By winning this deal, Barrick will increase copper’s contribution to the company’s total revenue to roughly 20 percent from 12 percent last year. The red metal is often found in large quantities with gold, and the Canada-based giant has been rapidly growing output in recent years.

Equinox’ position in the so-called “African copper belt” means Barrick should also be able to accelerate output gains in coming years without further acquisitions. That task should be made easier still by deep pockets and high profits from the company’s gold sales. And management should have some familiarity with the assets by virtue of a prior ownership stake. It’s also a friendly bid, meaning that much of Equinox’ management is likely to stay on board.

In declining to enter a higher offer, Hong Kong-based Minmetals’ CEO Andrew Michelmore stated “competing with Barrick at these prices would, in our view, be value-destructive.” That’s understandable, given that copper prices have more than tripled over the past couple of years and that Barrick’s offer is at 28 times Equinox’ recent annual net income.

It hardly marks a strategic retrenchment for the Chinese government-controlled entity, or for China as a whole. But it is a signal that any would-be acquirer now will have to pay dearly for prime properties. That’s the latest chapter in the global game to lock down the increasingly scarce resources needed to fuel economic growth and the rapid urbanization of developing Asia.

Barrick itself estimates copper demand will rise at least 3 percent per year. And as the cost of this deal demonstrates, available sources of the red metal are ever further, ever deeper and ever more dangerous to acquire, both physically and politically.

That makes existing, proven reserves more valuable than ever, and users more than willing to spend to get their hands on them. Barrick’s share price plunged 10 percent within two days of the offer, but the damage to the stock should prove short lived. Gold prices are pushing toward USD1,500 and the company financed this deal with cheap debt and cash.

China’s resource acquisition activity in Canada alone last year, for example, was nearly five times the prior peak in 2007. The authorities in China have proven adept at keeping a lid on global commodity markets in the short-term, largely by manipulating expectations about the country’s future economic growth.

Over the long haul, however, they have little choice but to step up purchases of key resources to meet the needs of rapid urbanization. China will have to fetch the best price for needed resources, or else profit from the bull market with well-positioned investments.

In other words, China can physically move copper from a mine it owns in Chile or Canada to Shanghai to lessen the impact of surging prices on its economy. But it can also accomplish much the same by filling its coffers with investment profits. For example, sovereign wealth fund China Investment Corp has seen the value of its 17.2 stake in Canada’s Teck Resources (NYSE: TCK) more than triple since it made the investment in early July 2009.

This is how nations will play the new great game. Share prices will ebb and flow with myriad economic and political factors, as well as the prevailing fads and fancies. But at the end of the day, owners of resources will be that much more valuable, and their shareholders that much wealthier. And that’s true whether there are takeovers or not.

Picking Winners

We currently hold nine stocks in our Metals and Mining Portfolio. Some are huge winners already, such as rare earth element miner Molycorp (NYSE: MCP). Others still basically trade around where we entered positions.

Each stock is essentially a long-term position intended to take advantage of a bull market for a particular metal, or several of them, as is the case with giant BHP Billiton (NYSE: BHP) and Vale (NYSE: VALE). This week, we’re adding a gold specialist: Australia’s Newcrest Mining (ASE: NCM, OTC: NCMGY).

To date we haven’t added a gold miner to the Portfolio. But gold’s story has been recounted here many times. We initially turned bullish on the yellow metal some 10 years ago, in large part as a beneficiary of the ongoing shift of political and economic power from West to East.

Gold has been the ultimate store of money for millennia. The old adage is that an ounce of gold has always been able to purchase a first-rate man’s suit–be it a fine toga or the latest from Armani. By that measure, the yellow metal remains undervalued.

Although no one really knows where the price of gold will stop–though a quick rise in interest rates could do the trick–it’s the case for now that despite a run from under USD300 a decade ago to nearly USD1,500 now, gold can climb much further. And that’s very bullish for well-positioned miners of the yellow metal, which to date have largely lagged the metal’s rise.

Source: Bloomberg

The current bull case for gold largely centers on the monetary expansion in the developed world since the historic credit crunch/market crash of late 2008, particularly in the US. Rather than allow the US financial system to implode in the wake of vanishing mortgage security values, the Federal Reserve and other global central banks have attempted to prop it up by injecting unprecedented amounts of credit into the system.

The authorities’ efforts were basically the opposite of what was done in the aftermath of the 1929 stock market crash, which ushered in the Great Depression of the 1930s. And not surprisingly, the outcome has been markedly different.

Unemployment remains high throughout the developed world, with much productive capacity still lying idle. The US real estate market–the epicenter of the crash–is still very weak, with a steady stream of banks continuing to fail. And the situation is worse elsewhere. Spain, for example, continues to struggle with unemployment of more than 20 percent.

Commodity prices, however, have been in sharp recovery since early 2009. That’s a stark contrast to the 1930s, when the recovery didn’t begin to take shape until 1935. And the same is true of global stock markets. Meanwhile, economic recovery, though sluggish in many areas, has also been in progress for nearly two years–another sharp contrast with the Great Depression.

It’s become fashionable to second-guess the various US Federal Reserve actions to pump more money into the system to sustain this recovery. The now-terminated second round of quantitative easing (QE2) to buy back US government bonds has been widely ridiculed as ineffective for stimulating growth, as well as broadly inflationary and destructive to the US dollar’s value.

How the average American comes down on that issue depends largely on politics, which is always a bad sign in an economic debate. Investors, however, should ignore these proceedings and instead focus on a few hard facts.

First, having gone this far down the path, the Fed is unlikely to stop supporting the economy with easy money until growth is firmly in place. That means money growth is likely to remain a support for gold prices, at least until faster economic growth can do so.

Second, the US dollar’s decline was set in motion long before the current American president was even elected to the US Senate, let alone the advent of QE2 or even QE1. Third, virtually every other country has also practiced easy money, not only since late 2008, but for decades before the financial crisis. These countries have pegged monetary policy to goals for domestic growth and inflation, rather than preserve the value of the currency.

Finally and most important, the rise of developing Asia by necessity means devolution of power globally from the developed West. That’s not necessarily bad for the US and other western democracies. In fact, it’s more or less an affirmation of the post-World War II dream of a world with expanding trade and prosperity.

The popular perception in the West is that China and the rest of the developing world has already caught up and passed the US. In reality, the US economy is still far larger than China’s economy and the balance of global power is still overwhelmingly on these shores.

What matters for investors, however, is the trend. Power is definitely shifting. And that fact–not ephemeral factors, including tackling the US federal budget deficit–means the primacy of the US dollar continues to lessen, just as it has for decades. That’s the primary bullish catalyst for metals markets in the long-term, including gold.

Unlike other metals, gold is not consumed for any significant industrial use. Rather, almost all of the yellow metal ever mined is in a vault, or is displayed somewhere.

That pretty much renders moot any analysis of supply. Rather, the action in price is always a function of demand, which is based largely on psychology. The more anxious people become about the value of money, the greater their demand for gold as a store of value and the higher gold prices go. The less anxious, the less the demand, and gold prices drop.

The trick to taking advantage of the long-term trend is recognizing the role emotion plays in setting gold prices in the near term. It’s fascinating to peruse the popular investment books of the previous gold bull market, which began with the “Nixon Shocks” of 1971 and peaked in 1980.

The Nixon Shocks marked the official end of the gold standard under the Bretton Woods agreement, which pegged the value of the US dollar to the price of gold, and all other currencies to the greenback. Though dubbed one of several “shocks”–including embargoing Alaskan oil exports–the move was hardly a surprise to the world.

Bretton Woods was an agreement set up amid the economic chaos that followed World War II, when the US was the world’s only truly functioning system and engine of growth. Eliminating the convertibility of the US dollar to an ounce of gold (rate $35) in 1971 was tacit acknowledgement that Europe had largely recovered from the ravages of war and no longer needed a US “nanny.”

The world in effect had become a more equal place, with power disbursing to countries and markets outside the US. That trend has now entered a new phase, with economic and political power moving from developed lands to developing nations, particularly in Asia. And the result is higher gold prices.

The move did stir up emotions in the US. Eliminating the gold standard gave birth to a “hard money” movement, from which much of the current newsletter industry owes its origins. Mailings to stir up support for a return to the gold standard began to flow, and it brought subscribers to a whole genre of books and newsletters expounding the virtues of gold–the asset that would hold value as the US dollar lost its moorings.

By 1979, gold’s emotional appeal had reached a peak amid soaring inflation and a plunging US dollar. That year marked the publication of Crisis Investing: Opportunities and Profits in the Coming Great Depression. Written by a flamboyant author and money manager Douglas R. Casey, the book expounded the virtues of owning gold and other “hard” assets in an era of increasingly worthless paper currency. Robert Ringer–author of the popular 1970s book Looking Out for Number One–is quoted on the back flap as saying: “A hundred years from now, should mankind survive that long, Doug Casey may well be remembered as one of the great prophets of our time.”

Such sentiments were a good sign of an emotional peak for gold prices, which hit their apex in 1980 at a price of around $800 and proceeded to plunge amid Paul Volcker’s extreme tightening of the money supply. For the yellow metal’s true believers, that was merely a pause in the long-term bull market.

A brief surge in inflation and drop in the US dollar in the mid-1980s caused the fever to crest again. Gold itself never made it past $500 an ounce. But mining stocks staged their greatest bull market ever in 1985-87. The biggest winners were the speculative “penny” class–virtually none of which had ever produced an ounce of gold.

All that came crashing down with the October stock market meltdown, which in retrospect was precipitated by the Federal Reserve’s move to tighten money again some months earlier. Penny stock fortunes were wiped out literally overnight. And for the next decade and a half, gold prices scarcely stirred. The US dollar, in contrast, enjoyed a boom time throughout the 1990s, as the country reached a federal budget surplus, the economy grew swiftly and stock market boomed.

The gold bulls were still out there. But as far as most investors were concerned, they were largely confined to the lunatic fringe. Copies of Crisis Investing could be bought for pennies in used bookstores. The stage was set for another giant mood swing in the precious metals market, which has seen investors become increasingly bullish on the yellow metal in recent years–and the return of popular investing books and advisories warning of the ultimate demise of the US economy and dollar.

Such is the reality of the gold market; investors must to keep an ear to the popular mood. There will come a time when the market is simply too keyed up on gold’s prospects, and ripe for a sizeable correction despite the bullish long-term fundamentals.

Fortunately, that’s not where things stand now. One major reason: Stocks like new Metals and Mining Portfolio addition Newcrest Mining (ASE: NCM, OTC: NCMGY) remain solid values.