Moreover, the primary driving force behind energy prices is not terrorism. Nor is Iran, Iraq, North Korea, or hurricane fears.

Those forces are like throwing kerosene on a fire. But the fire was already raging because of the fundamental supply and demand imbalance. That’s what has more than quadrupled the price of oil in the last four years ... and what propelled it to new, all-time highs just yesterday.

Here are the two major demand drivers:

Demand Driver #1: The hugely underestimated and misunderstood economic rise of Asia, especially India and China.

I’ve told you how Asia has helped create the strongest global economic growth in 30 years: An estimated 300 million people rose out of poverty in the last ten years in China alone. Overall, 2.3 billion people in Asia are finding new freedoms, new income opportunities, and consuming new goods and services. It’s a tidal wave of demand affecting virtually everything on the planet.

Demand Driver #2: Central bankers around the world are almost universally inflating their economies by systematically devaluing their paper currencies.

As the most indebted country in the history of the industrialized world, the U.S is the worst culprit.

The U.S. dollar now purchases 5% of what it purchased in 1914.

And in the last two weeks alone, the greenback has lost 3% of its value against most of the world’s major currencies.

Since oil is priced in dollars, as the dollar falls in value, the nominal price of oil in today’s dollars must rise.

Where’s oil headed next?

I think it’s going to at least $100 a barrel by the end of this year. And unleaded gas could hit $4 a gallon. In my view, the combination of strong economic growth around the globe plus the most recent plunge in the value of the U.S. dollar — virtually guarantees it.

In 2007, I expect even more upside for oil and gas: $120 a barrel for crude (perhaps even higher), and $5 a gallon at the pump.

If you’re not already in energy shares, consider getting in now. Even though they might seem pricey to a casual observer, the fact is that most oil and gas companies are extremely undervalued, sometimes trading as if oil were still at $20 per barrel and gasoline was still $1.25 per gallon.

The reason: Most analysts and investors figure high energy prices are temporary. So they are underestimating the energy sector’s earnings potential.

By the time they wake up and smell the coffee, the prices of many oil and gas shares could be double or triple what they are today.

For specific recommendations in the oil and gas markets, see my Real Wealth Report. My stock picks are up as much as 19% in just the past two weeks alone.

Just Yesterday, Gold Gave Me
A New Powerful Buy Signal

Gold closed yesterday at $629.30 in the August futures contract. That’s more than $10 beyond the key trigger point I laid out for you in the roadmap I gave you a fortnight ago.

The yellow metal is now up almost $80 — more than 10% — just in the past three weeks. But like a three-stage shuttle launch, this is merely the first phase of gold’s new rocket ride toward higher prices.

The recent correction in gold scared the bejeezus out of many investors. And I had to do my best to keep them objectively focused on the long-term picture in the gold market.

This latest buy signal in gold is coming very quickly after the recent sharp correction — a very positive sign. In fact, I haven’t seen a buy signal this strong since 2005 when gold was at $450.

Just nine months after that signal, gold was up as much as 63%! If today’s signal leads to a similar result, gold would be $1,007 an ounce.

How soon?

Right now, gold is not only rising against the dollar, it’s also rising against many currencies. When that happens, gold can launch higher like a rocket. It would not surprise me to see $1,000 gold by the end of this year.

Two moves to consider:

First, own some gold. For small amounts, one way is by purchasing gold bullion, and a convenient vehicle is 1- and 10-ounce gold ingots. Or, for larger purchases, consider the StreetTracks Gold Shares exchange-traded fund (GLD).

Second, also look into gold mutual funds. Two to consider are Scudder Gold & Precious Metals (SGLDX) and Tocqueville Gold (TGLDX).

Third, if you want to go after the greater performance that’s possible by picking out the highest-potential stocks, see my Real Wealth Report.

Or, for turbo-charged profit potential, take a look at what Sean has to say in his report on red hot small-cap mining shares.

What about the Dow? Still inbetwixt and inbetween. When it gives me one of the signals I laid out for you two weeks ago, I’ll let you know. Meanwhile, stay where the action is — oil and gold.

Best wishes,

Larry
  

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