Get Ready to Invest in These Stocks

OpportunityThe time to invest in gold stocks is fast approaching.

Thanks to a major surge in the U.S. dollar over the last few months, combined with a general market sell-off and a triple bottom in gold, gold stocks have taken it on the chin.

But for die-hard contrarians, it’s just the right time to act.

Here’s why…

Gold Stocks Are in the Doldrums – but They Won’t Stay There

[ad#Google Adsense 336×280-IA]Gold stocks are hurting right now. The Market Vectors Gold Miners Fund ETF (NYSE Arca: GDX), a proxy for the gold mining sector, is down a crushing 74% since September 2011.

In the last few months, a surging U.S. dollar and strong stock market have put additional pressure on gold and gold miners.

The long-term chart of the HUI NYSE Arca Gold Bugs Index (which GDX seeks to replicate) shown below indicates that we are currently at levels not reached since May 2003 – more than 11 years ago!

Now, let’s put that into perspective.

In May 2003, gold traded at a paltry $355. By late October 2008, gold had more than doubled to $720, and that was the low in the midst of the extreme sell-off that occurred when the financial crisis was in full gear.

Today, gold trades at $1,145, a full 120% higher than in May 2003.

And yet gold stocks have fallen back down to 2003 levels. Gold is up nearly two and a half times since 2003, yet gold stocks have not gained any ground.

Can this last? In a word, no – it can’t. As a rule of thumb, gold stocks offer about a 2-for-1 leverage on the gold price.

But right now gold stocks are so hated that they’d need to gain about 150% on average just to regain a reasonable valuation versus gold. And that’s conservative.

So here’s what to look for when investing in gold stocks…

A Crash Bigger than 2008 Watch the full presentation.
Watch for GDX (trading over $17 right now) to regain the $20 level on a sustained basis and start to trend higher. Also, watch gold prices. You’ll want to see the price steady and, ideally, rising.

You might give up a little upside from here, but GDX trading at $20 will bring some assurance that it has left behind its low and has regained upward momentum.

And that’s the time to invest in gold stocks – because they’ll be heading higher from there.

— Peter Krauth


Source: Money Morning