I believe gold prices are headed higher in 2019.
Today, I want to show you an easy way to take advantage of this trend, with even more dramatic upside…
I’m talking about buying gold stocks.
These companies mine the ore that contains the metal and sell it to refineries. The process is similar to producing oil or any other natural resource in the ground. It sounds straightforward.
Yet gold stocks perform better than gold for one simple reason: They offer leverage to the price of gold.
And the returns can be spectacular.
Let me explain…
The word “leverage” usually means borrowing. That’s not the case at all in the gold market.
If you aren’t familiar with the concept of leverage in gold stocks, here’s a quick example of how powerful it can be…
Say the price of gold rises from $1,300 to $1,400. That’s roughly an 8% gain. And it means if you own physical gold, you’re up 8%.
Now, say a mining company owns a million ounces of gold in the ground, and gold is trading at $1,300. The value of the gold in the ground isn’t simply $1.3 billion (1 million ounces x $1,300 per ounce). Instead, the gold in the ground is worth much less than that, because it will cost a lot of money to extract.
Say it costs the company $1,250 per ounce to mine the gold. At a gold price of $1,300, the company has a potential profit of just $50 on each ounce of gold.
However, if the price of gold rises only 8% to $1,400, the company’s profits per ounce increase by 200% ($1,400 – $1,250 = $150 profit per ounce). And this small move in gold can cause the company’s stock price to increase 40%, 50%, or more.
That’s the power of leverage in the gold market. A small increase in the price of gold can cause a gold stock to soar many times that amount.
During a gold boom, this effect can lead to even more spectacular gains. It’s happened before…
Below, I’ve listed the historical returns for a sample group of gold producers during four separate cycles when gold boomed: 1979-1980, 1981-1983, the mid-1990s, and 2001-2006.
These are not hypothetical returns. They are real moves in some of the best-performing gold stocks during those periods.
First up, the king of all gold bull markets: 1979-1980…
Gold more than tripled during this period. But gold stocks did even better.
This group of gold producers more than quadrupled on average. And while many of these specific stocks no longer trade on the markets, the results from this period still speak for themselves. Take a look…
From 1981-1983, the gold producers returned more than 70% on average. And this happened in less than two years. This wasn’t the only time gold stocks soared…
Gold stock Campbell Red Lake Mines climbed more than 120%. This followed a mere 10.8% rise in gold.
Another rally kicked off in the 1990s. The average gold producer went up more than 200%…
Cambior rose 124%. Kinross Gold (KGC) returned more than 190%. And Manhattan Gold & Silver skyrocketed over 760%.
All while gold only rose 8%.
Then, another big boom hit from 2001-2006. This one rivaled the boom of the early 1980s.
Gold returned 158%… while the average gold producer gained more than 400%.
Newmont Mining (NEM) shot up 270%. Gold Fields (GFI) soared more than 500%. And Goldcorp (GG) returned more than 800%.
As you can see, an increase in the price of gold (even a small one) can lead to huge returns.
Today, gold is on the rise again… And sure enough, gold stocks are up even more.
From September 2018 through the end of January, gold has risen 12%.
Meanwhile, the VanEck Vectors Gold Miners Fund (GDX) – a fund that invests in a basket of gold mining stocks – is up 30%.
As gold prices rise, the best gold stocks stand to continue to soar much higher.
If you haven’t yet, consider adding gold stocks to your portfolio. Just remember, gold stocks are extremely volatile. As always, never bet more money than you can afford to lose.
Like in any industry, the stocks of stronger companies will go up more than those of the weaker ones. But owning shares of GDX is a great one-click way to get started, since it owns all the major names and is easy to trade.
It only takes a small stake in the right companies to make a fortune as gold prices rise… Position yourself to take advantage of it.
Source: Daily Wealth