Copenhagen, Denmark

Copenhagen is a beautiful city. I’ve been coming here since 1996 when I opened my first private baking relationship with The Bank of Copenhagen – later sold by its parent, Swedish furniture giant, Ikea.

In 2000, I established a relationship with Denmark’s second-largest bank, Jyske Bank. Jyske Bank Private Banking is a great operation offering all sorts of financial services and products, including currency programs like Invest-Loan. They also cater exclusively to Americans directly through their JGAM subsidiary.

From Denmark, investors can trade currencies, stocks, bonds and mutual funds. The bank is also dynamic creating structured products – many with a capital guarantee amid volatile and uncertain markets.

This morning, I sold some U.S. dollars for Danish krone and, as usual when traveling abroad, received a pittance for my dollars in exchange. No surprise on that score…

As you probably know by now from reading this daily muse, I’ve got zero confidence in paper money. Longer term, we’ll continue to lose our purchasing power vis-à-vis stronger currencies but especially against gold. The sad truth is that most people have no idea about this reality and continue to see their purchasing power eroded by inflation and devaluation.

I’ve been a gold bull for years and recently turned even more bullish on the gold stocks. I think we’re at the cusp of the next phase in this rally. Gold stocks have surged more than 120% since hitting a multi-year low on the XAU Index on October 27 at 65.72. We’re long overdue for the next push to $1,000 and beyond – and this time gold will stay in the four-digit zone.

The XAU Gold & Silver Index has two periods of seasonal strength starting from July 27 to September 25 and again from mid-November to early February.

Since July 27 the XAU Gold Index has declined 2.8%. Yet the trade has been profitable in 16 of the past 24 periods and has outperformed the S&P 500 Index by an average of 8.4% over this period.

But even more compelling is the seasonal advance that occurs starting in November.

From mid-November to the first week of February gold stocks have showed profitability in eight of the past ten periods for an average gain of 13.9%.

But even more impressive is our special X5 ratio, created by The Sovereign Society research team.

Any time the X5 ratio trades at 5 or higher, gold stocks have thereafter earned big triple-digit gains. And the index sits at 6.55 right now.

Finally, the U.S. dollar is an important part of this equation since gold usually, but not always, provides an inverse relationship to the world’s reserve currency. Gold prices and the dollar both gained in 2005.

The dollar might be oversold near term and might even muster a rally but, as we progress into fall and into 2010, the United States will grow desperate to grow inflation; rising prices are in short supply in 2009 amid deflation in household assets since late 2007, wage growth and real estate. A weak dollar would stimulate inflation. I believe the authorities quietly welcome a weak currency.

On the interest rate front, the Fed won’t be raising interest rates until 2011 at the earliest. The country is in such a mess right now that any pre-emptive strike against inflation would be utterly idiotic. Interest rates will stay low for a long time. There’s a reason why rates are at or near zero percent; there’s barely any demand for credit.

Gold stocks will probably trounce most risk-based assets over the next 12 months as gold finally blasts through the $1,000 an ounce barrier and stays there. It’s time to buy gold stocks.