Ben Morris: Matt, what is the most important idea or trend for traders and investors to be informed about today?

Matt Badiali: The most important trend we’re following today is that of gold and gold miners. As regular Growth Stock Wire readers know, the gold sector peaked in 2011 and fell steadily through the beginning of 2016.

The VanEck Vectors Gold Miners Fund (GDX) peaked above $66 per share in September 2011. It finally found a bottom just below $13 per share in January. That was a massive 81% fall. In other words, a $5,000 stake in GDX in 2011 was worth just $950 by January.

Since then, shares of GDX have more than doubled. That’s a huge move.

Ben: What do you recommend to people who are sitting on big gains in gold stocks?

Matt: Well, you have three options…

You can sell and take your profits. The problem with that is what to do with the money after you sell.

[ad#Google Adsense 336×280-IA]There are few sector funds like GDX that will give you anything close to those returns.

I can’t think of any sector that has outperformed gold stocks this year.

Next, you could sell half your position.

If you put $5,000 into gold stocks and your position is now worth $10,000, you could sell the initial $5,000 and let the rest of the position ride.

Even if GDX went to $0 per share – which it won’t – you guarantee that you won’t lose money on the trade.

Or you can do what I told my Stansberry Resource Report subscribers to do: Let our winners run and use a trailing stop.

A trailing stop allows the market to tell us when to sell. I typically tell my readers to tighten their stop losses once we’ve doubled our money in a stock. That helps us preserve our gains and minimize our losses.

A good example of this is our position in small-cap Canadian miner Kaminak Gold (KAM.V). We bought the company last September for C$0.74 per share.

At the time, it felt like a good speculation. I personally visited the project and interviewed the CEO. Everything looked great. We set our original stop at a wide 50% to account for volatility and make sure we didn’t get whipsawed out of the trade.

Then, as gold prices began to rise, Kaminak shares climbed with them. Shares hit C$1.25 in March, so we tightened our trailing stop. Then we got great news. Major gold miner Goldcorp (GG) decided to acquire Kaminak. Shares of Kaminak soared to C$2.85 in mid-July. We tightened our trailing stop again to 10% and eventually exited the position for a 246% gain. That’s the power of trailing stops.

Ben: Are you still bullish on gold stocks in general today?

Matt: Absolutely. Lots of folks will do fine if they just buy GDX or a big miner like Newmont Mining (NEM). However, in the Stansberry Resource Report, we fine-tuned our approach to smaller companies that have distinct advantages over their peers.

We focused on mines in construction with high-grade gold and experienced management teams. We used those criteria to get into Kaminak and Reservoir Minerals (RMC.V) to lead us to huge, triple-digit gains in less than a year.

Ben: Can you explain why you used those criteria?

Matt: Those criteria work best because gold mines are ultimately businesses. They must be profitable and run well. However, buying companies before they produce gold is great because the market ignores them. The companies that get attention from most investors are either explorers making splashy discoveries or big miners producing gold.

This group is often left for dead because it costs money to build mines and they aren’t bringing money in yet… They’re just spending it. Our criteria let us select just a few of the group that we think will become great mines down the road.

A high grade – the amount of metal per ton of ore – is critical. The more metal, the more money mines make per ton of rock. Low-grade mines are extremely sensitive to the gold price. That’s not good in today’s market.

Management is also critical because these development projects aren’t producing metal yet. They burn money every day as they move toward production. That means the process must run smoothly… or else the company can run out of money.

The more efficient the process is, the leaner the company can be. That’s good, because debt is scary for a small company that isn’t producing anything yet. The less money spent in the construction phase, the faster the company can pay off debt later.

Two examples of companies doing this are Dalradian Resources (DNA.TO) and Pretium Resources (PVG). Both companies have high-grade deposits and experienced management teams at the helm. If your readers are looking for good speculations that are still “buys” in today’s gold space, both of those would be good picks.

Ben: Thanks for taking the time.

Matt: My pleasure.


Source: Growth Stock Wire