Taking Out the Crystal Ball:
2011 Gold Bullion Forecast

gold bullionThe end of this year will make the ninth consecutive December 31 when the price of gold bullion was higher than the previous December 31. Gold has risen from approximately $300.00 in 2002 to $1,380 per ounce today—a gain of 360%.

At this point of the gold bull market, we are at what I call phase two. Phase one is when the very smart money starts accumulating an asset because it is so depressed that no one wants it. For gold bullion, this can be classified as the period between 2001 and 2009, a period that saw gold rise from $275.00 to $1,000 per ounce.

So, today, we are in phase two of the gold bull market. At this junction, serious investors start to take note about the rise in price of the commodity. Many investors are concerned about the future of the U.S. dollar given the debt that backs it; others have given-up on the euro. If I were to ask 100 investors today, I would guess only five percent to 10% would have gold investments in their portfolio.

What I particularly like about this phase two of the current bull market in gold is that we have so many reporters, analysts and advisors saying it’s a “bubble” already! These people do not understand the strength of a bull market in any asset once it starts—bull markets end in euphoria and speculation. We are far from that in gold.

Two years ago, we couldn’t give away subscriptions to our gold stock newsletter. Today, it is selling well, “but not flying off the shelf” as they say. Hence, I see people starting to notice what’s happening with gold bullion and I see investors interested in getting their feet wet with the metal.

If you were to ask me for an educated guess as to when phase three of the bull market in gold would start, I would have to say when gold hits $2,000 an ounce. Now here’s the important part: phase three of a bull market can go until the asset under question goes up 50% from when phase three started.

What I’m saying is that, if phase three of the gold bull market starts when gold hits $2,000 an ounce, which is still some distance away, the metal can rise another 50% to $3,000 from there, just based on speculators and the novice public getting into the metal.

If you’ve ever played baccarat at the casinos, you know the cardinal rule is to not bet against the trend. Who am I to bet against a nine-year winning streak? Gold prices will end 2011 higher than they end 2010, that’s my bet. And that makes quality gold stocks still very attractive for investors.

Michael’s Personal Notes:

I know this is somewhat off-the-wall, but I want to share it with my thought-provocative PROFIT CONFIDENTIAL readers. The following is from my colleague and co-editor Robert Appel:

“Early in 2011, no later than May, we expect a world economic crisis similar to 2008, most likely involving currency pegs and the pricing of key commodities.

Many will refer to it, with hindsight, as a ‘perfect storm’ in that different aspects of the crisis will co-mingle seemingly unrelated challenges involving growing social unrest in many countries in response to the expanding feeling of powerlessness and disenfranchisement among the middle class.

Inflation and deflation will co-exist, which will be unsettling to consumers and academics both. Interest rates will creep up, slow and steady, but nonetheless unstoppable. There will be many unsettling incidents of international brinkmanship, especially between ancient enemies, but no major war that spans borders.

Two of the biggest business surprises will be a well-coordinated attempt by the Western governments to control/choke Internet traffic and the revelation that Hollywood’s delicate business model, essentially unchanged for over a century, is no longer working, and a new one is desperately needed. Yet another former film star will run for office. Headlines will be made when scientists disclose how common cancer has become.

Gold will touch $2,200 an ounce during the worst of the crisis, but close the year just under $2,000. The broad market in December 2011 will be where it was, approximately, in December 2010.”

Where the Market Stands; Where it’s Headed:

Not much of day for the markets yesterday, just more of the same: The Dow Jones Industrial Average trades around a high not seen in 22 months, U.S. bond yields rose again, with the 10-year U.S. Treasury now yielding over 3.5%. Gold eased off, but not enough for me to jump in and buy more.

The bear market in stocks that started in March 9, 2009, continues. I’m getting increasingly concerned about rising long-term interest rates and their impact on the stock market for 2011, but in the immediate term, I believe this rally has more leg left.

What He Said:

“I’ve been pushing gold bullion and gold shares for over a year now. Bank in January 2002, I personally started buying gold shares.” Michael Lombardi in PROFIT CONFIDENTIAL, December 13, 2002. Gold bullion was trading under $300.00 an ounce when Michael first started recommending gold-related investments. Many gold stocks recommended in Michael’s advisories gained in excess of 100%.