One way to hedge against inflation is to buy gold and silver. This is what hedge fund legends John Paulson and David Einhorn are doing. As Justice Litle pointed out last week in Taipan Daily , Paulson and Einhorn “have gold and gold stock positions running well into the multi-billions for their respective funds.”

Underground investor Christian DeHaemer says junior gold stocks are the ones to watch. In fact, he says this asset class will be “the number one asset class over the next two years.” This means that junior miners could make you more money than any other asset class in the near future. According to DeHaemer, there are several factors contributing to this play (most of which will be familiar to Notes readers).

For one thing, the US is creating more money than at any time in history in an effort to inflate the next bubble, save the banks, and extend the hand of government. Bloomberg has put the total bailout bill at $12.8 trillion, which is roughly this year’s annual GDP. The profligate spending by current and past administrations is well documented and ultimately must lead to inflation. What we are seeing now is the de facto definition of an inflation-generating machine. […]We have seen from the 1970s that hard assets perform better in a high inflation environment. Add to this a falling dollar, which is the other side of the same coin, and a flight away from paper currencies into gold, and you get a powerful long-term trend in real assets like oil and gold.

*** Christian says junior miners are a great way to play this scenario because they offer low risk and high reward…

Junior gold stocks didn’t fully participate in the rally that drove gold from $250 to $1,000 per ounce over the last seven years. But they absolutely got hammered in the commodity/credit bust of 2008. Many fell by 75% or more. And these are the top-tier, small companies with little or no debt and plenty of proven reserves. These are companies that were trading at market caps from $500 million to $1 billion a few years ago, that you can now buy in the $100 million range… in December I was able to pick up some of these small-cap gold companies for little more than the cash they had in the bank.

This kind of trade is for gutsy investors only. But here at Notes we reckon this could pay off big time.

P.S: James Davidson’s Crisis Strategy Alert portfolio continues to soar to new heights, without the risks of conventional investments. James has a nose for what he calls “investment outliers” — assets mispriced by crisis conditions. One “income outlier” he recently discovered allows ordinary citizens to pick up “tax rebate” (up to $781.33 a month). These monthly payouts are easy to set up. But you must act fast. The next check could arrive as soon as 4.00 EDT, Friday, June 12.

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