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Tags: Gold/Precious Metals, Interest Rates

The Five Ways to Profit From the Pending Gold Bubble

By , Money Morning • October 23, 2007

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By Martin Hutchinson
Director of Global Investing Research

(The First of Two Parts)

The Fed has kept interest rates too low for the last decade, causing bubbles in tech stocks and housing, and has now begun to lower rates anew.

Other central banks have done the same, notably in China, where the economy and the stock market have overshot all reasonable forecasts.

In the long run, that's bad news for the world economy, because it translates into higher commodity prices and increasing overall inflation. In the short run, while the money injected by Fed Chairman Ben S. Bernanke from his Sept. 18 rate reduction (with perhaps another one to follow on Oct. 31) is working its magic on the economy and on the stock market, it's also hugely wonderful news for Gold Bugs.

We're going to show you how to profit from this current situation. But, first, some historical context is necessary.
Gold at $2,000 an Ounce?

Back in 1980, gold soared briefly to $850 per ounce; that's equal to $2,000 per ounce in today's money. At gold's current price of around $770 an ounce, it's highly likely gold has considerably further to rise. While the rise from $260 to $770 has been quiet and orderly, in line with the worldwide re-rating of commodities caused by Indian and Chinese demand, a further rise from this point will probably look more like the price increase of a speculative bubble.

Since the gold market and the market for gold mining companies are both small compared to the amount of money that may potentially head in that direction, the final speculative peak may be huge, with the price of gold soaring almost vertically - advancing several hundred dollars an ounce in a mere matter of weeks, only to collapse as the bubble bursts.

It's a familiar pattern - just think back to what happened to Internet shares back in the "dot-bomb" era of 2000-2001 - although this one will pay out in a very short period of time, mere weeks, as I stated.

This is a dangerous market move to play, but is potentially highly lucrative if you're both careful and very disciplined. For investors who want to surf this wave, remember: always have your trailing stops in good order on an electronic trading system, so if the market collapses while you're in a meeting, in the men's room, or out on a day trip with the family you can still exit with a profit!

The simplest way to play gold is the StreetTracks Gold Shares Exchange Traded Fund (GLD), which invests in gold directly. However for those Money Morning readers who think this is boring, and want a little more spice to their lives, I will run down and review each of the world's 12 major gold mining companies, and will pick out the couple pick out the few best values.

(Part Two: Gold Plays to Make, will appear on Thursday's Edition of Money Morning.)

Here Are 10 “One-Click” Ways to Earn 10% or Better on Your Money Every Quarter

Appreciation is great, but it’s possible to get even more out of the shares you own. A lot more: you can easily beat inflation and collect regular income to spare. There are no complicated trades to put on, no high-level options clearances necessary. In fact, you can do this with a couple of mouse clicks – passive income redefined. Click here for the report…

Claim My Free Report

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14 years ago

[…] Money Morning Special Investment Report: The Five Ways to Profit From the Pending Gold Bubble (Part I). […]

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13 years ago

[…] gold investing recently, and detailed five global gold plays to make now. The first part ran down a litany of reasons why to get into gold. The second listed and reviewed each of the world's 12 major gold mining companies, and presented […]

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[…] markets globally," Greenspan told the Council on Foreign Relations. Indeed, Money Morning has repeatedly warned readers about the pitfalls of paper currency. However, it's unlikely that readers hoping for a return to the gold standard will get their […]

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[…] to be doing much better than we are," says Money Morning Contributing Editor Martin Hutchinson, who correctly predicted the record price surge in gold. "In the long run, that's good news for the United States. Rapid world growth will eventually […]

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[…] years ago – late October 2007, to be exact – Hutchinson told Money Morning readers to buy gold. At the time, it was trading at less than $770 an ounce. Gold zoomed up to $1,000 an ounce – creating a nice […]

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[…] years ago – late October 2007, to be exact – Hutchinson told Money Morning readers to buy gold. At the time, it was trading at less than $770 an ounce. Gold zoomed up to $1,000 an ounce – creating a nice […]

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