’ve been beating my head against the wall and telling everyone who listens that you must buy gold. In my trading service, Crisis Trader, I am up 160%, 112%, 253% and 177% in my junior gold mining stocks so far this year.
But This Run Is Just Getting Started. Here’s Why:
1. China Hates the Dollar
China is the largest foreign buyer of U.S. bonds. The U.S. has set about to systemically destroy the dollar through maintaining a low fed rate, printing money and increasing the deficit.
TheU.K. Telegraph quoted Cheng Siwei, former vice-chairman of the Standing Committee and now head of China's green energy drive:
“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said.
"Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added.
For those of you playing at home, this means that China wants to own gold, and in fact has been buying the dips for the past year, which explains the sudden jerky movements to the upside like we had last week. It also means that in the current environment there is a concrete floor under the price of gold.
The numbers back this up. Beijing had in fact doubled its gold reserves this year to 1,054 tons.
2. The Great Reflation
The second reason you want to own gold is that we are in the midst of creating the largest bubble the world has ever seen. And gold hits all the criteria to be a recipient. The last gold bubble was more than a generation ago. It has a tried and true “story.” It is ultimately unquantifiable in its value. And it has been going up when every other asset has fallen.
But mostly it will go up because the state-sponsored moneymen are creating money like crazy and they don’t aim to stop. This is proven by the G20’s closing pledge that they mean to continue to stimulate.
From The Wall Street Journal:
… the Group of 20 called for tougher capital adequacy standards for banks and pledged to continue fiscal and monetary stimulus.
“They signaled in no uncertain terms that they intend to leave all the things that they have been trying to do to stabilize the system and get the economy going in place. They were quite clear that they want to leave everything as it is," said Mike Lenhoff, a strategist for U.K. broker Brewin Dolphin.
3. The Coiled Spring
The third reason you want to own gold is a technical argument called the coiled spring.
You will notice in my hastily drawn chart that gold consolidates and then breaks out. It tends to go up as much as it went sideways. Gold is going to run.
When it does, you want to be in my Crisis Trader gold stocks. They could easily end up as 1,000% winners as small gold miners go up farther and faster than gold itself due to the fact that their costs are fixed and their margins expand like wildfire.
Join me and let’s make some money.
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