Get Set for the Next Phase of the
Roaring Bull Market in Commodities!

Today's comment is by Eric Roseman, Investment Director and editor of Commodity Trend Alert.

Dear A-Letter Reader,

After suffering a modest correction amid the sub-prime hysteria earlier in August, the majority of commodities made a wicked U-turn in September. Most commodities now trade at either all-time highs or close to record highs as we near the end of the third quarter.

The next phase of this roaring bull market is now upon us. And it promises to be the most lucrative period for speculative investors in raw materials. Commodities are poised to soar as the Federal Reserve, and eventually, the British, Canadian and European Central Banks start cutting interest rates over the next several months.

September was the best month for commodities in 32 years as wheat, gold, platinum and crude oil hit nominal records, or before adjusting for inflation.

Fed Sparks Commodity Boom

We can thank Mr. Bernanke and his team for this rally. September's major commodity breakout happened because the Federal Reserve lowered interest rates for the first time in four years on September 18th, slashing fed funds by a half-percent to 4.75%.

The U.S. dollar, already in a bear market since 2001 versus virtually every currency in the world, accelerated its decline the last 10 days of the month. The greenback now sits at record lows versus the euro, Norwegian krone, Brazilian real, the Chinese yuan and the British pound. The U.S. dollar also fell to a 31-year low against the Canadian dollar. The American dollar also hit fresh lows against many other units in Europe and emerging markets last month.

Commodities, mostly priced in dollars, typically post significant gains amid extended declines for the world's reserve currency. That's because dollar-priced commodities are worth less when measured vis-à-vis other stronger currencies, like the euro.

Also, a falling dollar is considered inflationary and commodities are historically a hedge against dollar weakness and inflation.

Below is a three-month chart of the benchmark Reuters/Jefferies CRB Index, the most diversified commodity benchmark.

Although the CRB remains 8.7% off its all-time high in May 2006 (365.35), the index has recently posted a significant break-out. The CRB smashed through resistance levels and now looks to surpass its 2006 record high. With the Federal Reserve on track to cut lending rates again during the 4th quarter, additional dollar weakness is likely coupled with new highs for most raw materials.

Another major commodity index, however, is still hitting record highs.

With 70% of its constituent assets in energy futures, the S&P Goldman Sachs Commodity Index (GSCI) is the most heavily energy-weighted resource benchmark.

Over the last several weeks, even as sub-prime fears rattled global markets, the GSCI hit new all-time highs on the heels of soaring crude oil prices. In September alone, West Texas intermediate crude gained 13% while the GSCI surged 10.3%.

The big news this fall remains the newfound momentum in precious metals.

Gold Heading to US$1,000 in 2008

After trading in a range over the last 14 months, silver, platinum and gold collectively posted huge break-outs the week of September 17. Gold prices rallied 10% in September, touching 28-year highs. Meanwhile platinum hit a new record, up 8.6%. Silver, still off 8% from its multi-decade high in April 2006, gained 15% in September. The weakest precious metal in this bull market since 2001, however, remains palladium, up just 4% last month.

These are indeed glorious times for gold-bugs. In September, gold stocks, especially the major and mid-cap producers awoke from the abyss to log big double-digit profits. The XAU Index, of Philadelphia Gold & Silver Index, trading the largest mining shares, blasted 20% higher last month.

Demand for gold continues to grow more bullish by the day. It seems everything is working in gold's favor, including booming exchange traded fund purchases, declining global production, rising Indian and Chinese fabrication demand and growing emerging market central bank purchases as major economy central banks wind-down their free-market sales.

From Cheerios to Wheaties,
Consumers are Paying More

Food inflation is now a major concern for consumers and foodstuff manufacturers following incredible rallies this year for wheat and soybeans, and to a lesser extent, corn.

Other less traded agricultural commodities - bran, oats and barley - remain on a tear over the last 12 months. Countries like Australia and parts of Russia are experiencing severe drought problems, which has spawned supply deficits. With these supply problems, global wheat supplies hit a 30-year low in 2007. Wheat prices surged 22% in September - the best-performing commodity.

So there's the big picture for commodities. With the United States now easing monetary policy and the dollar dropping to new lows, prices for raw materials will, as I predicted right here in the A-Letter, head into the next phase of the commodity super-cycle.

Over the next several months, I also expect the European Central Bank to begin cutting interest rates as economic growth continues to falter. Lower interest rates in the industrialized G-7 economies will encourage higher commodities prices. Lower rates will also stimulate global demand to new heights as China and the rest of emerging markets develop their booming infrastructures and quietly dispense of devalued American dollars.

ERIC ROSEMAN, Investment Director

P.S. September was one of our best months on record for Commodity Trend Alert, my weekly investment research service that's taking advantage of the bull market in commodities. In fact, my subscribers are posting huge double-digit gains. From a universe of 35 open positions heading into September trading, only four securities suffered losses. The remaining 31 were all winners - and 26 of those trades were double-digit gainers last month.Read my special report right now to find out how you can earn big gains as the bull market in commodities rolls on.

The Dominican Republic Rolls Out the Welcome Mat

Following the example of Panama and Belize, the Dominican Republic has just enacted a new law aimed at attracting foreign residence with a fast track residency system, especially aimed at foreign retirees.

With the approval and publication of Law 171-07 on Foreign Retirees, the Dominican Republic bills itself as "a paradise for people wanting to retire to an idyllic setting."

The new law promises a fast tracked residency program with simplified paperwork, all to be done within 45 days. It also allows the import of duty-free household goods and a host of tax breaks. These tax breaks include reductions on motor vehicle taxes, exemption on transfer taxes for the first purchase of local real estate, a 50% reduction on taxes on mortgages, a 50% reduction on the annual property tax, exemption on taxes on dividends and interest, and a 50% reduction on capital gains taxes.

Local real estate developers praised the new law. Jose Luis Asilis, the president of the Metro Group, called for an international campaign to publicize the news overseas. Asilis told a meeting that Europeans and Americans can "live in the Dominican Republic like kings on a fraction of what they receive in pensions."

The minimum monthly income required under the new law is US$1,500 for retirees with a government or private pension and US$2,000 in verified income from all others.

BOB BAUMAN, Legal Counsel

Wealth & Investments

Want Even Bigger Commodity Gains?
Just Add Leverage!

The U.S. dollar index plunged last week to a record low - the lowest level in fact since the New York Board of Trade began calculating the index way back in 1973.

It was a history making event, as my colleague Jack Crooks said. But it's the wrong kind of history if you've got too much of your investments denominated in the sinking buck.

Ironically, and perhaps NOT coincidentally, the U.S. dollar index is now lower than at any time since right after Richard Nixon took America off the gold standard in 1971. Gold sold for about US$35 per ounce back then. Today it fetches about twenty-times that price, at nearly US$740 an ounce.

Notwithstanding yesterday's sell-off, which was predicated on a bounce in the buck, gold has been rallying strongly for six straight weeks, as our investment director Eric Roseman points out above. Meanwhile, the greenback has been grinding lower. With gold recently trading at its highest level in 28 years, it's no surprise that investors are rushing into gold-backed investments, including gold exchange traded funds.

In fact, the Financial Times reports that "demand for ETCs linked to gold and other precious metals is high as investors are drawn to their safe-haven qualities."

It's ironic too, that "safe-haven" used to be a phrase describing U.S. dollar buying; but it's not much in vogue anymore.

ETCs, or Exchange Traded Commodities are structured very similar to ETFs. But instead of holding stocks or bonds, these funds hold physical commodities or track commodity futures indexes.

Lately, much of the buying interest in ETCs seems to be lining up for the funds backed by physical delivery of precious metals. According to ETF Securities Ltd (ETFS), the firm that introduced the first commodity-backed ETCs on the London Stock Exchange in 2003, its gold ETC has attracted a lot of buying interest in recent weeks.

In fact, the ETFS Physical Gold ETC (PHAU: LN) has seen a stunning 240% increase in assets in just the past seven weeks. Total assets under management in all of the firm's precious metal ETCs has surged to more than US$500 million, out of a grand total of US$1.5 billion in assets spread over 42 different ETCs, which track a wide range of commodities along with precious metals.

Much of the buying interest seems to be coming from "investors seeking to diversify their portfolios away from equities and bonds," according to ETFS. And for good reason. Research studies show that commodities have historically had a low to negative correlation with stocks and bonds. So they provide important risk-reduction benefits, especially in times of stock market stress - like the present environment.

Combine that with the ease of trading ETFs, right from a standard stock brokerage account, and their cost-effectiveness, and it's no wonder investors are flocking to them.

ETFS sees growing investor demand for more exchange traded commodity funds. ETFS is set to launch some new and innovative products to meet that demand.

Recently, the firm launched a series of ETCs that invest in forward futures contracts on crude oil; going out one, two or even three years. And this week, ETFS is launching more forward futures ETCs that will follow 29 different individual commodities and baskets of commodities - tracking everything from Aluminum to Zinc.

Not to be outdone, a U.S.-based fund provider has come up with an innovative commodity-backed ETF strategy of its own...just add leverage!

PowerShares is planning to launch three commodity futures ETFs that are targeting double the return of the underlying index. The world's first leveraged commodity ETFs will track existing gold and silver funds already offered by the PowerShares. The firm will also offer a precious metals basket leveraged ETF that includes a mix of both gold and silver. So the next time gold makes a 5% daily move - you can leverage up for potential gains of 10% in these new ETFs. What will they think of next?

I'm holding out hope for the world's first ETF that tracks sub-prime mortgage loans...so I can sell it short!

MIKE BURNICK, Senior Editor & Global Markets Analyst