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Dear Subscriber,
Congratulations on your recent decision to subscribe to my free Market Forecast newsletter.
Now you are a part of our extended family that includes The Complete Investor, Emerging Investments, Leeb’s Aggressive Trader, Leeb’s ETF Trader, Leeb IPO Insight and more. During the course of your free subscription, you will be receiving our Market Forecast Commentary by email. In this commentary, you will learn about my and my editorial team’s opinions in what I deem to be the major trends and developments that have the ability to affect your investments.
These Market Forecast email dispatches will cover a broad range of investment news and opportunities that I feel are essential for building wealth in today’s volatile world.
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Stephen Leeb, Ph.D. Editor, Market Forecast
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Market Forecast
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Gold regains its glitter…
Gold shares are only just getting started…
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Investors have been getting a lot of mixed signals in the markets lately: are stocks headed higher or lower, is it safe to buy corporate bonds, is the economy headed for recession or will the expansion continue? One area where the market is sending out a clear signal is with inflation.
Gold, mankind’s oldest bellwether for inflation closed in on $700 an ounce today, reaching its highest level since May. Several factors are at work.
In a bid to keep the credit markets operating smoothly, central banks around the globe, led by our own Federal Reserve have pumped more than $200 billion into the banking system in recent weeks.
Here at home the swing from inflation hawks to inflation doves has been quite rapid. The idea is that it’s easier to fight inflation rather than confront a recession.
In addition to pumping cash into the system, the central bankers cut its discount rate, the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Banks in a largely symbolic move. And market participants don’t think the Fed will stop there. They’re currently assigning a 45 percent probability that Gentle Ben Bernanke will lower the more important fed funds rates in the coming weeks. The fed funds rate is the interest rate banks charge each other for overnight loans, and it’s the rate many other interest rates are tied to. So a decline in the funds rate would clearly be stimulative.
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Here’s an important investing secret.
What should you do when one of your riskier investments strikes gold? More precisely, what happens when a hot and volatile IPO stock catapults 43.9% higher just 8 days after you bought it?
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On the other hand, the stock is clearly riding on a wave of investment excitement following its launch. There’s no telling when this wave will start to ebb, or how far down the shares might temporarily dip. On top of that, there are a number of other IPOs coming up that look just as exciting, and we want to make sure our IPO traders have capital available to take advantage of them too.
So here’s what we did. We told subscribers to sell half their shares in this blockbuster IPO, locking in that 43.9% gain on that portion of their investment, and freeing up capital for the next big opportunity. The rest we let ride, so we stay positioned to benefit from the company’s long-term success. It’s a strategy that lets us have our cake and eat it too.
Meanwhile, I can’t wait to tell our traders all about the next big IPO that will take place just weeks from now. It never ceases to amaze me how much money can be made from these in just a few days– and sometimes just a few hours. If you’d like, I can put your name on the list as well. To find out how to sign up, just click on this link …
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Research Chairman
Leeb’s IPO Trader
Keep in mind that the U.S. is easing at a time when many countries have been raising their interest rates, although the European Central Bank and the Bank of England kept interest rates unchanged at 4 percent and 5.75 percent, respectively this time around. This growing interest rate differential is largely bad for the U.S. dollar, since it makes investments in those countries relatively more attractive. And what’s bad for the dollar is typically good for gold as investors turn to alternative safe havens. But even more bullish is the fact that gold is rising not just in dollar terms but in other currencies as well.
The yellow metal is also becoming more attractive in light of crude oil prices climbing above the $76 a barrel level. Strong and growing demand, coupled with OPEC’s insistence that there’s no need to increase output, should drive crude prices even higher in the coming months.
Growing demand for gold will also help lift the Midas Metal. According to the World Gold Council, the industry’s trade association, India’s demand for gold is set to jump 50 percent this year, with Indian gold demand likely exceeding 1,000 tons for the first time ever. That’s a figure that’s only likely to rise in the years ahead. Right now India’s per capita gold consumption is just half that of the United States and one third of Middle East countries’ per capita consumption. Rising incomes abroad will help to narrow that gap.
Despite the rosy outlook for gold, gold mining stocks are still very attractive here. We took a look at a graph showing the ratio of the price of gold to the Philadelphia Gold and Silver Index (XAU), an index of gold mining shares. At the height of the credit crunch in August, the ratio briefly topped 5. That’s not a magic number by any means, but it indicates the gold shares are lagging the physical metal.
Historically when the ratio climbs above 5 the gold miners tend to soar in the ensuing months, on average climbing 24.4 percent in the following six months and 40.5 percent in the subsequent 12 months. We think this time around will be no exception.
Until Next Time,
Your EI Team http://www.completeinvestor.com/marketforecast/issues/2_139/general/2280-1.html
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