Copyright 2012 by Weiss Research Published By: Weiss Research Publication Date: February 2012

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Gold and Silver on the Launch Pad

Why Gold Will Go to $2,500 ... & Higher! 6 Bullish Forces Driving Precious Metals 1 Sizzling Stock Pick
There is one shining truth about this market one secret that can help you make boatloads of money when others lose their shirts: As long as governments globally continue to print and spend money, gold and silver will continue to trend inexorably higher. Its that simple. If you try to bet against gold and silver, good luck with that. You might catch a short-term downdraft and walk away with a few bucks in your pocket. Or you might get so skinned you cant sit down for a week. Its better to play the BIG trend. Sure, there could be zigs and zags. Corrections are a necessary part of any bull market. But as long as the big trend is up, corrections are just buying opportunities. Lets take a look at six bullish forces driving precious metals. Force #1: The Big Rush into Precious Metals Hasnt Started Yet. The prices of gold and silver are on fire, right? Heck, just look at a performance chart of gold, silver and the S&P 500 over the past two years ...

For an updated chart, click here: http://bit.ly/qteoCc

In a recent two-year period, the S&P 500 rallied a little under 12% (and the S&P was recently down year-to-date). Thats okay, until you realize that gold jumped 42% over the same time frame. And silver is up 58% in two years. Even though gold and silver are trending higher, few Americans are aware of these metals as investment opportunities. Millions of investors, burned by market volatility, are not paying attention to gold right now. They have no idea of the enormous profit potential. They are going to miss the boat entirely. When they wake up and play catch-up youll be wellpositioned to ride that surge of demand. Force #2: Central Banks Have Switched from Net Sellers to Net Buyers of Gold. The worlds central banks became net buyers of gold during 2010 after they were previously net sellers for 21 years, according to the World Gold Council. During 2010, the worlds central banks bought 87 metric tons of gold more than they sold. In 2011, this trend accelerated. In fact, central banks of emerging market countries such as Korea and Thailand added more than $10 billion of gold to their reserves in 2011. Thats more than 180 tonnes of gold, more than double the roughly 73 tonnes purchased by ALL central banks globally in the whole of 2010. Mexico was the largest buyer of gold in 2011, with $5.3 billion worth of purchases, or 98 metric tonnes of gold, followed by Russia, which bought 48 tonnes.

Korea, Kazakhstan, Greece, Ukraine and Tajikistan also added to their reserves and were among some of the bigger bullion buyers in 2011. Kazakhstan's reserves rose for the third timein 2011, by 3.11 tonnes in June to 70.434 tonnes, Taijikistan's reserves rose 0.04 tonnes to 3.036 tonnes and Greece and Ukraine added 0.03 tonnes each, bringing their official holdings of gold to 111.506 tonnes and 27.744 tonnes, respectively. Why are all these central banks becoming gold hoarders? Because their faith is failing in the Wests benchmark bonds and currencies like the U.S. dollar and euro. Force #3: Gold Supply/Demand Squeeze Is Tight and Getting Tighter. The World Gold Council s most recent statistics show that gold demand in the third quarter of 2011 reached 1,053.9 tonnes, an increase of 6% compared to the same period a year earlier. Demand growth was driven by investment demand, which rose a whopping 33% year-on-year to 468.1 tonnes, generating a record quarterly value of $25.6 billion. Much of this is new demand from China. China is the largest gold producer, but its not nearly enough to sate the hunger for gold represented by 1.3 billion new consumers. In fact, Chinas gold imports last year jumped five-fold in 2010. The final figures for 2011 arent in yet, but the World Gold Council said China's gold consumption this year was expected to grow around 10% from a year ago to reach 750 million tonnes. Meanwhile, India is no slouch, either. It was the largest consumer of gold jewelry in 2010, importing 800 metric tonnes, according to data compiled by Bloomberg. Indias imports probably dropped 10% in 2011 due to higher prices. Still, between them, India and China consume a LOT of gold. Heres another statistic: 2010 world mine production was 2,652 tonnes, which means China and India account for more than half of global annual mine production of gold. Remember, consumers in communist China have only been able to purchase gold freely in the last 10 years. Ownership restrictions were lifted in 2001. So the Chinese tsunami of gold demand is building and probably going to get bigger. At the same time, large, new gold deposits 10 million ounces or more are becoming increasingly hard to find. These large discoveries have been in steep decline since the late 1980s. Even smaller deposits are being discovered less and less since that time.

And old deposits of gold are being worked out. South Africa was once the worlds largest producer of gold. It slipped to second place behind China in 2007 and dropped to third place last year. And the trend continues. Gold production in South Africa fell 5.8% in May from a year earlier. Meanwhile, production of gold and silver in Peru, another big precious metals producer, fell in June, continuing a trend of lower output in 2011, according to government statistics. So put together soaring demand and limited supply and what do you get? Higher prices. Those are three forces driving gold. I think these forces, and others, will help drive the yellow metal to at least $2,000 in 2012 and potentially to $2,500 and even higher. But how about silver? Silver often acts like gold on steroids. It is driven by many of the same forces driving gold, and here three more forces driving silver ... Force #4: Silver Supply Can Barely Keep Up With Demand. Total global silver fabrication demand grew by 12.8% in 2010 to a 10-year high of 878.8 million ounces; this surge was led by the industrial demand category. For 2011, final numbers arent in yet, but a survey by Thompson-Reuters and GFMS expected fabrication demand to rise another 4%. About 20% of silver supply goes to jewelry. That leaves just 5% of silver mine supply for silver coins and investing, including silver ETFs.

Silver ETF holdings are still in a big uptrend.

World investment rose by an impressive 40% last year to 279.3 million troy ounces thats 37% of total mine production. It resulted in a net flow into silver of $5.6 billion, almost doubling 2009s figure. World Investment including coins & medals was projected to reach 278 million ounces (8,600 metric tonnes) in 2011, its second highest volume in Thomson Reuters GFMS data series. While this was down slightly in ounces from 2010, it is a new record high in value terms. Further gains are projected for 2012.

Exchange traded funds (ETFs) registered another sterling performance in 2011. Worldwide, there are 18 different repositories, mutual funds, and ETFs that hold physical silver. ETFs now hold about 732 million ounces of silver more than the annual mine production of the metal. The iShares Silver Trust accounted for almost 40% of the ounces of physical silver gobbled up by funds. On the supply side, about 70% of silver comes as a byproduct from mines that are primary producers of other metals like lead and zinc. So, silver supply cant rise independently. Analysts at the CPM Group say 2010 mine supply came in at 741.5 million ounces. Nearly all the new production came from Goldcorps Peasquito mine in Mexico, which added 20 million ounces. For 2011, CPM Group pegged mine production at 769.8 million ounces a rise of 3.8% and they raised their estimate for output from primary silver producers to 22% from 20%. But others are less optimistic. Analysis from BMO Research says that the projected rise in mine supply should largely be consumed by rising industrial demand. And other types of demand, including investment, are also rising. No matter whose estimate you use, this is leading to a very bullish supply/demand scenario for silver. After all ... Force #5: Global Silver Inventories Are Getting Depleted. In 1940, the world had approximately 10 billion ounces in total worldwide silver bullion inventories. Of that 10 billion ounces, the U.S. Government had the largest holding with 6 billion ounces. Today, the U.S. Government has zero ounces, and most of the rest of the world governments have zero or close to zero as well. Furthermore, since silver is actually consumed (i.e., used up) in most industrial applications, the total world above-ground silver bullion currently in existence is estimated to be less than 1 billion ounces. That is a 90% depletion of the world supply of silver in a little over 70 years! Force #6: Silver Coin Sales Are Taking Off. In 2010, 39,868,500 U.S. Silver Eagle coins were minted, smashing the previous record set in 2010 of more than 34.6 million. And this year, American Silver Eagle bullion coins got off to an amazing start. Through January 4, 2012, orders for Silver Eagle bullion coins reached 3,372,000 up about 61% from the start of last year. Now, you cant judge a year by just a few days. But this indicates that investor interest in silver bullion coins is red-hot!

Now, put these reasons together with other forces having an impact on the silver supply/demand picture, including growing public fears about fiat (paper) currencies that are driving people into hard assets. You can see that silver, like gold, could have a very good 2011 indeed. I have laid out a case for why both gold and silver will go higher. Now, lets look at a stock that I believe can help you make the most of that move.

Precious Metals Pick: New Gold

Pick #1: New Gold (NGD on the AMEX) New Gold is a mid-tier gold producer with mines in Mexico, the U.S., Canada, Chile, and Australia. It has a market-cap of $4.97 billion. New Gold has enjoyed earnings per share growth of 112% over the past year and 26% annually over the past three years. The company has 21.0 million ounces of proven, probable, measured and indicated gold resources. It also produces silver and copper, but gold accounts for 82% of the companys revenues. The silver and copper are counted as credits. Since New Gold is producing more metal of all types, its cash costs keep dropping from $465 an ounce in 2009, $428 an ounce in 2010, and $409 an ounce in 2011. Year to date, the company has produced 292,000 ounces of gold from its Mesquite Mine in the United States, the Cerro San Pedro Mine in Mexico and Peak Gold Mines in Australia. Final results for 2011 havent been announced yet, but New Gold expected to produce between 380,000 and 400,000 ounces of gold. And in 2012, the companys New Afton project in Canada should have even more production. The company has already started initial production, and should add 20% to its gold production in one year. Looking down the road, New Gold has other important projects such as its 30% owned El Morro project in Chile and its 100% owned Blackwater project in Canada. Now lets look at a chart ...

(Updated chart)

Looking at the chart, you can see that New Gold pulled back along with the price of gold at the end of 2011. Now, its well off its highs a buying opportunity. Meanwhile, it looks ready to go test its downtrend. If it breaks out, its likely on the road to much higher prices. I will track 150 shares of New Gold, symbol NGD, for the Global Resource Hunter portfolio. You can wait for a pullback or buy now. You are in charge of your own investing destiny. Good luck and good trades, Sean