Top forecasters agree: Dollar slide to continue

The top performing forecasters in Bloomberg’s survey of 46 firms predict the dollar will continue falling next year.

The sluggish economic recovery and exploding government debt will weigh on the currency, they say. Already the dollar has hit 14-month lows this year.

THIS IS MAJOR JUICE

This week's chart is picture of what traders like to call "juice."

You can use all kinds of different financial vehicles to take a position on any given idea in the market. Some vehicles are conservative and slow moving, for folks who avoid risk and volatility. Some are faster moving, for folks who know how to manage risk and want to shoot for quicker profits. These latter vehicles give you leverage... or "juice."

Juice in the copper market can be found in Freeport-McMoRan (FCX), the world's largest publicly traded copper producer. Regular DailyWealth readers know "Dr. Copper" is enjoying a big rally right now. The red metal is up 94% in the past 12 months.

Expensive copper means higher profit margins for FCX. Shares have more than quadrupled in price during the same time... and sports one of the biggest uptrends in the market right now. Major juice!

Jeff Clark: There are 2 kinds of bulls right now

The bullish money managers seem to be divided into two camps...

1. Those who believe the market will stay propped up through the end of the year, thereby cementing big bonuses for big returns, and

2. Those who are ready to hit the sell key at the first sign of sustainable weakness in order to lock in big returns on the year and guarantee a big bonus.

I think the second camp is much larger.

China gold BLOWOUT: Demand for the metal surging

Chinese consumer demand for gold continues to grow. It reached record levels in the third quarter of the year, as demand for jewelry and other items celebrating the 60th anniversary of the founding of the communist state added to already high investment demand.

In all, Chinese consumers bought up an astonishing 120 tons of gold, up over 12% compared to last year, even as total world demand fell.

The Chinese continue to buy up the world's gold as much of the western world sits idle. You'd be wise to consider buying gold now, before the rest of world wakes up and joins China.

South African gold industry on "deathwatch"

Despite claims of massive below ground reserves, researchers say that South Africa's gold industry is on deathwatch, with its goldfields nearly 95 percent exhausted and production rates set to fall permanently below 100 tons a year within the next decade.

South Africa is the fourth-ranked gold producer in the world.

Gold production from the Witwatersrand, the biggest known gold field in the world, peaked at around 1,000 tons...

THIS IS SILVER'S YEAR

When they close the books on 2009, they'll chalk up a big win for silver vs. gold.

One of the big questions facing the precious-metals buyer is "Should I buy gold or silver?" As we profiled in September, since the bull market in precious metals began in 2001, the answer is, "There isn't much difference in the returns... but silver is much more volatile."

Since the 2001 "kickoff," gold and silver are both up a little over 300%. But as you can see from today's comparison chart, when a solid metals rally gets going, the returns in silver can get extraordinary. Our chart plots the percentage gains in gold (black line) versus silver (blue line). Silver is up nearly 65% this year, while gold is up 30%. The blue line, however, has much bigger peaks and valleys.

Moral of the story: You can make a heck of a lot of money in silver... just be willing to stomach a lot of volatility on the road to riches.

The Simplest Reason Gold Will Soar

When the bank pays you nothing in interest, gold goes up. And right now, the bank is paying you nothing in interest.

Why does gold go up when interest rates are low? It's simple...

The knock against owning gold has always been that, unlike cash, it pays no interest... Compound interest is almost irresistible. If you can earn 7% a year on a $10,000 deposit, in 10 years time, it will be worth $20,000. Gold will just sit there like a bump on a log.
But every so often, like right now, paper money pays you no interest... and the scales tip in favor of gold.

That's the simple version. Let's add one little tiny wrinkle to it, so you can see why gold has become irresistible now...

The forecast for inflation in 2010 is around 2%. Yet the Fed is keeping interest rates near zero. So instead of earning nothing in interest at the bank, you're actually LOSING 2% a year to inflation. That's what's REALLY happening – the REAL interest rate at the bank (minus inflation) is NEGATIVE 2%.

My longtime friend Porter Stansberry asked me to do a study of what happens when real interest rates are less than zero. The results were astonishing...

In short, when real rates are negative, gold soars and stocks stink. And when real rates are positive, gold stinks and stocks soar.

Here are the actual results. (Note: These are COMPOUND ANNUAL GAINS.)

1973 through 1980
The median real interest rate was -1.15%.
Gold returned +32% per year.
The real return on the S&P 500 was -7% per year (not including dividends).

1981 through 2001
The median real interest rate was +2.7%.
Gold returned -3.5% per year.
The real return on the S&P 500 was +7% per year (not including dividends).

2002 to today
The median real interest rate was -0.4%.
Gold returned +18.5% per year.
The real return on the S&P 500 was -3% per year (not including dividends).

Well, there it is, plain as day. And you can see, these trends persist.

In 2010, real rates will be negative. (Bernanke will keep nominal rates near zero... so subtracting inflation will give you a negative real interest rate.) There is essentially no chance for a POSITIVE real interest rate in 2010. Said another way, you WILL lose money in the bank in 2010. Whatever interest you earn won't keep up with inflation.

History shows, under that environment, stocks don't do well... and gold soars. There's nothing in sight to end that trend. Trade accordingly.