Money Morning’s Keith Fitz-Gerald brings us a sobering look at investing in gold. If there is a moral to the story, it’s that nothing is what it seems anymore – not even gold.

Keith Fitz-Gerald (Money Morning): Millions of investors who bought gold in the last 12 months are undoubtedly very happy at the moment – considering that the yellow metal has risen 60% since last November to a recent close of $1,138.60 an ounce on Monday.

But chances are good that many won’t be smiling when they discover just what the taxman has planned for their gains.

Unbeknownst to most investors, gold is considered a collectible not a capital asset. In plain English, this means that despite the fact that many people believe they are investing in gold, the Internal Revenue Service (IRS) believes that they are collecting it.

This is no small distinction and hurts investors

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While prices of gold don’t necessarily affect silver prices or vice versa, history has demonstrated that when gold rises or falls, silver usually follows suit.

This time around, silver has failed to match the gains that gold posted in recent months, spawning a widespread believe that silver is poised for a bull run. Such factors as a decline in supply and a weakening U.S. dollar have buttressed that bullish belief. And so has the fact that China’s government is strongly encouraging that country’s residents to buy the white metal.

With Beijing’s plan to inject $587 billion (4 trillion yuan) into China’s economy, and a growing desire to diversify away from the U.S. dollar as its key reserve currency, the Asian giant could increase its reliance on such precious metals as gold and silver – especially if global inflation takes hold.

China’s central bank “could use gold, silver or even a basket of

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The World of Commodities: The Future Of The Gold, Silver, Corn & Sugar Markets

by Lee Lowell, Advisory Panelist

When you have a mix of bullish fundamental factors backed up by the usual bout of speculation, you’ve got a juicy recipe for higher prices.

The world of commodities is a prime example of this. And nowhere is this trend more evident at the moment than in the sugar market.

Sugar prices are currently hitting highs not seen since early 1981, driven largely by a projected fall in crop levels in the world’s two biggest sugar-producing nations – Brazil and India.

While this fundamental data is critical, it’s nothing without also looking at the chart, which tends to factor in all the price drivers. As you can see, the current state of the sugar market reflected in the October futures contract. Check out that

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Gold futures trimmed losses but still ended lower on Monday, as risk-averse investor sentiment and a tumbling Chinese equities market prompted selling in bullion and other commodities.

The positive link between gold and equities market has been on the rise, as the metal is used as a hedge against inflation and erosion of portfolio values.

“The markets today are focusing on China and the sharp break of the Shanghai equities index,” said Bill O’Neill, managing partner of New Jersey-based LOGIC Advisors.

“In recent weeks, we noted the weakness in the equities, of course, has had a positive relationship with commodities, and that continued to be a factor,” he said.

Global stocks fell on Monday, dragged by a six percent tumble in China, which sent nervous investors into the yen for safe haven. Wall Street was off about 1 percent in afternoon trade.

U.S. December gold futures settled down $5.30 at $953.50 an ounce on the COMEX

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Commodities prices are …

As the U.S. and global economies stabilize, economists wonder how U.S. Federal Reserve Chairman Ben S. Bernanke will manage to reverse all the monetary stimulus that has been infused into the economy over the past year and prevent inflation.

My guess is that he won’t be able to do so, meaning investors need to position themselves now for the “stagflation” that’s almost certain to come.

Let me explain how I believe this will all play out.

In Federal Reserve’s Monetary Policy Report to Congress – as well as in an op-ed piece in The Wall Street Journal – Bernanke acknowledged the potential danger inflation poses and outlined an “exit strategy” that described a “smooth and timely” withdrawal of monetary stimulus.

However, the Fed chairman was vague about exactly how he will know when to implement that strategy, and the reality is that the exit …

Gold and silver prices climbed to their highest in seven weeks on Monday, as the dollar’s slide to its lowest since mid-December boosted interest in hard assets.

Spot gold hit an intra-day high of $961.00 an ounce, its highest since June 11, and was bid at $959.10 an ounce at 1329 GMT, against $953.90 an ounce late in New York on Friday.

U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange rose $5.70 to $959.40 an ounce.

“At the moment we’re seeing the dollar as the key factor to movements in the gold market,” said Eugen Weinberg, senior analyst at Commerzbank.

“In the past few months (gold) has gone from being a safe haven to becoming a dollar play. The dollar right now is so weak because no one is looking for a safe haven — because corporate results are so good and stock markets are performing so well.”

Silver was

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Upbeat headlines have been everywhere in recent weeks, and they all seem to point to a single conclusion: The U.S. economy is in the early stages of a very rapid recovery.

In fact, when you peruse the news it’s difficult to come to any other conclusion. For instance:

A number of key earnings reports have been much better than expected, and company executives buttressed those profit figures with positive comments about the next 18 months. The trading operations of Goldman Sachs Group Inc. (NYSE:GS) and JPMorgan Chase & Co. (NYSE: JPM) both just reported record profits. U.S. housing prices rose in May for the first time in three years. Initial jobless claims have plunged 15% since their April peak. The Conference Board’s Index of Leading Economic Indicators rose 0.7% in June, its third successive positive reading. And just ...

Since the Obama administration took office in January, we’ve seen hundreds of billions pumped into the economy and the U.S. budget deficit now forecast to top the one trillion-dollar mark in the coming years. Many believe it’s only a matter of time before we also see much higher inflation - perhaps even hyper-inflation.

That prospect has kept the gold bugs banging the drum to buy the metal, with the television and radio cluttered with ads that tout the benefit of doing so.

Last week, Lou Basenese noted the numerous reasons why the price of gold should be moving higher - but countered with the reasons why the price has continued to languish around $935.

Today, I’m going to look at another important factor that drives gold prices…

The Dollar-Gold-Inflation Relationship

While the recent rash of government spending hasn’t propelled gold prices to new highs, it has contributed to a decline in U.S. dollar.

Having reached a hit

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Whether it’s heading up or down, the oil market usually asserts itself as the leader of the commodities world.  Having plunged from levels around $130 per barrel this time last year all the way down to the $40s, the market has spent the last couple of months striking to the upside again.

As I’ve mentioned in recent issues, oil had near-term targets of $70 in its sights. It hasn’t disappointed, shooting past the $73 mark late last week - a level not seen since the first week of November 2008.

On a technical basis, because oil has not only moved above, but also stayed above all the major moving averages (including the all-important 200-day average), it’s now got $80 in its sights. If any pullback is going to occur, which should happen after solid runs like this, the move down should hold at the $65 per barrel range.

On a fundamental note, we’ve

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