For many subscribers, gold is suddenly interesting again.
The precious metal recently crossed a key “technical” barrier, according to traders. These “traders” are fine people who happen to believe that the value of an asset (gold) that has remained almost completely stable (in terms of purchasing power) since before the birth of Christ is now going to go higher.[ad#Google Adsense 336×280-IA]Why, pray tell?
Because both the nominal price of gold (as measured in dollars) and the 20-day moving average price (as measured in dollars) are now above the 200-day moving average. Got that?
Me neither. You can call me old-fashioned, but I (Porter) perceive that essentially all of the gold that has ever been mined remains in use.
(Industry doesn’t consume it.)
And I perceive that less than 1% of additional supplies are mined every year.
I also perceive that mining is a difficult business. It requires the rule of law, thousands of trustworthy employees willing to work for essentially slave wages, and surprisingly large numbers of both wise and patient investors. It also requires safe and stable global trade conditions, along with stable currencies for pricing production costs.
Watching the passing parade of the world’s economies, I see a socialist in a tight race for the Democratic nomination for the U.S. presidency. I see both Republicans and Democrats promising, in various combinations, both more government and more trade barriers. I see labor revolts all across major gold-production areas.
Perhaps most obviously, I see countries of every stripe doing their best to devalue their currencies and finance their debts on the backs of their currency holders. And… I see a complete wipeout among those who provide financing for gold miners.
I shall venture a bold prediction, dear friends: Gold prices are likely to be extremely volatile. And I’d wager they’ll go much higher over time. With this in mind, I have advised folks for many years (as you can hear on my radio show) to purchase gold when it has traded for less than $1,200 per ounce… when no one else wanted it.
Again, you might call me old-fashioned, but with an asset that has been so remarkably stable in its intrinsic value (while fluctuating wildly in its nominal price), I would suggest your potential profits as a gold investor are largely a function of when you buy. The lower the price, the better. Ergo… “traders” – who prefer to buy gold after it has gone up considerably and after it has once again begun to attract the attention of the herd – leave me cold.
Lest you think I’m unfairly exploiting the acuity of 20/20 hindsight, allow me to point out that after gold prices fell to less than $1,200 per ounce last July and gold stocks were wiped out – but long before either had tripped over a moving average to the upside – I recommended an entire 10-stock portfolio of junior mining stocks. In that essay, I wrote…
I believe that some combination of rising interest rates, rising defaults in the corporate bond market, and global currency/trade wars will likely cause the U.S. stock market to decline substantially. No, I don’t know the exact timing of such a move. But I believe it will happen with the next few months… Likewise, I notice that the gold and precious-metals sector is in the midst of a three-year decline. I see that junior mining stocks have declined every year since 2011. Most of the best names in the space are down more than 80%.
I’m 100% certain that eventually, this downward trend will reverse. And I know that when that occurs, the resulting price increases will be dramatic. I believe average gains in excess of 250% are likely. Investors smart enough to “hedge” their exposure to the U.S. stock market by establishing a “toehold” in the highest-quality gold and junior gold-mining stocks will likely be far more successful over the next three to five years than investors who don’t.
At the time, I recommended doing two things. One of them was cheap and easy. As you know, because I tell you almost every week: There’s no such thing as teaching, there’s only learning. I recommended you buy and actually read a book. Written by my friend, the self-taught expert Meb Faber, The Ivy Portfolio is an incredible review of market extremes and trends… and the investment strategies you can use to master them.
One of the reasons I knew to wait until last July to buy gold stocks is something I learned from Meb. He discovered that since 1920, any time a U.S. industry group (like mining) fell by 80% or more from its peak, the average return three years later was 170%. (No word from Meb about the average return in gold after it crosses a moving average.)
The other thing I recommended that you do was difficult. It required some investment courage. It will surely also require patience… because probably, at just about the time that all of these newly interested buyers of gold have established their positions, a correction will ensue. No matter. The strategy I advised was to take 10% of your portfolio and establish a 10-stock portfolio of gold- and silver-mining stocks.
At the top of my list was the venerable Franco-Nevada (FNV), the “gold standard” in mining. Since my essay last July, shares of Franco-Nevada have appreciated around 50%, while the Dow Jones Industrial Average is down about 5%.
And in November 2013, during one of the first nadirs in junior gold stocks, we recommended shares of NovaGold Resources (NG) at a little more than $2 in my flagship newsletter, Stansberry’s Investment Advisory. NovaGold owns the world’s most attractive (but as of yet, undeveloped) gold mine, Alaska’s Donlin mine. Shares climbed to more than $5 this week.
Let me be clear: I don’t believe any “investments” in gold and gold stocks should be considered investments at all. High-quality, conservatively managed gold producers (like Franco-Nevada) are, like the metal itself, a hedge against financial catastrophe. Most gold stocks are speculations. But they have an additional charm. They tend to rally when everything else falls (and vice versa). Thus, bought at the right time – and in the right proportion to your portfolio – they can be very useful.
The “right time” is when no one else wants gold stocks. If you haven’t bought any gold or gold stocks yet, it’s not too late. We are in the early stages of a long credit-default cycle. We are a long, long way from the next top in gold.
Source: Growth Stock Wire