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Dear Members,

What is gold really worth?

There are a lot of arguments regarding gold's true value. How can anyone justify that an ounce of gold is worth over $1100/oz? Do people even know exactly what an ounce of gold looks like?



Take a look:

Ounce of Gold in Hand Comparison

Not very big, is it?

The fact is gold really does nothing but sit around and look pretty. And believe us, because of this, there are many anti-gold bugs out there who have been shooting darts at our faces for our continued belief in gold-related plays.

So let's clear the air once again. We are not gold bugs. But we do take advantage of the obvious. And the obvious is simple:

Gold is worth a lot of money right now

Gold, like the pieces of paper in our wallets we call money, is something that people can put value to. But there's one big difference: You can print as much money as you want. But you can't with gold. There's only so much.

And everyone wants a piece...especially the banks.

Last year, the world's central banks became net gold buyers for the first time in two decades and according to CPM Group, this trend could continue. Right now, central banks hold approximately 18 percent of the total gold ever produced.

A recent Bloomberg survey reported 15 of 22 analysts forecasting that gold would make further gains this year, with Goldman Sachs predicting $1,380/oz in the next 12 months and HSBC predicting a peak of $1,300/oz in 2010 and as high as $5000/oz in the next five years.

During the past decade, precious metals were the best-performing asset class, beating property and shares with returns of nearly 250 per cent. People who invested money in precious metals, such as gold, silver and platinum, during the ten years to December 2009 made returns of 242 per cent, the equivalent of a gain of 13.1 per cent a year.

It's no secret that gold, the most recognized of the precious metals, has taken center stage.

In past newsletters we told our readers to follow where the smart money goes (see Where the Billionaires Invest).

And it's still going into gold

Just last week, we mentioned why famed hedge fund managers such as George Soros and John Paulson are investing in gold, with billions upon billions already directly tied to gold through the GLD ETF (see Nothing We Can Do).

We understand that that their significant holdings in GLD is a hedge against their share class, but their bullishness in the gold sector remains. That's why Paulson started a new gold fund this year that invest primarily in the equity of gold mining companies and some derivatives on the price of gold. His gold fund's objective "is to outperform gold price in a rising gold price environment."

This past week, both George Soros and John Paulson made yet another bet on gold with a new investment of $175 million into Novagold, a company focused on gold exploration, development and mining and one that we have had on our watch list for quite some time. Yes, they were able to pick up shares at a significant discount to the market. But the fact remains, two of the biggest hedge funds in the world are investing in gold explorers and miners.

Practically all of us do not have the monetary capacity to invest like George Soros and John Paulson. We are not all able to pick up shares immediately at a discount to the market. That's why investors like ourselves need to beat the heat by looking at miners that have the ability to raise funds while building a strong portfolio of assets with strong gold resources. At the same time, they need to be under the radar enough that their shares are still undervalued so that we can pick them up at a discount to the market - without spending $175 million.

For months we have been placing bets on gold miners instead of the price of gold itself. Gold miners and juniors have the ability to significantly leverage the price of gold through many avenues. Not only can they achieve substantial gains in share value through the rising price of gold, they can also benefit from new discoveries and takeover/merger activities.

We're not saying to go out and buy every gold company with a resource because we do expect a strong market correction. But we are saying that over the next few years, we expect commodities to outperform.

Along with it, many juniors will make significant gains.

When all else failed last year, the resource sector remained strong with trading volumes and overall capital financing consistently high. Unlike other sectors where new money was scarce and plagued by light volume, the resource sector stormed through and bounced back stronger than any other sector.

Back in March of 2009, when analysts and economists were telling everyone to horde cash, we put it in the miners. Since then, the miners are up considerably against other indices. (see The Report That Shocked the World)

Of course, there is a possibility of gold trending downward.

However, even if gold were to hit $900/oz, gold prices are still strong enough where discovery and takeovers are going to be rewarded.

If you are going to invest in a junior, you have to think like a major

With the recent bids we have seen for juniors, it appears that the majors are using valuations of around $900/oz for their bid prices when looking at takeover targets.

That means a lot of the juniors are still attractive to the majors at a lower price point. Conversely, if gold continues to rise, it can not only add substantial value to the juniors with strong resources, but makes their projects that much more viable as people scram for more gold.

Of course, exploration is a negative cash flow business so it's imperative that companies are able to raise money. That's why we will continue to follow and invest in companies with ounces in the ground, cash in the bank, and enough management power to raise the funds necessary to advance.

Gold As a Currency


It's no secret the demand for gold is continuing to rise as a reserve currency. That is why we need to start looking at gold as a currency, and not just a commodity that just sits there and looks pretty.

Next week, by reader demand, we're going to continue with a follow up on one of our most talked about newsletter editions, "The Crash of 2010."

You won't want to miss some of the headlines that the government has been hiding from you...

Stay tuned.
 
Forward this issue

Until next week,

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Featured News:
Kinross Gold Corporation Announces Proposed Acquisition of Underworld Resources Inc. - Click to Read
Casey Research

Competition for the IMF's Gold?

Jeff ClarkJeff Clark, Senior Editor, Casey's Gold & Resource Report

On February 24, Reuters reported that the Reserve Bank of India was "set to be a buyer" of the 191.3 tonnes (6.74 million ounces) of gold the IMF is selling. Although the bank wouldn't comment directly on the possibility, they did say, "We are closely looking at the gold market... gold is a safe bet."

The article then quoted an unidentified official from the China Gold Association as saying, "It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility."

But the next day, Finmarket news agency in Russia reported that China "confirmed its intention" to buy the IMF gold. "Chinese officials have confirmed previous announcements from IMF experts and said that the purchasing of 191 tons of gold would not exert negative influence on the world market."

While they've been silent since, both India and China have publicly hinted they want this latest batch of yellow bars from the IMF. There's no way to know if a competitive bid would spring up between these two countries, but...can you imagine the ramifications if one did?

When India bought 200 tonnes of IMF gold last November 3, it set off a buying spree that saw gold rise 14.2% in 4 weeks. What if this time around, a couple central banks both want the gold for sale? What if China says to India, "Not so fast, guys. We'd like to bid on that, too..." and word of that clash leaked out?

Pure speculation, of course, but competing for gold purchases isn't a far-fetched idea. This sale is not pre-arranged; it's an open market sale. Also, there's only so much to go around. These two countries have only a tiny amount of their reserves in gold. Throw in the fact that central banks worldwide are already net buyers.
A pretty delicious thought, wouldn't you say?

The gold price dropped a tad on the IMF announcement, but is up 1.1% since then. It's pretty hard to make a case that IMF sales will hurt the gold price. As I said a few weeks ago in my dirty jokes column, IMF sales tend to mark bottoms in the price and not tops. The World Gold Council reported that floor traders now consider $1,054 as a floor in the market. Why? That was the average price India paid for the 200-tonnes they bought from the IMF last fall.
Meanwhile, what is our government doing?

Click Here to Continue Reading

More Casey Research Articles

> The Big Dead-Cat Bounce
> Doug Casey on Surviving Financial Apocalypse Now
> Entropy - Why the World as We Know It Is Dying
> What's More Important: Price Per Ounce or Ounces Owned?

Featured News:
Goldcorp Operating Cash Flow Exceeds $1.2 Billion on Record 2009 Gold Production - Click to Read
Zacks Investment Research: Market Outlook and Top Picks

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The Zacks experts discuss their outlook for the market moving forward and share some of their favorite sectors and stock picks with you.

Find out what they think in this video segment of Zacks roundtable review.

Click the video to play.

More Zacks videos:

> Current Ratio - Screen of the Week
> Aggressive Growth Stock Picks - March 8, 2010
> Momentum Stock Picks Video - March 4, 2010
> Effects of Rising Rates and Rising Oil Prices
Featured News:
Plutonic Power Announces Energization Plans for Toba Montrose Transmission Line - Click to Read
Morningstar - Invest Internationally at Home

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Bank of New York Mellon's Julio Lugo sees ADRs as a good way for U.S. investors to access foreign markets without the complexity of directly investing money in a foreign stock exchange.

Click the video to learn more.

This week's Morningstar videos:

> What to Know When Investing in ADRs
> When Fees Can Help Your Fund
> Do You Need an Investment Umbrella?
> Liquidity's Tremendous Effect on Returns
> Will Investors Get Caught in Washington Gridlock?
> Why Venture into Frontier Markets
> Picks to Keep Truckin' Morningstar Video
Featured News:
Gold Wheaton Supports First Uranium Convertible Note Financing - Click to Read
Technical Trading with Harry Boxer

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Harry Boxer has more than 40 years of Wall Street investment and technical analysis experience, including eight years on Wall Street as chief technical analyst with three brokerage firms.

Watch the video as he walks you through his
technical analysis on Cerus Corporation, Clean Energy Fuels, Incyte Corp, Xyratex Ltd., and a whole bunch of other stocks. To see more videos, Click Here.

Harry BoxerLike his analysis?

Click Here to receive a Free 15-Day Trial to Harry Boxer's Real-Time Technical Trading Diary for Equedia members.

Featured News:
SouthGobi Energy Resources to Convert US$250 Million of China Investment Corporation Convertible Debenture Into Common Shares - Click to Read
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Featured News:
NovaGold Announces Completion of US$75 Million Financing - Click to Read
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Research in Motion
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In This Issue
Kinross Announces Proposed Acquisition of Underworld Resources
Competition for the IMF's Gold?
Goldcorp Record 2009 Gold Production
Market Outlook and Top Picks
Plutonic Power Announces Energization Plans
Invest Internationally At Home
Gold Wheaton Supports First Uranium
Technical Trading Videos with Harry Boxer
SouthGobi Energy to Convert $250 Million
Equedia Newest Feature: Embed!
NovaGold Announces Completion of US$75 Million Financing
Equedia Tips- Markets Tab
Build Your Network
Additional Features
Forward-Looking Statements
This Week's Most Wanted
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