Gold Prices: How to Climb the "Golden Staircase'

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When U.K. subscriber John M. wrote in this week, he got right to the point.

Asked John: "What's happening to gold prices? Why are they dropping?"

For an answer, I speed-dialed Real Asset Returns Editor Peter Krauth - our resident expert on mining and precious metals.

Peter is based in Canada, which keeps him close to the natural-resource companies that proliferate north of the border. He gave me a detailed and insightful answer to John M.'s question.

And he recommended three ways to profit - including an ETF he says is perfect for first-time gold investors.

To explain what's happened with the "yellow metal" - and to project where gold prices will go next - Peter invented a pricing theory that he christened the "Golden Staircase."

"The bottom line, Bill, is that the price of gold has simply entered a consolidation phase - much like it has done numerous times since it entered this secular bull market back in 2001," he told me.

Gold futures were at $1,662.40 an ounce yesterday - well off the yellow metal's high. Here's why.

"If you think back, when gold hit its all-time high of $1,900 last August, we were in the midst of wild speculation that the U.S. government wouldn't resolve its debt-ceiling crisis," Peter explained. "A deal in Congress was reached in time, but Standard & Poor's went on to downgrade the nation's credit rating for the first time in history. Since then, there's been considerable apathy towards gold by the general investing public, pushing its price down about 13%. What's more, government-calculated inflation looks benign, taking away from gold's luster."

And here's where it gets interesting.

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