With yesterday’s rate cut, and with the bailout money in excess of $1 trillion by most estimates, it appears as if the government is setting the stage for massive inflation in 2009. So, what’s in it for you?

Inflation is the silent predator that’s constantly stalking your retirement savings.  Normally, you have to outpace inflation to stay ahead of the game, and realize any significant returns. But, in some cases, inflation can be good for your investments.

Today we’ve found five penny stocks that could actually rise in value as the dollar falls.

With the Treasury printing money like its going out of style, and with the bailouts ongoing, the government is in danger of creating a huge inflationary bounce back in the wake of this economic crisis.

So, how can penny stock investors profit from the pending inflation?  Well, why don’t we take a look at what gold did yesterday:

The spot price of gold jumped from $840 to near $860 after the rate cut was announced yesterday.  The gold rally continue this morning, with gold rising to as much as $880.  In less than 24 hours, the spot price of gold increased by roughly 4.76%

Take a look at what our colleague Ed Bugos, editor of Gold & Options Trader , said recently about gold:

“The fundamentals are significantly bullish for gold. I’d like to say they are bearish for the dollar, but in truth, they are increasingly bearish for all paper currencies. Outside of the Bank of Japan, everyone is inflating madly.”

Higher inflation means higher gold prices. It only make sense that if there are more dollars in circulation, and each dollar is worth less, than it will take more dollars to buy an ounce of gold.

Since Dec. 5, when the price of gold fell below $760 per ounce, it has increased an astounding $120. That’s a 15.79% gain in a matter of only 12 days.

Now is a great time for penny stock investors to buy up stock in gold miners. Many of these gold stocks have been slammed over the past few months, and they can now be picked up at extremely cheap prices.

Our friend Dan Amoss, editor of Strategic Short Report , suggests that investors take a look at precious metal stocks as the inflationary storm approaches. “How can you profit from this unprecedented inflation,” Dan asked, “By owning precious metals and precious metals stocks.”

As the dollar becomes weaker, and gold prices continue to rise, gold miners could see a huge boost in their share price.  Below are five small cap miners with a share price below $10 and with a market cap under $1 billion:

• Apollo Gold Corporation (AGT: AMEX) is involved in the acquisition, exploration and development of gold deposits, with current projects in the United States, Canada, and Mexico
• Aurizon Mines Ltd (AZK: AMEX) is a Canadian gold producer focused on developing its site in northwestern Quebec.  Aurizon is also conducting the exploration of three additional gold projects in the Quebec region.
• Fronteer Development Group Inc. (FRG: AMEX) is another Canadian-based gold exploration company.  In addition to its Canadian projects, Fronteer also has sites in Nevada and Turkey.
• Ivanhoe Mines Limited (IVN: NYSE) is an international miner focused on the Asia Pacific region.  Ivanhoe is currently exploring multiple sites in China and Mongolia.
• Minco Gold Corporation (ADR) (MGH: AMEX) is involved in the acquisition and development of gold properties in China.  At this time, Minco has five gold projects throughout China.

So, check out these miners for yourself and see what you think.  Feel free to post your thoughts on these companies in the comments section, as well as any other gold miners you might come across.

Best Regards,

John Schuler
December 17, 2008

John Schuler

After studying history in college, John worked for several years in finance and supply-chain management. He now draws on that experience when scouring the small-cap sector for penny stock plays. John has a particular interest in well-run companies that are both under-valued and poised for significant growth. John also contributed to Penny Stock Fortunes.

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More on this topic (What's this?)

7 Reasons Gold Will Surpass $2,500 - And Inflation Isn’t One of Them (Money Morning, 10/21/09)

The No. 1 Way to Profit When Silver Upstages Gold (Money Morning, 9/28/09)

Van Eeden: Gold to Drop, U.S. Dollar to Rise, China's Economy May Collapse (Shocked Investor, 10/15/09)

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