Luke Burgess - Angel Publishing

Peak Gold is a Myth

Since the mid-1950s, researchers have been concerned that peak oil will send petroleum prices spiraling out of control.

Today, a growing faction of gold bugs has recently been discussing their own "peak" theory for the future:

Peak Gold.

They believe the world's total production of gold may have already peaked. And now gold production will fall drastically, helping push gold prices over the inflation-adjusted high of $2,500 an ounce.

Some are even making predictions of over $5,000/oz.

And I think they may be right — but for the wrong reason.

Peak Oil vs. Peak Gold

Peak oil is simply the maximum rate of global oil extraction.

According to their models, peak oil theorists maintain the total rate of world oil production will grow exponentially over time until reaching a pinnacle, and then fall into a terminal decline. That pinnacle is peak oil.

The resulting timeline of global petroleum output would follow a basic bell curve shape. Something like this...

The concept of a peak in world oil extraction is based on production rates over the lifetime of individual oil wells, fields, regions, and countries. A prime example is the production life of the Cantarell Oil Complex.

Located just 50 miles offshore, Cantarell is the largest oil field in Mexico and was once one of the top five largest producing petroleum fields in the world.

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Cantarell more than doubled oil output between 1995 and 2005, topping out at 2.1 million barrels per day. But in the four years that have followed, oil production from Cantarell has plunged almost 75%. A 15-year chart of petroleum extraction from Cantarell mimics the classic model of peak oil theory. Take a look...

Production rates at other major oil fields around the world are starting to look similar. In fact, as many as 6 out of the world's top 10 largest oil fields may have already peaked like Cantarell.

The exact date when oil will peak is debated. Experts estimate the date of the global production peak to range between the years 1990 and 2020 — after which oil becomes less available and more expensive.

So it's suiting that speculators are tailoring their portfolios to take advantage of a rapid increase in prices. My colleague Ian Cooper is one such speculator, and he knows commodities can translate into big dollars in this market...

Other investors have noticed a recent decline is gold mine production and have applied ideas from peak oil theory to create a new paradigm for the future, aptly called "peak gold."

What is Peak Gold?

Peak gold is basically the gold mining equivalent of the peak oil theory, as I explained it above.

Proponents of peak gold point to the fact that global gold production reached an all-time high of about 83 million ounces per year in 2000 and has since fallen to about 72 million ounces. This accounts for a 13% decline in 9 years.

They also contend that rising demand will send gold prices mushrooming higher due to sharp supply/demand imbalance.

But there are a few important factors to consider when comparing peak oil to peak gold.

First (and maybe most important), is that oil is a perishable commodity. Its energy can only be used once.

Gold, on the other hand, is virtually indestructible. And its use as a store of value is everlasting.

Gold can be recycled and reused. And unlike barrels of oil, every ounce of gold that has ever been mined is still around.

Therefore, the demand for gold will forever be able to be met.

Moreover, gold production has been gradually rising and falling for over 6,000 years.

During the 20^th century, there were three decade-long periods when world gold production fell by an average of 30%. Nevertheless, global gold production reached another record high in by the end of the century. Take a look...

I believe the real reason for the drop in world gold production since 2000 was the commodity bear market of the 1980s and 1990s.

During this period, companies lacked the financial incentive to explore for gold, resulting in limited capital for exploration and development of new mines that would go on to produce gold today.

Peak Gold Conclusion

There is simply less evidence to support the case for peak gold right now. And I don't think it should have any serious impact on the gold market in the near-term.

However, perception is everything...

And if a broad enough audience of investors begins to believe that the world's capacity to produce gold really has peaked, speculative mania buying could rapidly drive up gold prices well past their inflation-adjusted highs.

I remain, of course, bullish on gold over the long-term due to rising investment demand. Members of my Hard Money Millionaire have already had the opportunity to make almost 60% in three physical gold investments listed in our portfolio. (You can take a look at my portfolio here.) But I expect even bigger gains over the next several months, as gold continues to surpass record prices.

In the meantime, we just need to hang on for the ride.

Good Investing,

Luke Burgess
Editor, Wealth Daily
Investment Director, Hard Money Millionaire

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Alaska Gold Mining Stocks

Heart-pounding word of massive gold strikes in Alaska swept North America in the late 19th century. . . and the rush was on.

Many of the fortune-hunters who set out on the journey were professionals. They were teachers, lawyers, doctors — even a mayor or two — who gave up respectable careers to search for buried treasure.

Most were well aware that it was unlikely they'd hit the mother lode. But they went anyway — if for nothing else, for the adventure.

Adventurers seeking vast fortunes from Alaska's gold resources are still around today.

But instead of eyeing for small flecks of yellow metal in a river, we're investing in Alaska's gold mining companies.

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Alaska is one of the best states in the U.S. to mine for gold. It hosts an estimated gold resource of over 250 million ounces, and is one of the most mining-friendly states in the nation.

In fact, former gold mine developers run the state's Department of Natural Resources, the organization that regulates mining.

DNR Commissioner Tom Irwin is a gold mining veteran with more than 30 years of experience in the industry, overseeing operations such as Kinross Gold's (NYSE: KGC) Fort Knox mine — Alaska's largest gold producer.

So it comes as no surprise. . . The state of Alaska has never turned down a gold mining permit.

Mining legislation is even written right into the state constitution:

Article 8 - Natural Resources

§ 1. Statement of Policy

It is the policy of the State to encourage the settlement of its land and the development of its resources by making them available for maximum use consistent with the public interest.

§ 2. General Authority

The legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the State, including land and waters, for the maximum benefit of its people.

With rising gold prices, and support from the state to develop its abundant resources, capital investment in Alaska's precious metal industry has skyrocketed over the past few years. This investment has developed Alaska into the second-largest gold producer in the U.S. — contributing about 10% to total annual U.S. production.

With investment money still pouring in, estimates suggest gold production in Alaska will continue to climb this year, nearing the peak of production during the Klondike gold rush. That means there's never been a better time to start investing in. . .

Alaska's Gold Mining Stocks

Investors have already stuck the proverbial "mother lode" with companies that have quality Alaskan gold projects such as NovaGold Resources (NYSE: NG), Northern Dynasty Minerals (AMEX: NAK), and International Tower Hill Mines (TSX-V: ITH).

NovaGold Resources (NYSE: NG)

NovaGold Resources is a $990 million exploration and development firm that has a 50/50 joint venture with Barrick Gold (NYSE: ABX) in the Donlin Creek mine. Located in central Alaska, the Donlin Creek mine is special because it is expected to be one of only a handful of gold mines in the world capable of producing over 1 million ounces of gold a year. NovaGold investors have had the opportunity to make a gain as high as 289% this year.

Northern Dynasty Minerals (AMEX: NAK)

Northern Dynasty Minerals is a smaller $680 million exploration and development company that has a 50/50 joint venture with Anglo American (LON: AUUK). The two companies share the rights to the massive Pebble copper/gold deposit in southern Alaska. The Pebble deposit is estimated to contain 72 billion pounds of copper, 94 million ounces of gold, and 4.8 billion pounds molybdenum, as well as quantities of silver, palladium, and rhenium. Since the beginning of the year, shares of NAK have increased as much as 133%.

International Tower Hill Mines (TSX-V: ITH)

International Tower Hill Mines is the smallest of the three, with a market cap of $370 million. The company has a total of eleven exploration-stage projects in Alaska, including one with an 11 million ounce gold resource. International Tower Hill has significantly increased the company's resource base over the past several months, so shares have outperformed both NG and NAK. For the year, ITH investors have gained over 300%. In fact, as I write this, shares of ITH sit on a 52-week high.

Gold prices have had surprising strength over $1,100 an ounce of the past few days. And it looks like these three growing Alaska gold stocks could continue to knife higher along with gold prices.

If you're feeling a little more adventurous and want a little leverage, Kiska Metals (TSX-V: KSK) will be an Alaskan gold stock to watch over the next several weeks.

Kiska Metals was formed over the summer by the combination of two international mineral exploration companies: Rimfire Minerals Corp. and Geoinformatics Exploration Inc. The group is now focused on the development of the Whistler project in southern Alaska, which covers an area of 440km² within the same geological belt that hosts Northern Dynasty's and Anglo American's massive Pebble deposit.

The Whistler project is currently home to almost 6 million ounces of gold resources, but the company is rapidly working to increase those resources with a new drill program that began in September.

Conclusion

With considerable resources and a mine-welcoming government, Alaska is a good place to mine for gold. Investors can take advantage of both rising gold prices and the state's goodwill toward mining by buying shares of companies that have exposure to Alaskan gold projects.

There are many other Alaska gold mining companies on the market other than the four I mention above. I found several mid- and large-cap firms and a handful of very small 20 cent stocks with exposure to Alaskan gold while doing research for this article. So there are plenty out there.

As always, it's important for you to do your own due diligence to look for companies with talent, experience, and quality projects.

Three weeks ago, I started to build a brand-new portfolio to seek high-yield gains from junior gold and mining stocks. I've made three recommendations, and all three have since returned a profit for an average 35% gain. You can find more information on how to get access to these three junior gold stocks in my latest research report.

Good Investing,

Luke Burgess
Editor, Wealth Daily
Investment Director, Hard Money Millionaire

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The U.S. Dollar and SDR

You didn't see this in the news.

And it's unlikely you'll read about it on any blogs or hear about it by word of mouth. Even the most extreme government watchdog groups seemed to have missed this story. . .

1. Most of the world is quickly diversifying from the U.S. dollar to hedge against the multitude of American macroeconomic problems.

2. Now, even the U.S. government is trading in its own dollars for another currency — the same currency that China, Russia, oil-bearing Gulf countries, the UN, the IMF, the World Bank, and many others have already suggested to replace the greenback as the world's main reserve currency.

3. Over the past few weeks, the U.S. Treasury has liquidated billions of U.S. dollars to more than quintuple the national foreign reserves of this very currency. This is a clear sign. . .

The U.S. Government Doubts the Dollar

But this is more than just an outright signal that the U.S. dollar is in serious trouble. We already know that much.

The U.S. government's move to further diversify from its own currency is a beacon for investors to seriously prepare for another sharp increase in commodity prices. And in just one minute, I'm going to share with you several ways to profit. But before we get into that, it's important to understand how and why commodity prices will rise, as the. . .

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U.S. Dumps Dollars for Special Drawing Rights (SDR)

The Special Drawing Right (SDR) was created by the International Monetary Fund in 1969 to support the Bretton Woods fixed exchange rate system.

The value of the SDR was initially coupled to one U.S. dollar, which was still pegged to gold ($35/oz) at the time. But after the collapse of the Bretton Woods system in 1973, the value of the SDR was adjusted to reflect a basket of 16 world currencies.

Today, the SDR is currently pegged to four currencies: the U.S. dollar (44%), euro (34%), Japanese yen (11%), and the British pound (11%).

The SDR is unlike any currency you're familiar with. SDRs are not backed by assets, nor do they represent a claim on the IMF. Rather, each member agrees to back its SDRs with the full faith and credit of its own government and to accept them in exchange for convertible currencies.

In reality, the SDR is less of a currency and more of an accounting entry. However, the SDR has similar characteristics as money, such as an interest-bearing asset, store of value, and means of settling debt. The SDR is a private currency of sorts — useable and accepted exclusively by IMF member states.

There are no SDRs in physical circulation like the dollars or euros in your pocket; they have an electronic unit of value.

So the SDR can be simply created, instantly, at the will of the IMF board — which is not bound by regulations. Therefore, there is still the threat of inflation as with any regular fiat currency.

This lack of regulation — combined with liquidity issues and the fact that the SDR makes a claim on nothing — creates potential pitfalls of using the SDR as a reserve currency.

But that hasn't stopped many world governments and other international finance organizations from making a push to use the SDR as the world's main reserve currency, laying the groundwork for. . .

A Post-U.S. Dollar World

The possibility of the U.S. dollar losing its main reserve currency status has sent government officials into a frenzy. Over the past few months, U.S. administrators have been extremely vocal in supporting the dollar as the world's main reserve currency.

Of course, U.S. Treasury Secretary Tim Geithner's voice has resonated loudly from Washington. Here are just a few things Geithner had to say about the dollar in recent months:

"I think the dollar remains the world's dominant reserve currency . . . that's likely to continue for a long period of time.”

– At a meeting with the Council on Foreign Relations, as reported by The New York Times on March 26, 2009.

“The dollar will remain the principal reserve currency.”

– During a visit to Abu Dhabi, as reported by Reuters on July 15, 2009.

“We have a special responsibility here in the United States to make sure we are doing the things in this country to preserve confidence in the U.S. financial system – confidence that’s very important to sustain the dollar’s role as the principle reserve currency in the international financial system. . . We expect, as I think countries expect around the world, the dollar to retain that position for a very long time.”

– At the G-20 summit in Pittsburg, PA, as reported by Bloomberg on September 25, 2009.

Despite Geithner's public confidence in the U.S. dollar, the Treasury increased its holdings of SDRs in one week by 453% — worth $27.5 billion — in late August. Just take a look at the U.S. Treasury's International Reserve Position statements between August 21 and August 28:

Since that time, the U.S. Treasury has increased its SDR holdings by another 11%, and currently owns almost $40 billion worth of SDR. Current SDR holdings account for nearly 30% of the U.S. total foreign currency reserves.

This is a clear sign to the world that the U.S. government is making moves to hedge against its own falling dollar. . . and this may be the catalyst that leads the entire world to sharply diversify from the dollar.

An actual changeover in reserve currency dominance would send the value of the U.S. dollar plummeting, quite likely to all-time lows. Fortunately, there's still some time before the dollar completely collapses. And investors can prepare themselves with. . .

Easy Ways to Profit from Commodities

One of the best ways to hedge against a falling U.S. dollar is, of course, by investing in silver and gold. Precious metals have a 6,000-year history of preserving value against fiat currencies like the greenback. The most direct way of investing in gold and silver is to hold the physical metals. However, many investors prefer the ease of investing in gold and silver ETFs.

Other commodities — such as energies, grains, softs, and meats — also do well during times of a falling U.S. dollar. There are plenty of easy ways to invest in these commodities, including investing in ETFs, stocks, futures, and options.

Exposure to other foreign currencies, such as the euro and Japanese yen, will also provide a good hedge against a devaluing dollar. A simple option for investing in foreign currencies is currency ETFs. You can buy and sell them as easily as stock — without special transaction fees.

As the value of the U.S. dollar continues to decline, commodities will broadly rise. I strongly urge all investors to have at least some exposure to commodities.

Good Investing,

Luke Burgess
Editor, Wealth Daily
Investment Director, Hard Money Millionaire

Inflation Investments

Welcome to the Wealth Daily Weekend Edition — our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

A tsunami of money is headed your way.

It's true.

But it might not be exactly what you have in mind. Here's what I mean. . .

Just a few days ago, the U.S. government reported that the federal deficit officially hit an all-time record high for fiscal year 2009 ending in September — $1.42 trillion!

And even though it's now over 10% of the nation's GDP, the 2009 budget deficit is just small potatoes. Going forward, the Fed expects the budget deficit to dramatically increase to $9 trillion over the next decade.

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Meanwhile, the U.S. national debt will cross $12 trillion as early as next week — about $40,000 for each citizen — and doesn't include other future financial obligations, like Social Security and government-sponsored health care. Analysts estimate that these future obligations could cost the United States up to $100 trillion!

With an exploding budget deficit and thinning credit, the federal government will be forced to create a mountain of new U.S. dollars to help finance the country and repay debt.

Fortunately, there's still some time before this strong inflationary period will start to have a negative effect on the dollar. And as investors, we can prepare and let inflation work for us rather than against us. More on that in just a second. . .

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But first, in case you've missed any of the recent top stories from Wealth Daily and our companion publications, I've included them below.

Technical Trading Made Easy: 3 Tools You Can Use to Easily Spot Stock Trends
Wealth Daily Editor Ian Cooper makes it easy for investors to understand the three best technical indicators that have historically called tops and bottoms of stocks and major indices.

The Best Biotech Stock for 2010: Grandpa's AMBER Alert Could Make You $1 Million
Wealth Daily Publisher Brian Hicks explains one strategy for picking stocks and reveals a huge milestone for his front runner in the biotech sector.

Smart Grid Stocks: The Trillion Dollar Transmission Horse
Energy & Capital Editor Nick Hodge discusses smart grid stocks and the coming $1 trillion investment that will send them higher.

The #1 Silver Stock for 2010: How to Get a 2nd Chance at a 7,667% Gain
Editor Luke Burgess unveils the most profitable silver stock in the past decade and tells investors about another company that Wall Street believes is in for similar gains.

The Best Way To Buy Gold: How To Get A Limited-time, Exclusive Discount on Gold Bullion
Wealth Daily's Greg McCoach explains how the biggest gold rush in world history could push prices over $5,000, and how to buy gold below spot prices right now.

Biotech Company Buyouts: How to Catch the Building Wave in Biotech Stocks
Editor Steve Christ takes a look at the big surge in biotech buyouts and what they mean for the pharmaceutical markets.

The Gusher Behind the "Montana Millionaires": One of the Largest Domestic Oil Finds Ever
Wealth Daily Publisher Brian Hicks discusses three brand-new investment opportunities positioned in what the U.S. Geological Survey calls the largest continuous oil formation it has ever assessed.

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Wealth Daily Editor Adam Sharp reported from the Buttonwood Gathering in New York last weekend that legendary currency investor George Soros is still very bearish on the dollar. Adam's coverage of the conference included Soros's discussion of "a general flight from currencies."

The rest of the market is just as bearish. The value of the U.S. dollar (as measured by the U.S. dollar index), fell again this week by another 1%.

Reacting to the drop in the value of the U.S. dollar, commodities continued to rise this week. The iPath S&P GSCI Total Return Index ETN (NYSE: GSP), which follows a index of 19 commodities, gained almost 2% for the week — outperforming the Dow Jones, NASDAQ, and S&P 500.

Other broad-based commodity ETFs also did well this week:

Dow Jones-AIG Commodity Index Total Return ETN (NYSE: DJP) gained 1.7%
PowerShares DB Commodity Long ETN (NYSE: DPU) was up 9.6%
ProShares Ultra DJ-AIG Commodity ETF (NYSE: UCD) tacked on 2.2%

Commodities were led this week by precious metals and energy. In precious metals, gold and silver prices were only trading slightly below highs made the previous week. Meanwhile, both platinum and palladium prices reached 14-month highs this week.

In energy, crude oil was lifted to a high of $82 per barrel this week — a 12-month high. Heating oil and ethanol were also lifted to 12-month highs, while natural gas prices approached $5 per Mcf, over 100% higher than eight weeks ago.

Looking ahead, we can expect continued strength in commodities across the board, as long-term inflation pushes the dollar lower and lower. And I believe that the broad-based commodity ETFs mentioned above are easy and secure ways to hedge yourself against a falling U.S. dollar.

Good Investing,

Luke Burgess
Editor, Wealth Daily's Gold World
Investment Director, Hard Money Millionaire

Niall Ferguson on the U.S. Dollar

Editor's Note: In today's Wealth Daily, Guest Editor Adam Sharp gives us Part 2 of his report from the Buttonwood Gathering, held last week in New York City. I spoke with Adam about the conference and its speakers on Wednesday, over a pint of beer and round of darts. We talked — and argued — about many of the ideas proposed by the guest speakers at the conference. And I'm certain that you'll enjoy the conclusion of Adam's insights and his coverage of the Buttonwood Gathering as much as I did.

Enjoy,

Luke Burgess

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The Buttonwood Gathering: "Fixing Finance"

There were dozens of noteworthy sound bites at Buttonwood last week. . . but none set off a firestorm like Niall Ferguson's. The controversial Harvard professor's comments on the dollar have fueled the currency buzz this week.

Ferguson warmed up the audience with this blunt observation: "We are living through a gradual shift away from the dollar-centric system."

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But when an audience member asked him about sustainable solutions for America, the professor came through with the quote of the day: "The problem of being a declining empire doesn't have a solution."

The audience instantly snapped to attention. Anyone dozing off was roused by booing and nervous laughter. And, for a conservative bunch such as this one, boos, hisses, and laughter are not considered proper etiquette during a discussion panel.

Professor Ferguson went on to say that in ten years, we will look back and realize this period was a major turning point — that this was the point at which power truly began to shift from West to East.

Bold claims, and ones with major implications for investors.

So is Ferguson on to something? Or is he trying to sell his book, The Ascent of Money?

Perhaps a little of both. . .

Shunning the Dollar

An ominous emerging trend seems to support Ferguson's theory. Foreign central banks are shunning the dollar in favor of what they perceive as sound(er) currencies, like the euro and yen. Another emerging trend is China's worldwide commodity grab. In prior years, they might have spent those reserves on U.S. t-bills or higher-yielding mortgage-backed securities.

The key difference is this: central banks have talked for decades about diversifying away from the dollar. Now they're actually doing it.

According to Bloomberg News, the dollar is making up a shrinking percentage of foreign reserves. The greenback recently dipped to 37% of new foreign reserves. That's down from an average of 63% in 1999.

This does not bode well for the dollar — or for America's continued ability to borrow on the cheap. Our status as the world's leading reserve currency allows us to carry a higher debt load than most nations could bear. As Ferguson points out, a gradual shift away from the dollar does indeed appear to be underway.

Dollar Bears: Lemmings or Savvy Traders?

These days, everybody and their brother is betting against the dollar. They're directly shorting it, buying commodities like gold, or playing the "carry trade" (borrowing cheap $US, and buying higher-yielding foreign currencies), to hedge against its decline.

These situations are always tricky. Crowded trades like long-gold or short-dollar can reverse quickly and violently. Some contrarians are long the dollar because of this. However, these long-term trends can go on much longer than people think. There are strong fiscal and monetary forces at work here.

Some even think the Fed and Treasury want a weaker dollar because it will allow debt to be paid off with devalued currency.

The Dollar Bull Case

Many dollar bulls are betting on Fed interest rate hikes next year, and betting against more reckless fiscal policies. I'm skeptical that the Fed will jack up interest rates in 2010. It's certainly possible, but Bernanke has made clear that he's willing to do whatever it takes to "help" the economy.

A short-term rally in the dollar seems inevitable, but the long-term trend is clearly down. Until fiscal and monetary policy change, the dollar's path seems unlikely to do so, either.

The Investor's Corner

It never came up on stage. No speaker would dare touch it. . . yet gold and silver were on the minds of many Buttonwood attendees.

After all, one of the conference's focal points was the U.S. dollar and where it's headed. And, as you know, gold and silver are among the best ways to hedge against a falling dollar.

Today it's estimated that only 1% to 2% of Americans have some investment exposure to gold. Meanwhile, silver is gaining momentum — and we strongly suggest taking a position. The following report offers a great way to get started. Click here to read the full write-up.

Regards,

Adam Sharp
Guest Editor, Wealth Daily

P.S. As promised, here are some of the more telling quotes from the Buttonwood Gathering. . .

Notable Quotes

Elizabeth Warren, Chair of TARP oversight panel and Professor of Law at Harvard:

The reason banks lost confidence in each other is because they looked at their own books. (As a reply to a question on the role a "loss of confidence" played in the crisis.)

We need the toughest possible accounting standards. . . You can't trust anyone's books these days.

What we have confidence in is the fact that big institutions will be bailed out. (In response to a question about the importance of confidence.)

Tim Geithner, Treasury Secretary:

We've got unsustainable deficits over a five- to ten-year window.

We have been 'remarkably effective' in stabilizing the financial system.

We need a way to put them [too big to fail institutions]. . . how can I say this, 'out of existence.'

The emerging world will be a much stronger source of strength, it is showing resurging strength that will support us.

George Soros, Chairman of Soros Fund Management (arguably the most successful currency trader in history):

The U.S. will remain a drag on the world economy. World growth is bound to be flat for a number of years.

Yes. (When asked if Wall Street has "captured" our government, as prominent economist Simon Johnson has said.)

Diane Garnick, Investment Strategist at Invesco (during a session on executive compensation in finance):

The credit crisis may be over, but the credibility crisis is just getting started.

Our most important resource is human capital, and we won't maximize our potential as long as such a large percentage of our top talent is attracted to finance.*

Compensation in the Western World is a bit like Dolly Parton: there is a huge bubble at the top. (Diane prefaced the simile by mentioning that the joke always bombs in Asia. For the record, it basically bombed to the ~40 people in this session, but I liked it.)

*paraphrased

Jeffrey D. Sachs, Columbia University Economist and Director of the Earth Institute

Wall Street is patting themselves on the back for making lots of money, for making profits on fantastically easy monetary policy.

They [Goldman and other investment banks] have been allowed to "feed at the Fed" on loose money, and profited from it.

Richard Bookstaber, Risk Management Expert and Author of A Demon of our own Design. (The following quotes were from a debate on this proposition: Financial innovation boosts global growth. Bookstaber was on the 'con' side.)

Derivatives are the current weapon of choice for gaming the system.

Derivatives create risk, not protect against it.

I'm all for capitalism, but Wall Street is only half capitalist. When things are good, they're capitalists. When things turn bad, they become socialists.

Jeremy Grantham, Chairman of Grantham Mayo Van Otterloo (also known as GMO, a firm with $89 billion under management. His role as a money-manager make his comments that much more interesting.)

Finance produces nothing of value, no widgets. All we do is shuffle money around and collect fees.

The more complex and opaque the [financial] instrument, the more likely that it is ripping people off.

Larry Summers, Director of the White House's Economic Advisory Council, former Treasury Secretary under Clinton:

We need financial regulation that recognizes human nature; trying to change it is pointless. Even in the annals of speculation, there are few successful careers based on predicting bubbles and going the other way (short).

To be sure, it is easy to predict bubbles. Just predict them all the time. But that is surely not a realistic view to regulate based on.

How to Profit from U.S. Inflation

The FDIC's Deposit Insurance Fund — the insurance fund that protects your money in the bank — is $300,000,000 in the negative.

A growing number of bank customers are beginning to fear the negative balance means the FDIC is no longer able to provide coverage for their deposits.

But the FDIC says the sum of its insurance fund does not affect its ability to protect depositors. That's because the agency has access to sufficient capital needed to safeguard client accounts at member banks. But there's a huge catch. . .

The American taxpayer could face losses that are already planned to total as much as $500 billion — over $1,500 per American citizen. Fortunately, we as investors can turn these losses into profit by hedging our investments in gold and shorting U.S. Treasuries.

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Seeking Shelter and Pursuing Profits

The Federal Deposit Insurance Corporation (FDIC) is one of a handful of U.S. government-owned corporations. It was established by the Glass-Steagall Act of 1933 to preserve and promote public confidence in the American financial system by insuring customer deposits in banks.

Today, the FDIC insures deposits at 8,124 U.S. banks and savings associations with $13.1 trillion in assets, which include $9 trillion in customer deposits.

When a bank fails, the FDIC reimburses customer deposits from its Deposit Insurance Fund. This fund is financed by the insurance premiums paid by member banks.

And the end of 2007, the DIF held $52.4 billion. But after 123 bank failures in 21 months. . . the Insurance Fund that Protects your Checking Account is now $300 Million Negative.

. . . And according to the FDIC's own forecasts, the DIF deficit could reach as much as $100 billion, thanks to a rapid increase in bank failures in the United States.

A total of 98 U.S. banks have failed so far this year — up from 25 in 2008, and only 7 total between 2004 and 2007.
As a result, the daily rate of U.S. bank failures has increased 3,400% since 2007. Click to enlarge the charts below. . .

The FDIC believes bank losses could reach $100 billion. But Congress seems to have even less confidence in the banking sector.

In March, Congress approved a bill that allows the FDIC to borrow as much as $500 billion from the U.S. Treasury to cover customer deposits amidst the crumbling finance industry.

But the United States doesn't have this kind of money just lying around; $500 billion is the GDP of Switzerland. It's more than 3.4 times higher than what the U.S. spent on the Global War on Terror in 2008. Besides, the United States has run a deficit for most of the last 50 years — creating a jaw-dropping $12 trillion national debt portfolio.

For the 2009 fiscal year, the Congressional Budget Office (CBO) estimates the U.S. deficit will be $1.4 trillion. That's about 11% of the U.S. GDP — the largest share since World War II. After that, the CBO forecasts the deficit exploding to over $9 trillion in the next 10 years.

But despite the facts that it's more than twice what they spent on WWI and their budget deficit is projected to increase 545% over the next decade, the U.S. government isn't worried about where they'll get the money.

They know exactly where to get $500 billion. . . from you and (worse) me!

But I've got a few investments up my sleeve that I'm already using to. . .

Let the U.S. Government's Plan to Raise $500 Billion Work for Us

To raise $500 billion in the annual budget, the federal government would have to boost taxes across the board by about 20%. But a 20% tax hike is going to be next-to-impossible to pass in an already cash-strapped nation. There's been talk of a new Value-Added Tax (VAT), which is essentially a national sales tax. But whether or not the government raises taxes or creates a new VAT, it's unlikely they'll be able to fish another $500 billion out of the ole' tax pond.

The U.S. Treasury holds about $134 billion in foreign currency reserves and 287 million ounces of gold, worth $287 billion at $1,000 an ounce. So even if the country sold off all of its foreign currency and gold reserves, it still wouldn't be able to loan the FDIC $500 billion. Besides, selling off the national currency and/or gold reserves to cover banking losses would be a troubling signal to American investors, to say the least.

The fastest and easiest way for the government to raise the $500 billion to loan the FDIC would be to simply create new money or borrow by selling U.S. Treasury Bonds — or a combination of the two, which I think is much more likely.

And that's exactly when we start to make money. . .

2 Easy Ways to Make Money as the Government Creates It

Investment Idea #1: Short U.S. Treasuries

The U.S. Treasury Department already sells about $4 trillion in U.S. debt bonds each year to help finance the country. So an increase of $500 billion would boost the supply of new U.S. debt by 12.5%. As a result of this supply increase, Treasury yields will need to increase, driving prices down. And the most direct way to profit from this scenario is, of course, to simply short U.S. Treasuries.

There are lots of ways to short U.S. Treasuries. And it's a lot easier than you might think. You can short U.S. Treasuries directly, by selling the actual securities short. Or you can short Treasury futures contracts — or sell calls (or buy puts) on Treasury futures contracts.

But the easiest way for most investors to short U.S. Treasuries is with ETFs and mutual funds. At last count, there were about 80 U.S. Treasury ETFs on the market, including products from PowerShares, iShares, Proshares, SPDR Barclays, and Market Vectors.

Investment Idea #2: Buy Gold

The creation of new money means inflation. Whether or not gold is a hedge against inflation has been recently disputed among analysts.

Critics often point to the fact that inflation has outpaced gold's performance since 1980. Gold prices experienced a 21-year bear market between 1980 and 2001. Average annual gold prices fell 56% from $613 an ounce to $271 an ounce.

Since that time, of course, average annual gold prices have risen. For 2009, gold has averaged $933 an ounce — a 55% increase since 1980. Meanwhile, inflation has increased 162% over the same period.

So, yes, inflation has beaten the performance of gold prices between 1980 and today. But there's one thing those who are critical of gold as an inflation hedge don't mention. . .

Gold prices have outperformed U.S. inflation every other year besides 1980 over the past two centuries.

If you compare gold's price performance to inflation between 1970 and today, you get a completely different picture. Inflation since 1970 has increased 456%. Meanwhile, the price of gold has increased 2,564% — beating inflation by 5.6 times.

So gold prices do not outperform inflation 100% of the time. But in the past 200 years, gains in gold prices beat inflation 99.5% of the time. And that's a track record that I'm sticking with.

Conclusion

To avoid DIF insolvency in the short-term, the FDIC will require some insured institutions to prepay their estimated quarterly insurance premiums for the fourth quarter of 2009 and for the next three years. The agency estimates that the total prepaid premiums collected will net approximately $45 billion. But that won't last long. . .

Preliminary estimates suggest that the 50 banks that fail during the third quarter of 2009 will ultimately cost the DIF over $15 billion. If quarterly bank failures continue to cost the DIF at a constant rate, the insurance fund will be completely dried out again in less than nine months.

After the FDIC burns through the $45 billion collected from the prepaid program, they'll have to go knocking on the doors of the U.S. Treasury. And that's exactly when their actions will result either in your benefit or burden.

Before the FDIC schedules their next sit-down with the suits in Washington, I urge you to establish exposure to both gold and to short U.S. Treasury positions.

The number of U.S. banks to fail this year will most likely hit 100, as soon as next week. This will probably be a big story in the mainstream financial media. And I expect to see a nice little extra bump in gold prices as a result.

Good Investing,

Luke Burgess
Editor, Gold World
Investment Director, Hard Money Millionaire

P.S. Some consider physical silver to be the best hedge against inflation, thanks to its ability to outperform gold by a rate of 6-to-1. But investing in silver stocks is even more profitable. Silver Standard Resources (NASDAQ: SSRI), for example, paid annual gains of 852% for nine straight years. I'll give you the whole story in my new report — plus tell you about another silver stock that's ready to return 450% in the next 18-24 months. Click here to read the report right now.

Banks With 20% Unpaid Loans at 18-Year High

The number of lenders in the United States with 20% of their loans more than 90 days overdue hit an 18-year high this week.

According to new data from the Federal Deposit Insurance Corp., there are 26 firms with more than a fifth of their loans 90 days overdue or not accruing interest as of June 30. Three reported almost half of their loans weren't being paid.

Firms range in size from Frontier Bank in Everett in Washington, with $3.98 billion in assets, to Gordon Bank in Gordon in Georgia, with $35 million in assets. Six of the banks are in Florida and five in Illinois.

These banks are among the most vulnerable of a larger group of lenders whose failures the FDIC said could cost $100 billion by 2013.

A total of 95 banks have failed so far this year at the fastest pace in almost two decades. These failures have drawn the balance of FDIC's deposit insurance fund to $0. In a frantic effort to raise funds, the agency proposed last week that financial firms prepay three years of premiums, which would add $45 billion of reserves.

The cost of this year's failures to the FDIC equals 25% of the banks' assets, according to agency data. Applying the same ratio to the $14.1 billion of assets held by the 26 lenders with 20% of their loans more than 90 days overdue means the FDIC could face additional losses of $3.5 billion.

In total, the FDIC counts 416 firms on its confidential list of "problem" lenders at mid-year, signaling that more bank failures and losses going forward.

Good Investing,

Luke Burgess
Editor, Gold World
Investment Director, Hard Money Millionaire

Falling Gold Production

It's been a disaster that's left investors with virtually nowhere to run.

The global financial meltdown has rattled cages in every investment market. Even gold, traditionally viewed as a crisis-proof hedge, was not able to escape the fallout of the global finance industry's orgy of irresponsibly managed risk.

But as it turns out, the global economic crisis may actually help boost gold prices in the end by stifling new production. Here's what I mean. . .

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Aurum Delirium

In early 2008, a sudden drop in consumer spending associated with the global recession caused gold demand for jewelry and industry to contract. These sectors are important to gold's supply/demand fundamentals, as they account for about 80% of total world gold demand.

Declining demand for jewelry and industry stalled a seven-year gold bull market in March 2008 — just as prices topped $1,000 an ounce for the first time. Subsequently, gold prices were pushed as far back as $700 an ounce seven months later.

But the gold market has since changed.

Falling demand from the jewelry and industrial sectors has been buoyed by a booming increase in gold investment demand.

Last quarter, overall gold demand for investment increased 46%, while investments in gold ETFs and similar products increased a stunning 1,315%, as investors sought shelter from a declining U.S. dollar.

Mounting investment demand bolstered gold prices over the summer. Last month, gold set a new record high for the average monthly price of $996.59 an ounce. That's about 3% higher than the previous record set in March 2008.

Investment demand is expected to continue to increase again by as much as 60% this year. And while this growing demand will continue to be met in part with recycled material and official sector sales, the bulk of the gold will have to come from mine production, or producer de-hedging. But there's a problem. . .

Gold miners are producing less and less gold every year.

In fact, total world gold production has steadily decreased about 7% since 2003. Take a look:

And the outlook for new gold production is also declining.

The End of the Exploration Boom?

Between 2002 and 2007, exploration budgets of small-cap gold miners — the most active explorers — increased by an average of about 55%. But in 2008, exploration budgets of junior gold companies were quickly slashed as tumbling prices virtually erased access to new capital.

Preliminary estimates indicate that marketwide exploration budgets for expenditures related to precious and base metals, diamonds, uranium, and some industrial minerals will plummet again this year by about 40%.

Junior mining companies are expected to account for the largest share of the overall decline — although most mid- and large-cap players have made deep cuts of their own in their 2009 exploration plans.

The overall cuts in exploration budgets will help to continue the trend of declining total world gold production. New gold projects must be explored, tested, and analyzed with great detail before any company can claim valid resources or reserves, which are very important tools in securing capital to develop a project into a producing mine.

Randgold Resources Ltd. (NASDAQ: GOLD) is one such company that says it will curb exploration spending, even though gold has risen to over $1,000 an ounce.

Rangold Resources CEO Mark Bristow said that the company was "done with acquisitions for the time being" at the Denver Gold Forum two weeks ago.

Bristow continued, "Exploration is something you shouldn't use like an accelerator, you should not have to step on it when the gold price is up, and take your foot off the accelerator when the gold price is down . . . We do not manipulate our exploration budget according to the market sentiment. We change our exploration budget according to the opportunity and qualities of our exploration portfolios."

Volatility in the gold market and general market and economic uncertainty in the short- to mid-term make it very difficult to accurately forecast how exploration budgets will be affected going forward.

But we can be certain that marketwide exploration budget cuts will result in lower total world gold production. And in the midst of what might become the greatest gold rush of all-time, I expect falling mine supplies to help significantly boost gold prices in the future.

Good Investing,

Luke Burgess
Editor, Gold World
Investment Director, Hard Money Millionaire

P.S. While gold's still the talk of the town. . . silver could be even better. In fact, I just finished a new report on one silver stock that increased an average of 852% every year for nine straight years! You can learn all about it. . . as well as another silver stock that could be poised for similar gains. You don't want to miss out on this one. Check it all out right here.

World Gold Panic

With gold trading just under $1,000 and the economy still in flux, it's never been more important to know what's happening in the precious metals markets. In fact, more and more readers are asking us for more gold editorial. That's one of the reasons we've decided to bring Gold World — one of our fastest-growing publications — directly to Wealth Daily and you. Each Friday, Gold World editors Luke Burgess and Greg McCoach will publish their unique gold and precious metals insights right here in this letter. I hope you enjoy it.

Profitably yours,
Brian Hicks
Publisher, Wealth Daily

——————————————————————-

Gold is looking to wrap up September with record monthly prices.

The yellow metal has traded over $1,000 an ounce in 12 of the 18 trading days of the month so far. And with only three business days left in September next week, the average monthly price for gold is currently $998 an ounce. This compares to March 2008, when gold prices topped the $1,000 level for the first time in history and averaged $968 for the month.

A new average monthly record is extremely bullish for gold prices right now. It is a sign that the third and final investment mania stage of the gold bull market is in bloom — that's when gold prices skyrocket.

And while no one knows exactly when the big breakout in gold prices will be, it sure feels like that moment's getting much closer.

The U.S. dollar is staring at deep trouble and has a real chance of ending up on the heap of failed fiat currencies. The inverse relationship between gold and the dollar is about to become more pronounced over the course of the next 12 months.

This alone could run gold prices to a new record high in the $1,200 to $1,500 range, providing us with an exceptional opportunity to profit and make spectacular gains.

The truth is, gold is going to go much higher — whether Wall Street gets it or not. Gold bull and contrarian author Richard Russell made some interesting observations in his Dow Theory Letters, published in September. Richard wrote:

Somewhere ahead I expect to see a worldwide panic-scramble for gold as it dawns on the world population that they have been hoodwinked by the central banks' creation of so-called paper wealth.

I have never seen a bull market of this size end without a highly-speculative third phase explosion.

You can't create wealth out of a computer — you create wealth from the sweat, intelligence and risk- taking of men. Gold comes from a gold mine. A gold mine represents the expenditure of capital, risk-taking, the sweat of hundreds of men — and courage. A gold mine's product, gold, has represented timeless wealth since Biblical times. No central bank has ever produced a single ounce of gold. Nor has any central bank ever produced a single element of true, sustainable wealth.

In their heart of hearts, men know this. Which is why, in experiment after experiment with fiat money, gold has always turned out to be 'the last man standing'.

Politicians can threaten gold with forthcoming central bank sales, they can sell gold in quantity, they can smother gold with short sales, but the primary trend of gold will win out. It will be expressed today, in a month or in 2010. The trick for us is to hold onto our position — don't trade it, don't move in-and- out with it, don't hold so much of it that you get the heebie jeebies every time it dips ten dollars. The primary trend of gold is up. We're riding the bull. The bull will try to shake us off his back. We'll hang on.

In the past few weeks, I have seen several stories in the news that indicate we're about to have a big run in gold prices.

First, I just saw that Barrick Gold (NYSE: ABX), the largest gold company in the world, will be covering their hedged gold positions. Barrick is doing a bought deal public offering to raise money to pay off the hedged positions within a year. The company will raise $3 billion to cover these obligations. It's clear that Barrick made this strategic decision to gain full leverage of rising gold prices.

In other news, Hong Kong has demanded all its gold reserves back from London. The country wants to store its reserves domestically in a new state-of-the-art vault. The Hong Kong Monetary Authority stated that it will also transfer gold reserves stored in other vaults around the world to the depository later this year.

This has massive implications for higher gold prices. If Asian banks start demanding their physical gold, the "paper game" the manipulative crowd has been playing for so long may soon be up in smoke.

Meanwhile, China has put a stop-loss on their derivative losses. That means firms like Goldman Sachs, who knowingly and recklessly sold this derivative garbage, may have to deal with defaults. This could turn out to be a huge development that has a major impact on higher gold prices.

These are just a few of the most recent examples of signs that we're about to see the next leg upwards in gold prices.

At some point, the pressure that has been building in gold for years will explode in dramatic fashion. Unfortunately, however, it's impossible to know exactly when this is going to occur.

I continue to recommend staying the course with physical gold. Buy and hold physical gold bullion bars and coins with the lowest premiums. It's going to be a ride for the record books. Be sure you don't get left behind.

Good Investing,

Luke Burgess
Managing Editor, Gold World
Investment Director, the Hard Money Millionaire

Editor's Note: My colleague Greg McCoach isn't just a gold 'insider.' He's the real deal. And he's recently come up with a play that's already earning readers sizable gains. It's a property he calls "the greatest gold discovery of the last 50 years." Greg's prepared a full report on this developing situation, and how the entire mining industry is waiting for drill results to confirm what's expected to be a homerun play. Click here to read our brand-new findings.

Top Silver Stocks

The greatest silver rush in history has just begun. . .

Global economic and investment uncertainty is rapidly increasing silver's appeal as a precious metal. As a result, silver is quickly becoming the investment of choice for those who recognize its traditional role as a safe haven asset.

While industrial and fabrication demand for silver has recently been impacted by the lower demand for the goods it is used in, an increase in silver investment demand can be expected to continue in the near term.

For investors, this means increasing silver prices and market valuations for the companies that mine the white metal.

Below is a list of five small silver stocks that are expecting to increase silver production this year.

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Five Small Silver Stocks Increasing Production
September 2009

Great Panther Resources (TSX: GPR)
Share Price: $0.90
Market Cap: $77.5 million

Great Panther is a growing primary silver producer with two operating mines in Mexico. The company steadily increased silver production from the mines from 600,000 ounces in 2006 to 1.2 million ounces last year. Great Panther is forecasting another 25% increase in production to 1.5 million ounces this year; they then expect silver production to continuing growing to 2.8 million ounces in 2010.

Silver Standard Resources (NASDAQ: SSRI)
Share Price: $22.00
Market Cap: $1.5 billion

Silver Standard has 16 geopolitically-diverse projects that range from exploration to production. The company's first major mining operation and flagship Pirquitas mine recently began production. The mine is expected to produce three million ounces of silver in 2009 and to achieve full production of approximately 10 million ounces of silver in 2010.

Fortuna Silver Mines (TSX-V: FVI)
Share Price: $1.50
Market Cap: $137 million

Fortuna Silver is a small production and development company with two main mineral assets: the Caylloma Mine and San Jose Project. At the Caylloma Silver-Lead-Zinc Mine, silver production increased 79% last year to 860,000 ounces. This year, the firm predicts an increase in production — to 1.6 million ounces. Fortuna is still developing the San Jose Silver-Gold Project. The company expects to begin construction of the mine next year and begin silver production in 2011. The San Jose Mine is expected to yield 3.5 million ounces of silver-equivalent annually, bringing Fortuna's total silver production to 5.5 million ounces.

Endeavour Silver (AMEX: EXK)
Share Price: $2.75
Market Cap: $142 million

Endeavour Silver is a rapidly-growing production firm with two high-grade silver-gold mines in Mexico. The company has ramped up silver output seven-fold in its first four years of production to 2.3 million ounces in 2008. This year, Endeavour forecasts another 17% increase to 2.7 million ounces. The company hopes to reach production capacity of 4.5 million ounces in coming years.

First Majestic Silver (TSX: FR)
Share Price: $2.60
Market Cap: $215 million

First Majestic is building a senior silver producing mining company with a focus on Mexico. The company currently owns three producing silver mines that yielded 3.7 million ounces in 2008. Although production won't be as high as the company expected earlier this year, First Majestic is still planning to increase production by 22% to 4.5 million ounces.

Good Investing,

Luke Burgess
Managing Editor, Gold World

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Canadian Gold Stocks

In an economy where steady cash flow is key, the name of the game for gold miners is increasing production.

But due to falling demand in key markets, many firms have slashed spending budgets and halted growth in output. These include major gold producers like Barrick Gold, GoldCorp, and Newmont Mining — all of which are expecting flat or declining output this year.

A handful of smaller companies, however, have endured the harsh sting of the global economic downturn and are increasing gold production levels in 2009. Below is a brief list of five Canadian gold stocks that are still expecting an increase production this year.

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5 Canadian Gold Stocks Increasing Prodution
September 2009

Kinross Gold (TSX: K, NYSE: KGC)
Share Price: $22.90
Market Cap: $15.9 billion

Kinross is mining gold from 11 operations on three continents — a total 45.6 million ounces of gold reserves. In 2008, the company produced 1.8 million gold ounces. This year, they expect production to increase as much as 33% to 2.4 million ounces.

Agnico-Eagle Mines (TSX: AEM, NYSE: AEM)
Share Price: $68.40
Market Cap: $10.7 billion

Agnico-Eagle Mines is an international gold producer with 18.1 million ounces of reserves. The company increased quarterly gold production by 43% to 119,000 ounces. For the year, Agnico-Eagle believes it can more than double its 2008 gold production.

Eldorado Gold (TSX: ELD, NYSE: EGO)
Share Price: $11.80
Market Cap: $4.4 billion

With 7.6 million ounces of gold reserves, Eldorado Gold is a Canadian-based gold miner active in exploration and development in Brazil, China, Greece, Turkey, and surrounding regions. Last year, output reached 309,000 ounces of gold. This year, the company believes gold production will increase 7% to 330,000. By 2013, the goal is to produce in excess of 800,000 ounces of gold annually.

Yamana Gold (TSX: YRI, NYSE: AUY)
Share Price: $11.00
Market Cap: $8.1 billion

Yamana has six core gold mining operations in North and South America that contain 19.4 million gold reserve ounces. In the past 12 months, Yamana has ramped up gold output by 29% to 244,000 ounces. In total, the company expects to increase gold production to 1.1 million ounces this year, a 39% increase over 2008 levels.

Alamos Gold (TSX: AGI, NYSE: ALG)
Share Price:
Market Cap:

Alamos Gold is an intermediate gold producer focused on its Mexican Mulatos Mine, which has 2.0 million ounces of gold reserves. In 2008, the company produced 151,000 ounces of gold. This year, they expect total gold production to slightly increase to 160,000. By 2011, Alamos expects production to double to 300,000 gold ounces.

Gold companies with growing production and revenue have a better chance at survival in today's turbulent economy.

These five survivors have already proven their ability to weather the storm of worldwide economic turmoil, while increasing gold production. And with gold prices now rising over $1,000 an ounce and higher, these are just a few stocks poised for explosive growth.

Today's survivors will be tomorrow's leaders.

Good Investing,

Luke Burgess
Managing Editor, Gold World

P.S. I'll be sending you another article next week on five silver stocks that are increasing production. Silver prices are expected to strongly outperform gold as investment demand explodes. So these stocks may be set for even bigger gains. I've even found one silver company that's expecting to increase production by 18,336% next year. Keep an eye out for next week's report on my 5 silver stocks.

Australia's New Gold Discovery

Gold has not always been revered as a "precious" metal. In fact, there have been times that many have perceived it as a dangerous commodity.

When James McBrien woke up on February 15, 1823, he didn't know that he was about to write a major chapter in this story.

McBrien, an Assistant Surveyor with the Department of Land, had a relatively humdrum assignment on this day: conduct a survey of a road along the Fish River between the small towns of Rydal and Bathurst in New South Wales, Australia.

While studying the road, McBrien saw a curious yellow glitter in the river. He immediately knew what it was: gold.

McBrien recorded in his field book the following note: “At E. (end of survey line) 1 chain 50 links to river and marked gum tree. At this point I found numerous particles of gold convenient to river.”

McBrien's find became the first verified gold discovery in Australia.

But while he was certainly pleased, early gold discoveries in Australia were kept quiet by the authorities.

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Those who found gold kept the knowledge to themselves. And for good reason. . .

Many feared a gold rush would plunge the largely convict population into chaos and lawlessness. Farmers also wanted to protect their sheepruns and cattle lands from any undesirables coming in search of gold.

Others simply didn’t want to share the potential wealth.

Unfortunately for these folks, the discovery of gold can only be kept under wraps for so long.

This fact became clear in 1851, when the legendary gold prospector Edward Hargraves publicized major gold discoveries near the area where McBrien first recorded finding the yellow metal 30 years earlier.

On a piece of the Empire newspaper, Hargraves wrote, “Gold discovered at Lewis Ponds Creek county of Dathus New South Wales on the 12th day of February, 1851.” The original memo can be seen below:

As a result, Hargraves is credited with starting the nineteenth-century Australian gold rush, which helped shape the country as one of the world's leading gold producers.

Gold Production in Australia Today

Australia is currently the fourth-largest gold producer in the world. But its role as a leader is slipping. . .

In 2008, Australian annual gold production fell 7.5% compared to the previous year. The island country yielded approximately 227.5 tonnes (7.3 million ounces) of gold — its lowest output since 1989.

Annual gold production has steadily fallen over the past few years, as well. Last year, Australian gold production was 9.4% lower than in 2006, and 13.5% lower compared to 2005:

Despite the drop in production over the past few years, however, the value of the gold produced was higher, due to increasing prices during the bull market.

In 2008, Australia's annual gold production was worth $6.0 billion — up from $5.4 billion in 2007.

Even though the value of Australia's gold production has increased, the country still needs to halt the decline in output.

So in response to the need for production expansion, the Victoria state government sponsored a three-year $9 million government study. . .

The results were recently made public.

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Stake Your Claim in Australia's Latest 70 Million Ounce Gold Discovery

The new study revealed huge unexploited deposits across south-east Australia, with some ore-bearing rocks located just 100 meters below the surface.

State geologists used new survey techniques to create a three-dimensional model of the land, complete with geochemical and geophysical data.

The findings?

Over 70 million ounces could be extracted with modern mining techniques northwest of Melbourne.

At today's prices, these 70 million ounces of gold would be worth $67 billion.

In addition to this resource, geologists have identified other areas which may hold even more gold.

The two survey areas identified as having a high potential for gold deposits are the Melbourne Zone (north-west from Melbourne to Shepparton), and the Gold Undercover Zone, located near Swan Hill to around Horsham.

Western Australia is responsible for 75% of the country's gold production and hosts approximately two-thirds of Australia's total gold resources. A mere 10 operations account for more than half of the gold produced in Western Australia. Queensland and Northern Territories are the other major producers. But there is little gold production currently in Victoria or New South Wales.

The only major gold producer in South Australia is BHP Billiton's Olympic Dam Mine which, apart from producing copper and uranium, produces gold as a byproduct.

The new study will help the mining industry examine the risks and focus efforts on regions more likely to yield returns.

With a +70-million-ounce gold potential, there will certainly be many interested parties. For investors, there are a handful of small companies with land holdings in the area. These companies are likely to show serious gains as they expand to fill a new and aggressive market.

We'll keep you updated on our findings in upcoming issues of Gold World.

Good Investing,

Luke Burgess
Managing Editor, Gold World
Investment Director, Secret Stock Files

Geithner Urges Congress to Raise Federal Debt Limit

U.S. Treasury Secretary Timothy Geithner wants to take the country even deeper into debt.

In a letter to U.S. lawmakers on Friday, Geithner urged Congress to raise the legal limit on the nation's credit card.

The amount the government may borrow is currently limited by law to $12.1 trillion, a cap that has been raised several times since the nation slipped into recession in December 2007. But Geithner says that it is "critically important" that Congress raise the country's credit limit in the next two months as the current debt limit could be reached as early mid-October.

Geithner didn't request a specific increase in the letter. But according to a report in the Washington Post, Treasury officials are expected to ask Congress to raise the debt cap to $13 trillion.

"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations," Mr. Geithner said.

According to brillig.com, the U.S. national public debt is already $11.675 trillion and increases by $3.91 billion per day.

Meanwhile, the U.S. deficit is on track to exceed $1.8 trillion, a postwar record compared with the size of the overall economy. The Congressional Budget Office has projected that the policies laid out in Obama's first budget would require an additional $9 trillion in borrowing over the next decade.

The massive size of this debt spells disaster for the long-term value of the US dollar. As a result, we continue to be extremely bullish on gold and silver.

Luke Burgess
Managing Editor, Gold World

Geithner Urges Congress to Raise Federal Debt Limit

U.S. Treasury Secretary Timothy Geithner wants to take the country even deeper into debt.

In a letter to U.S. lawmakers on Friday, Geithner urged Congress to raise the legal limit on the nation's credit card.

Geithner didn't request a specific increase in the letter. But according to a report in the Washington Post, Treasury officials are expected to ask Congress to raise the debt cap to $13 trillion.

According to brillig.com, the U.S. national public debt is already $11.675 trillion and increases by $3.91 billion per day.

The massive size of this debt spells disaster for the long-term value of the US dollar. As a result, we continue to be extremely bullish on gold and silver.

Luke Burgess
Managing Editor, Gold World

Gold and Silver Prices Top 2-Month Highs

Gold and silver prices rose to 2-month highs today after a US jobless report boosted sentiment in precious-metals trading.

The US Labor Department reported that first-time claims for state unemployment benefits declined by 38,000 to 550,000 last week. The news helped push gold for October delivery to a high of $972.70 an ounce, its highest level in 8 weeks. Silver also gained on the news pushing over $15 an ounce since mid-June.

While we remain bullish in the mid- to long-term, gold prices may experience a pullback as investors take profits in the short-term.

In other precious metals, both platinum was last seen down about $15 to $1,278 an ounce, meeting strong resistance at the $1,300 level. Palladium was also down almost $6 after hitting a 10-month high of $278.80.

Meanwhile, the US dollar slightly recovered after hitting its lowest level since September 2008. The US Dollar Index, a measure of the dollar's value against a basket of six foreign currencies, was down to a low of 77.428.

Luke Burgess
Managing Editor, Gold World

Gold and Silver Prices Top 2-Month Highs

Gold and silver prices rose to 2-month highs today after a US jobless report boosted sentiment in precious-metals trading.

While we remain bullish in the mid- to long-term, gold prices may experience a pullback as investors take profits in the short-term.

Luke Burgess
Managing Editor, Gold World

Short Term Gold Market Outlook

Long-term trends point to gold prices over $1,000. . . $2,000. . . maybe even over $5,000.

But in the short-term, investors may need continued patience.

Over the past few weeks, the price of gold has been bouncing between $900 and $950 an ounce. And, following a brief visit to the higher end of that range, gold could once again slip below the $900 level. Here's why. . .

The demand for physical gold from the jewelry, industrial, and dental sectors has significantly fallen.

Official figures from GFMS, the world's top authority on gold supply and demand, showed a 24% drop in gold demand from the jewelry sector during the first quarter, compared to the same period of last year. GFMS data also showed a 31% drop in gold demand from the industrial and dental sector for the same period, compared to the previous year. Global gold demand figures for the second quarter of 2009 will be reported around this time next month.

Gold demand from the jewelry, industrial, and dental sectors will likely remain weak in the short-term, considering the relatively high price of gold, a weak global economy, high volatility in the market, and the seasonal lull, which is typically experienced in the summer months.

Meanwhile, there is a fairly large long position on the Comex gold futures market, which may be significantly reduced in size over the next few weeks, as speculators continue to move back into equities. U.S. stocks rallied yesterday, sending the Dow Jones, NASDAQ, and S&P 500 to their highest levels of the year.

I'm not convinced, however, that there is much hope for a real recovery in the economy. Sure there's plenty of spin in the mainstream financial media, whose job it is to support their advertisers. But the real situation remains pretty dire.

The U.S. government is projecting a $1.84 trillion deficit for this fiscal year that ends September 30. Meanwhile, national public debt just crossed $11.6 trillion — and is growing by almost $4 billion per day.

Where will the government get the money to pay back this enormous debt and balance the budget?

Nobody knows.

The U.S. federal government claims to hold 8,133 tonnes of gold in reserves. At current prices of about $950 an ounce, this gold reserve is worth $272.5 billion. That's only about 2% of the national public debt, which doesn't factor in other finacial obligations like Social Security and government-sponsored healthcare, and is estimated to cost up to an additional $60-$65 trillion in the future.

If the government wanted to pay off the national public debt with the gold reserves that the Fed claims they have, it would have to sell each ounce for $40,580.

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Government insiders knows just how dire the situation is, even if their voice is suppressed by the mainstream media. Director of the US Congressional Budget Office Douglas Elmendorf recently wrote in his blog:

Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy....

...The current recession and policy responses have little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt. Federal interest payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to 2.5 percent by 2020.

So for now, we'll probably see gold move lower in the short-term. However, it's important not to lose sight of the big picture, which continues to be very bullish for gold.

The gold market is becoming increasingly dependent on investment demand. This is something that we've been expecting for quite some time.

As we've discussed before, the lives of gold bull markets play out in three main stages, which generally overlap:

Stage One: Currency Devaluation
Stage Two: Growing Investment Demand
Stage Three: Speculative Mania Buying

So far in today's gold bull market, we've seen strong evidence of the first two stages.

A dramatic drop in the value of the U.S. dollar against other world currencies has lifted gold prices over the past eight years. This devaluation is evident in the 42% drop of the U.S. Dollar Index, a measure of the dollar's value against six world currencies, between the summer of 2001 and spring 2008. The dollar rallied between the summer of 2008 and spring of this year, as foreign investors bought the greenback as an alternative to their own less stable currencies in the global recession. However, due to macroeconomic issues, such as the massive debt of the United States, the dollar seems destine for continued devaluation, which will continue to be positive for gold prices.

In the second stage of a bull market, gold prices continue to grow, due to increasing investment demand. Attracted by the gains of the first stage, speculators begin to buy gold as an investment. . . which further snowballs the price of gold.

Figures from GFMS show that identifiable investment demand increased 229% between 2003 and 2008.

Continuing this trend, gold investment demand continued to boom in the first quarter of this year, reflecting a desire for a safe haven from the U.S. dollar and other paper assets. Gold investment demand reached a historic high of almost 600 tonnes during the first quarter of 2009 — a whopping 248% increase compared to the same period a year earlier. In dollar terms, this represented a net inflow of $17.4 billion, up from $5.1 billion (or 42%) a year earlier.

GFMS Executive Chairman Philip Klapwijk wrote in a recent report, "Looking at the second half of 2009, investment demand, and especially its western elements, which includes activity in ETFs, futures and the OTC market, is expected to remain the driving force behind gold price movements."

The independent consultancy group predicts identifiable gold investment will exceed 1,500 tonnes by the end of this year. This estimate would represent a 36% increase over identifiable gold investment demand in 2008.

Investment demand will be the driving force that will push gold much higher over the next several months. As I mentioned, global gold demand figures for the second quarter of 2009 will be reported by GFMS around this time next month.

In the meantime, it's important to keep our eye on the prize. Don't get disheartened by another pullback in gold prices. Rather, use any pullbacks to add to or establish new gold positions. If gold does in fact slip below $900, we recommend buying every ounce you can afford.

Good Investing,

Luke Burgess
Managing Editor, Gold World
Investment Director, Secret Stock Files

P.S. The most powerful governments, central banks, and investment groups in the world are still holding their gold reserves in anticipation of a significant rally in prices. This puts a virtual lock on Greg McCoach's latest gold investment recommendation. . . which yields two times the profits made by gold. In other words, every time gold goes up 1%, you're paid 2%. . . every time gold goes up 10%, you're paid 20%. To read more on how you can profit from Greg's new investment vehicle, just click here.

Swiss Banks Running Out of Storage Space for Gold

Gold Stock of the National Bank in Bern

Swiss news website 20 Minuten Online reports that the country's banks are quickly running out of secure storage space for gold bullion owned by investors and institutions. Concerns over inflation, the global economic downturn, and the success of gold ETFs has rapidly filled Switzerland's bank vaults with bullion.

Several weeks ago, the 139-year-old Zürcher Kantonalbank reported that it was forced to relocate some of its stored silver bullion to another site to make room for gold. More recently, another Swiss investment banker was quoted by 20 Minuten Online saying, "We have the need to store more gold for our clients, but are finding it difficult to find secure storage facilities."

Many US-based gold ETFs have recently seen a relatively small decline in gold holdings. New York's SPDR Gold Trust, for example, has sold over 34 tonnes of gold in the last four weeks, equal to almost 3.3% of its total holdings. Meanwhile, the Swiss ZKB Physical Gold ETF and Julius Baer Gold ETF has increased its holdings by 2.8% and 4.8%, respectively.

Luke Burgess
Managing Editor, Gold World

Swiss Banks Running Out of Storage Space for Gold

Gold Stock of the National Bank in Bern

Luke Burgess
Managing Editor, Gold World

Gold Prices Touch Five-Week High

Gold for August delivery hit a five-week high in overnight trading as a weaker US dollar and higher crude oil prices boosted the metal’s appeal as an alternative investment and hedge against inflation.

Bullion for immediate delivery gained as much as $16.40, or 1.7%, to $953.90 an ounce, the highest since June 12. The metal, which climbed 2.7% last week, was trading at $952.60 by 9:00 a.m. EST.

Crude oil also found strength in the London market gaining as much as $1.53, or 2.7%, to $65.90 per barrel. This is the highest level for oil since July 6.

Meanwhile, the US dollar fell sharply against most major currencies on speculation that this week's European and US economic reports will show the global recession is easing, sapping demand for the greenback as a refuge. The US Dollar Index, a measure of value of the dollar against a basket of six major world currencies, dropped to a near seven-week low, dow 0.7% to 78.925.

In other precious metals, silver climbed as much as 2.6% to $13.75 an ounce while platinum put on 1.1% to $1189.90 an ounce and palladium gained 1.4% to 254.50 an ounce.

Luke Burgess
Managing Editor, Gold World

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