For the record ...

Dear Subscriber,

Gold continued todrop earlier this week, breaking below $800 an ounce, falling to as lowas $780. How much lower will it go? Does the decline mean the bullmarket in gold is over? What significance does gold's decline have forinflation, the dollar, and the natural resource markets?

These are all questions on investors' minds right now, and I'll answer them for you.

First, let me state emphatically, and for the record — gold's bull market is NOT over. No way, no how.

Second, crude oil's bull market is NOT over.

Third, the natural resource bull market is NOT over.

Fourth, inflation has NOT peaked.

Fifth, the financial crisis affecting the U.S. economy is far from over.

And last but not least, no way is the dollar's bear market over.

I sound pretty confident, right? Now I'll explain why. Let's start with the main force at work ...

The Fundamentals Underlying the Dollar'sBear Market Have Not Changed One Iota

The financial crisiscontinues unabated, as you can see from the major hits financial stockshave taken recently; big names like Wachovia, JP Morgan, and evenGoldman Sachs, financial institutions whose share prices have plungedas much as 12% from recent highs.

Moreover, more badloan write-offs are coming. July's home foreclosures jumped anastounding 55%, while actual property seizures by banks surged 184%.Most of the losses that will come from July's terrible real estatemarket have not yet been reflected in write-offs.

So far, financialinstitutions have lost an estimated $500 billion. Even the conservativeInternational Monetary Fund (IMF) says there's another $500 billion inlosses to be recognized. So at best, the crisis is only half way over.

That tells me that the Fed and Treasury ...

Will have to pump more money into the economy, and

Bail out more institutions.

It also means that ...

The Federal budget deficit is likely to explode even higher than thecurrent estimate of a record $500 billion for 2009, as tax receiptsfall and spending is ramped up.

Indeed, few peopleare talking about it, but Congress just raised the national Federaldebt ceiling, which is the accumulated budget deficits, to a record$10.5 TRILLION!

On top of all this,we are just now seeing official economic stats turn south in everythingfrom retail sales, to durable goods orders, industrial production, andmore.

The trend down forthe economy is so powerful that Washington can no longer jerry-rig thenumbers. The rot is now coming to the surface.

What about Europe, where GDP has already contracted, and the euro is falling? Won't the now weakening euro prop up the dollar?

I don't believe so.From all my studies and indicators, I believe the U.S. economy is infar worse shape than Europe's or Britain's.

Moreover, mytechnical studies indicate that the pull back in the euro, just likethe one in gold, is merely a pull back, and nothing more. In thedollar's case, I also believe that its bounce is mostly technical innature, plus some dollar-safety buying due to the recent armed conflictbetween Russia and Georgia.

Bottom line for thebuck: All of my indicators suggest its rally is merely short term,nearly over, and that the long-term trend for the dollar remains DOWN.

The Fundamentals Underlying the Long-Term Bull Market in Gold Have Not Changed Either

First, you have the dollar.Once its near-term rally tops out, which could be any day, and thegreenback resumes its long-term decline, gold will begin its next phaseup.

Second, demand for goldall over the world remains robust. So much so that second-quarter golddemand hit a record $21.2 billion by value — 9% above the secondquarter of 2007.

This shows that despite the record high quarterly price of gold,investors are still buying up the precious metal. Investment demand ledthe way higher, jumping a huge 29% to $3.5 billion — with the mostnotable increase coming from China, the U.S. and Egypt.

We have seen someshort-term softening of demand in India, but that's about it. In almostall other regions, gold demand is at or near record highs.

Third, gold supplies are falling.South African gold production dropped a stunning 12.3% in June, thelatest data available. Meanwhile, net central bank sales are slowingand are on target to be the lowest since 1999. Both are bullish forgold.

Much the same can besaid for oil and many other natural resources. Demand remains vibrant,supplies tight, and the currency of commodities — the dollar — in along-term bear market.

What About the Supposed Softening of Asian Economies?

Well, I'm here inAsia now and I don't see much of a slowdown. There is some slowing inSingapore, Hong Kong and Thailand, but none that I can see in China.

Indeed, China'sretail sales for July exploded to a NINE-YEAR high, soaring more than23%! Fixed asset investment rose 27.3% in the first seven months ofthis year, compared to 26.8% last year. Industrial output slowed a taddue to factories closing in Beijing for the Olympics, but still ran ata very high growth pace of 17.4%.

Additionally, exportgrowth is still running at more than 21% ... and China's first halftrade surplus, though down a bit, is still running at a red-hot rate ofmore than $99 billion.

Meanwhile, grossdomestic product (GDP) growth eased to 10.1% in the second quarter from10.6% in the first three months this year, amid expectations of theslowdown worsening.

Moreover, China'sfirst half '08 growth came in at a whopping 10.4%, down only a tad fromlast year, and well ahead of growth expectations in the 9% range.

My view: China's growth is about to accelerate higher yet again (pulling up the rest of Asia) for the following reasons ...

One, Beijing does not want the usual post-Olympic slowdown to occur. So they are going to do everything in their power to avoid it.

Two,in several recent press conferences, Beijing's leaders have hinted at aloosening of policy by taking the pressure off the brakes they appliedlast year to the economy. In the cards, a possible cut in bank reserveratios and the Bank of China selling yuan to push the currency backdown.

Three,China's stock market seems to have had its previous year's excesseswrung out of it. As you know from previous issues, I believe China'sstock market is one of the best buys on the planet right now and I havenot changed that view.

Bottom Line: I Believe the Pause In the Natural Resource Bull Markets Is Very Close To, or Even at Its End.

That includes the declines we've seen in gold ... in oil ... in agricultural commodities and more.

There may be a bitmore bottoming ahead. But if you're a savvy investor, you'll recognizethe recent action for what it is — a correction in a long-term bullmarket, and nothing more.

My recommendations:If you're not already invested in the natural resource markets, now isa great time to consider buying. And if you are invested, now is agreat time to think about adding to positions.

Specifically, I suggest ...

Buying gold through the SPDR Gold Trust (GLD), an exchange traded fund (ETF), and gold stocks via mutual funds like the Tocqueville Gold Fund (TGLDX) or the Market Vectors Gold Miners ETF (GDX).

Buying China through an ETF like the iShares FTSE/Xinhua China 25 Index (FXI).

Buying oil via the United States Oil Fund ETF (USO) which tracks the price of oil, and a solid oil fund like the Fidelity Select Energy Fund (FSENX).

Buying diversified natural resources through a fund like U.S. Global Investors Global Resources (PSPFX).

Best wishes,

Larry

P.S. If you're a Real Wealth Report subscriber, be on the lookout for a new round of even greater profit opportunities in natural resources!

If you're not a subscriber, not to worry. You can join Real Wealth Report now for a modest $99 — that's peanuts when you consider the profit potential.

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Money and Markets (MaM)is published by Weiss Research, Inc. and written by Martin D. Weissalong with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson,Michael Larson and Jack Crooks. To avoid conflicts of interest, WeissResearch and its staff do not hold positions in companies recommendedin MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaMare based upon data whose accuracy is deemed reliable but notguaranteed. Performance returns cited are derived from our bestestimates but must be considered hypothetical in as much as we do nottrack the actual prices investors pay or receive. Regular contributorsand staff include Kristen Adams, Andrea Baumwald, John Burke, AmberDakar, Dinesh Kalera, Christina Kern, Red Morgan, Maryellen Murphy,Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.

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