I don’t mind telling you… I was scared.
The worst days of the 2008 financial crash were a frightening time. We had no way to know what was coming next. So I acted to protect myself…
I had never before owned a gun, but I didn’t want to risk the worst-case scenario I could imagine… being unprotected and wishing I had a weapon to defend myself.
I also bought gold bullion… and loaded up on gold stocks.
Fortunately, I never needed the guns. After a few months, the risk of riots had subsided. Nor did I ever have to use my gold coins as currency.
But most important of all, the gains I made in gold stocks ultimately allowed me to pay cash in early 2012 for a double waterfront lot in Fort Lauderdale. Real estate was bottoming, and the lot was selling at a bargain 40% of its original 2007 listing price. I later built on it, and I live there today.
Now, here we are again… We’ve been thrown into a financial crisis for the third time in the past 20 years.
In this essay, we’re going to look at the previous two crises. I’ll explain why I think gold is going to skyrocket well past $3,000 an ounce, thanks to one key signal…
When the Fed starts to aid the economy, that’s the signal to buy gold and gold stocks.
Before the Fed invented quantitative easing (“QE”) – or injecting money directly into the financial system – it relied on cutting the federal-funds rate to stimulate the economy. The federal-funds rate is simply what banks charge one another to borrow reserves.
Cutting interest rates changes the behavior of borrowers and lenders, but it can be slow to influence the economy. Some economists say it’s like pushing on a string.
Nonetheless, it was enough to make a difference in the wake of the dot-com bust.
The Fed began cutting rates in January 2001. That was the signal to buy gold and gold stocks.
It took time to see the effects. But by mid-2002, the Fed’s actions were boosting some markets. Gold was rising. And the Philadelphia Gold and Silver Index (“XAU”) was up more than 50%… while the S&P 500 Index remained mired in negative territory.
That’s not all, though. These trends continued, with even bigger gains for gold until the outset of 2004 – three years after we got the “buy gold and gold stocks” signal from the Fed. Take a look…
Both gold and the XAU dramatically outperformed the S&P 500, which fell 13% over the same three-year period.
And it was a fantastic time to own top-tier gold stocks. My Gold Stock Analyst (“GSA”) Top 10 portfolio of high-quality gold stocks soared 368% over this period… ultimately returning more than six times the gain of gold itself. (Keep in mind, these are independently audited results.)
The next Fed-driven gold bull market began amid the 2008 financial crash…
The Fed continually slashed rates during that crisis as well. But it also claimed broader powers. It realized it could inject money directly into the banking and financial systems by “printing money” to buy bonds. The first round of QE began on November 25, 2008.
That was the signal to buy gold and gold stocks. It was the first of four rounds of QE that the Fed performed over the next few years.
The following chart shows the results of the GSA Top 10 portfolio, gold, the VanEck Vectors Gold Miners Fund (GDX), and the laggard S&P 500 three years after QE started…
The S&P 500 was up 37% from its March 2009 bottom by the time the gold bull market ended in September 2011. It seems enough QE can even make a “dead cat bounce.”
However, gold was up 129% by then. GDX was up 153%. And both lagged far behind the GSA Top 10… which produced a gain of 601%, based on independently audited results. It was staggering outperformance.
Now for the current coronavirus crisis…
The federal-funds rate had been slowly edging higher in recent years, peaking at 2.5% in December 2018. But last year, the Fed lowered rates again. And on March 15, 2020 – with the coronavirus pandemic blooming – it cut the federal-funds rate to 0.25%, effectively zero again.
A week later, Fed Chair Jerome Powell said the central bank would “do whatever it takes” – that is, unlimited QE.
Gold’s most recent close was at $1,495 per ounce when he made the announcement. This was the signal to buy gold and gold stocks.
Two weeks later, on April 9, the Fed backed up its commitment and announced a $2.3 trillion loan program for businesses and state and local governments. Gold had jumped nearly 13% since Powell’s statement three weeks earlier.
In short, QE is back at work in the markets. If gold’s gain of 123% from 2008 to 2011 repeats, then the precious metal could soar to well over $3,000 per ounce.
So even if you missed this latest buy signal, don’t worry. You haven’t missed the opportunity.
History says we can expect a powerful bull market in gold in the years ahead. It could be our best opportunity in gold since the last financial crisis. And if so, now is the time to own high-quality gold stocks… the way to make truly outsized returns as it unfolds.
Bill Bonner went to law school with Fed Chair Jerome Powell... Co-authored 3 New York Times Best-sellers... And is one of America's most successful entrepreneurs. Bonner's made 3 big macro-economic predictions in his 40-year career, all of which came true. Now he's issuing his 4th and Final Warning. 2023 could be a difficult year for you and your money. See Bonner's warning and 4 recommended steps here...
Source: Daily Wealth