Why Gold Beats the Market Manipulators

Why Gold Beats the Market Manipulators

By Martin Hutchinson, Contributing Editor, Money Morning

There’s one investment that Wall Street manipulators can’t touch – and neither can the Fed or the U.S. government. Right now that investment is gold.

Take Goldman Sachs for instance… After bailouts from the U.S. Treasury Dept, they just posted $16.7 billion in compensation for its traders. At the last G-7 meeting, one insider counted 24 our of 32 finance ministers as ex-Goldmanites. The firm regularly trades along with – and against – its own clients. And now it’s even hording physical commodities like oil. Do you think they know something we don’t?

One thing is for sure in 2010… Taking a stake in a hard asset like gold may well be the surest way to make some money for yourself despite the shenanigans on Wall Street.

Fact is, gold was up over 60% in 2009… And, it is now projected to soar another 73% in the next 12 months.

Read on to find out exactly why gold has so much higher to climb… and how to profit on the investment Wall Street isn’t telling its customers about.

Gold’s Only Halfway to Its True High

Gold continues to shatter new highs, but the reality is that it has barely gotten going.

Its 1980 peak of $875 is equivalent to $2,400 per ounce today – more than double the current price. And there’s nothing holding gold back from hitting those numbers.

The Federal Reserve’s loose monetary policy has put the dollar under duress. The central bank has pumped more than $2 trillion into the U.S. economy since the financial crisis began over two years ago. It lowered the benchmark Federal Funds rate to a record low 0%-0.25% range and it has stepped up purchases of U.S. Treasuries and mortgage-backed securities.

As a result, the dollar tumbled about 20% against the euro in the past year. The Dollar Index – which measures the greenback against the euro and five other currencies – fell to a 15-month low in December.

With the dollar in freefall, central banks and hedge funds have sought shelter in hard assets, particularly gold. The Reserve Bank of India (RBI), for example, recently bought 200 metric tons of gold from the International Monetary Fund. This is equivalent to 8% of the world’s annual mine production in just one transaction.

And, with 203.3 metric tons still on sale at the IMF, don’t be surprised if China decides to bulk up on gold too. China, the world’s sixth-largest holder of gold, has increased its reserves by 76% since 2003.

In fact, India’s purchase could spawn a chain reaction in which other countries and investors around the world ramp up their gold purchases.

Global Demand Will Push Gold Past $2,000

It’s clear that worldwide demand for gold is on the upswing. However, just as that is happening, supply of the yellow metal is falling.

Annual worldwide mine production of gold has decreased by nearly 8% since 2001, even as the price of gold has tripled.

Meanwhile, investment demand for gold remains strong, surging 46% in the second quarter of 2009 over a year ago, according to the World Gold Council.

What’s more, a number of the larger hedge funds are beginning to invest in physical commodities, instead of futures. They’re worried that the U.S. government will put position limits on futures. This is a big deal because this further limits the supply of gold and other commodities.

In short, everything is working together to create a major bull market for gold.

The One Gold Investment to Make Now

The time to take advantage of gold’s historic rise is now. But don’t just buy gold bars or bullion. There is one company you can invest in now that actually leverages the price of gold.

That company is Yamana Gold Inc. (NYSE: AUY).

Yamana Gold is a growing gold producer with a $6.8 billion market capitalization that made an unexpectedly good profit in the fourth quarter of 2008. What’s more, its gold production is expected to double to 2.2 million ounces per year by 2012, primarily from its Brazil and Argentina mines.

Yamana is also expanding both production and reserves (currently 19.4 million ounces) with operations in Canada and Latin America. That’s because Yamana Gold went on a spending spree in the past two years, buying up junior mines around the world to lock in reserves.

Even better, because Yamana is a gold producer it benefits from leverage on the price of gold. Here’s how: If gold trades at $1000 and it costs the miner $500 to produce, they pocket $500 in profits. If gold moves up to $1200, but production costs remain at $500, profits move up to $700 – without having to mine any more gold! That’s $200 higher than before, or a 40% increase from $500 profits. The miner’s shares are then likely to appreciate by some 40% as well, while gold only appreciated by 20%. Pretty good deal.

That means that Yamana Gold has a huge potential benefit from the coming increase in gold prices. Invest now and watch your portfolio grow.
Editor’s Note: Looking for a quicker way to get in on the gold rush? Using a secure transaction from your own computer that takes just minutes, you can convert your dying dollars into U.S. Treasury-approved “gold dollars.” Use them as you would regular cash – except as the price of gold goes up, you’ll be able to buy more with 1 “gold dollar” than you could with an old George Washington! It’s so simple; we’ll tell you how to do it for free. Just go here.