Buy Monsanto, Sell Newmont

12/02/2010 2:58 pm EST


Eric Roseman

Editor, The Commodity Trend Alert

Eric Roseman, editor of Commodity Trend Alert, expects gold to retreat as the European crisis temporarily boosts the dollar. And he’s warmed to an agricultural supplier.  

Gold prices logged their first winning week in three heading into Tuesday’s trading. That’s the good news.

The bad news is that I think we’ve entered a short-term consolidation period. The US dollar, relegated to the dustbin ahead of a massive currency crisis over the next several years, is once again enjoying a rare moment of glory as traders bid the currency as a “safe haven” amid all the noise in Europe. Like dominos falling, Europe is in the midst of a serious debt crisis that threatens to manhandle Spain—its fourth-largest economy and the 9th largest in the world. If Spain goes the way of Greece, Ireland, and probably Portugal, the odds favor some sort of German backlash and controversy over whether the euro will even survive.

Calling the dollar a “safe haven” is just about the dumbest thing I’ve ever heard. It makes me want to pull my hair out!

The Swiss franc is a haven. Gold is a haven. Silver might be a haven. But the US dollar a haven? The dollar has nothing to support its legitimacy, except a rogue central bank boosting the value of paper company stocks because of all that monster-sized printing going on since 2008.

Is it really any wonder that in this epic bull market gold prices have more than quintupled?

Against the dollar, gold has gone from a bear market low of $252.55 an ounce on August 25, 1999, to $1,364.70 now. I think we’ll top north of $2,500, $3,000 and maybe more than $5,000 before this is over. I’m even more bullish since 2008 because the credit crisis is just absorbing everything the Fed can dish out. It’s draining the nation.

A Just-in-Case Hedge for Gold

If the Fed bungles this fantastic journey to grow inflation, then we’ll have one heck of a currency collapse. I’m not betting on the Fed.

But as bad as things are in the United States, they’re getting much worse in Europe’s peripheral economies. I think the US dollar might continue to rally for several more weeks ahead of what might be the tipping point in Europe, as Spain possibly caves next in the ongoing nightmare called “debt destruction.” The Europeans don’t have enough money in their European Financial Stability Facility if Spain pops—and the Germans are fed up. I just don’t know if the euro will survive if Spain requires a bailout.

Gold prices should hold around $1,325 to $1,300. I doubt we’ll go far below $1,300 in any correction from now until the beginning of the year. But the gold stocks might do much worse if there’s a broad-based global sell-off.

January 2010 Newmont Mining (NYSE: NEM) $60 puts are a great hedge against a short-term correction in gold prices and gold stocks. This trade is hugely volatile. Buy them up to $4.50. [The puts recently were trading near $2.50—Editor.]

My latest buy recommendation is Monsanto (NYSE: MON). The bull market in the grains infrastructure theme has begun. We’re only at the beginning of this secular advance, and it should last several years. While a merger frenzy has started in the fertilizer sector, Monsanto's stock has declined this year. Though Monsanto is primarily a seed company (not a fertilizer producer), its share price is undervalued relative to its future earnings. This stock is still 58% below its all-time high, so you should accumulate it up to $65. [Shares recently traded a little under $63—Editor.]

[Those who disagree with Roseman on the near-term outlook for gold might consider three junior gold miners that look good right now to Jim Jubak. Jubak does hold Monsanto and recently wrote about another agribusiness stalwart, Deere (NYSE: DE). Both Monsanto and Deere are in the top five holdings of an ETF recommended recently by Ian Wyatt—Editor.]

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