The Next 1979-1980 Gold and Silver Rally

Editor’s Note: This week is already giving us enormous opportunities, but there is one that should beat the rest. As always, send any comments to us at jim@pennysleuth.com. Enjoy…

The Last Time This Happened, Investors Saw Gains of 13,000%
By Jim Nelson
February 26, 2008

Unless your local currency is the Zimbabwe Dollar, then you’ve noticed that the bottom is falling out of the U.S. Dollar. In fact, it is getting so sad that we’ve seen reports of people flying from London to New York just to go shopping. Those aren’t the rich, old money Europeans. It’s the Average Joe, middle-class going to the Big Apple to buy their TV for their flats in South Kensington. It’s that cheap for Europeans.

The dollar is falling so fast, that precious metals are struggling to keep up. Both gold and silver are at all-time highs, and every day it seems they are breaking records. When I got into the office today, silver was sitting above $18, and gold is around $935. That’s incredible. I know we don’t normally talk about precious metals, or macro ideas here in the Penny Sleuth, but this one can’t be ignored. Plus, there is an amazing way to use penny stocks to leverage this boom market.

A while back, I discussed how in markets like this, the best way to profit from the falling dollar is to buy shares in junior miners. Greg Guenthner and I did that for our Penny Stock Fortunes readers, and I’ll let you get a chance at that one in a minute. But first, I want to rehash on something that was written here in the Sleuth years ago…

There are three stages to any precious metals rally. When we first wrote to you (in the summer of 2006), we were right smack in the middle of the second stage of the rally. Let me explain…

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The Ultimate Safety Net for a Falling Stock Market

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How the Third Stage Will Make Us Rich

The first stage of the rally begins when the economy takes a large hit (September 11, 2001), and precious metals begin to be viewed as an investment to avoid the crashing dollar. As you can see, between about 2001 and 2004, the Dollar was valued higher than gold. But at the end of that period, the precious metal started its first move, ever so slightly:

The second stage of the gold rally goes like this…

Investors notice the price of the Dollar slip in comparison to the price of precious metals. In the chart above, you can see that happening in 2003-2004. Once this happens, institutional investors replace traditional gold bugs as the major investors. Silver is also brought into the picture at this point.

But as you know, institutional investors are wary of anything not in the S&P 500. So, they dive into physical gold and major producers. Our junior minors remain the only undervalued avenue for investment at that point.

This sets up the third phase, which is just about to start…

Compared to the last huge precious metals rally, this one is more of a slow and steady increase. This gives us a clearer picture of this all-important third phase, which goes something like this…

People outside of the institutions and Wall Street begin to realize what they’ve missed during the first two stages of the precious metals rally. They want in. Just as they did during the end of the dot-com boom in 1999 and 2000, everyone throws their money at the hottest thing, which, in this case, is precious metals.

So instead of continuing to invest in the already overbought mega-producers, this new crowd begins to buy up the undervalued junior miners. This is our chance. Take a look at stage three during last rally:

Almost every junior miner out there is undervalued right now. But there is one that should bring much larger gains for shareholders.

We discussed it back in November, and so far it has done quite well. It’s up about 17% since then, and has a lot further to go. If you want to check it out, you need to read this report describing how we found it. It’s all right here…

As for the rest of the juniors’ market, we’ll keep you posted…

Sincerely,
Jim Nelson