Gold Quietly Marshalling Strength

The gold market is just exiting the summer slowdown.

Simply put, the world has been on vacation. Yet, despite the inattention, gold has been quietly building strength throughout much of the summer. The month of July, for example, was quite good for gold, as the metal steadily rose before meeting resistance at around $955.

Still, as we enter the fall, it seems as if gold is sitting tight on a very strong foundation. The market continues to anticipate the return of physical demand in September, along with the impact of America’s loose-money policies and stimulus spending.

Some forward-looking speculators have already entered the market in anticipation of these factors kicking in, but there is still plenty of room left for more longs before the market could be considered crowded.

In the meantime, the large commercials, as our talented associate Gene Arensberg has been reporting in his “Got Gold Report” for Gold Newsletter readers, have been piling up their short positions during gold’s summer rally. But once the dollar begins rolling over again, these commercials will be in an increasingly dangerous position.

As I’ve noted before, these guys are usually right. But when they are wrong, they are spectacularly wrong.

In the past, when the commercials have been forced to cover large-scale short positions, gold has exploded higher to a new price plateau. As an example, consider late 2005, when the commercials were caught badly offsides, and gold catapulted from $450 to over $700.

I’m not saying this will happen anytime soon, but, with federal deficits now measured in trillions of dollars, with deficit- and debt-to-GDP ratios rising to levels that presage at least a doubling in long-term interest rates, and with proposed nationalized health care programs that would further inflate the national debt, the prognosis for the dollar is not good.

The federal debt is already far beyond manageable levels. The only way to control it at this point is to inflate it away. And investors know it.

As I said months ago, it seems we’re on a collision course to repeat the mistakes of the 1970s. But this time, “it will be like the ’70s on steroids.”

In the meantime, many of the resource companies we’re following are making news with their summer exploration programs. At the same time, there have been significant developments on the mergers and acquisitions front, as challenged companies merge to build strength through synergy, and as weak companies are consumed by the strong. Our readers have already multiplied their money on a number of these stocks, and there will undoubtedly be more to come.

It all adds up to an uncommonly interesting—and potentially profitable—market ahead.