How to Buy Gold for $50 an Ounce

by Andrew Mickey

It’s coming -- fast. The dollar is in freefall mode. The Canadian dollar hit $1.10 today. The euro is at an all-time high. Oil passed $98 a barrel. Heck, even the Russian rubble is starting to attract some attention for investors.

China is blowing the wad. It’s selling all its dollars. Officially, China said it’s going to “diversify” its $1.43 trillion worth of foreign exchange reserves. Since the country holds so many dollar-denominated assets, “diversify” can only mean one thing: sell U.S. dollars.

And it has. Every currency is soaring in value against the U.S. dollar. Is the dollar going to be worthless? Not a chance. Exports are rising and there are signs of long-term life in the world’s largest economy.

But the next few years are going to be an adjustment period for the over-extended 20-something set that have been living the good life on someone else’s dollar for too long. I wouldn’t leave the U.S. economy for dead yet. Although a recession appears to be coming just a few quarters away, the long-term outlook for the U.S. isn’t too bad.

But, who has five to 10 years to think worry about that -- let alone, 40 years until retirement. We’ve got to make moves now to protect ourselves.

And when people are fearful over a falling dollar, we’re primarily concerned with the broad fear sentiment, which moves markets much more than reality, there’s no better place to be than gold.

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Gold has been soaring over the past few weeks. As I write, an ounce of the yellow metal is trading for $837 an ounce. That’s just a few bucks away from its all-time high, which it’s looking like it’s going to pass on its way to $1,000.

So what should we do, you ask. There are a lot of options. You can buy gold bullion or coins. And when gold hits $1,000, you’ll be up a cool 19%. Good, but not great.

Or, you can buy the stocks of gold producing majors that, quite frankly, offer very little upside. Shares of Goldcorp (GG:NYSE), Newmont Mining (NEM:NYSE), and Barrick Gold (ABX:NYSE) have already had there run. But they will probably be able to squeeze out another safe 10% or 20% as gold marches on.

But again, we’re looking for a lot more. And for that, we’ve got to turn to the small-cap and mid-cap gold stocks. Fear & Greed’s top gold play, Seabridge Gold (SA:AMEX), has been beating the rest and still offers some good value.

I uncovered this leveraged gold play last October at a conference in New York City, Seabridge got the lowest turnout of the day. In fact, at the presentation it was just me and Seabridge's president and CEO, Rudi Fronk.

Meanwhile, other presentations from Taser International (TASR:Nasdaq) and Green Plains Renewable Energy (GPRE:Nasdaq) were standing-room only. Now, a little over a year later, GPRE is down 67% and Taser is up about 50%.

Chasing hot stocks can be a wild game, but solid stocks that no one else cares about usually pay off the best. For instance, Seabridge is up more than 200% since I met Rudi for the first time that day.

The reason Seabridge is such an attractive gold stock is that it’s highly leveraged to gold prices. In fact, when gold hits $1,000 an ounce, shares of Seabridge will probably be trading around $54 per share. That’ll be good for a 40% win from here. Or, if you bought last year, it’ll take your gains up to around 280%.

The way I look at Seabridge is like this. It’s like buying gold for pennies on the dollar. For instance, Seabridge has more than 24 million ounces of measured, indicated and inferred resources. That’s $24.1 billion worth of gold.

However, it doesn’t mine it. The gold reserves just sit there. They might be mined someday; they might not. But as long as gold is above $300 an ounce, those ounces are worth something. And with gold at $837 an ounce, the market tells us those are worth $1.36 billion, or Seabridge’s total market value.

All of that works out to about $50 an ounce. Clearly, one of the best values in the gold industry today.

Now, more than ever, is time to take some protection. There are also plenty of opportunities in the junior mining companies. For instance, in my premium investment advisory, we recently picked up shares of a small gold producer that just added to its massive reserves in Venezuela. And shares haven’t had the run-up with many other gold stocks… yet.

When it comes to buying gold stocks now, it’s best to go with Seabridge or an even smaller mid-tier producer. They’re poised for a big run over the next few months.

Of course, gold is one of the most obvious investment ideas around right now. Tomorrow, we’ll take a deeper look into what else we can do to protect ourselves from the ongoing fall of the dollar. After all, investing isn’t always about big returns, but protecting your financial well-being as well.

Good investing,

Andrew

SOLAR STOCK VOLATILITY: SHORTAGES SPELL PROFIT OPPORTUNITY

by J. Christoph Amberger, President, TFN

Alternative energy sources are supposed to deliver the United States from its dependence on oil imports. At 90 bucks a barrel, that doesn't sound like a bad idea. Of course, sometimes you might end up trading one dependency for another.

The solar cell industry currently illustrates what happens if sudden increases in demand cannot be matched by supplies. It's pretty basic stuff. It happens with oil, with pig bellies, and with orange juice concentrate. Demand drives up prices. That's how the market works.

The bread-and-butter photovoltaics industry, for one, got caught in a massive raw material supply crunch. Makers of photovoltaic cells depend on super-pure -- that's 99.99999% pure -- polysilicon, which is essential for the manufacture of computer chips and solar cells.

In 2003, polysilicon was going for $32 a kilogram (the equivalent of about 2.2 pounds). This year it has climbed as high as $200. And yes, that's correct: It costs more than twice the money for a smallish bag of sand than it costs to buy a barrel of oil at record price levels.

There are some solar tech CEOs who predict a polysilicon glut by 2010 that will cut prices to less than $40 a kilogram, maybe even $20 as global production climbs to 100,000 tons in 2010, from 35,000 tons now.

(If I were a CEO of a solar technology company concerned about stock prices and jumpy customers, I would say that, too.)

After all, polysilicon is a highly refined product that only a handful of companies can make, and whose plants cost $200 million and take three years to come on line. Worse, the semiconductor makers appear to be hoarding supplies at this point, restricting the reasonable growth rates in the worldwide solar photovoltaic (PV) market for next year.

Accordingly, with the shortages making news headlines, solar stocks have had a rough week. But that's just how traders like it: Volatility spells profits.

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