Normally, gold mining is a tough business…
First, you’ve got to find a deposit. Then you have to build a mine – something that’s labor- and capital-intensive.
Then you’ve got to run the whole project to get the metal out of the ground.
After all that work, you get to sell the gold. But you don’t get to decide the price of your product. The market sets it, so you’re a “price taker.”
If gold prices fall, tough luck. You get what you get.
So the business involves lots of fixed costs, combined with a variable sales price. For investors, that means one thing: Gold miners give you massive amounts of leverage to the price of gold…
Yesterday, I explained why gold prices could soar dramatically from here. And given that backdrop, it means gold miners could easily soar triple digits.
Let me explain…
When gold prices fall, gold miners can become worthless fast. But when gold prices rise – and costs stay roughly fixed – profits can absolutely soar.
This creates a domino effect. As the value of gold in the ground goes up, it makes it easier for miners to make money. Investors start to take notice. And they send these companies’ stock prices soaring.
Yesterday, I showed that gold soared 250% in the early 2000s boom. But a basket of gold miners, as seen in the NYSE Arca Gold Miners Index, crushed that return.
This index rallied more than 400% from the start of 2002 into March 2008. Take a look…
Thanks to their massive leverage to the price of gold, these miners were the clear winners in the mid-2000s.
We saw a similar example play out again from December 2008 through April 2011…
Gold rallied about 90% back then. But gold miners roughly doubled that return… This batch of stocks was up nearly 180% over that period. Check it out…
When gold soars, gold miners are the biggest winners. And once you understand that, you can formulate a game plan for the current gold boom…
The Fed’s low interest rates and easy-money policies are in place for the coming years. Higher inflation is nearly certain. This should drive the gold boom. And that means betting on gold miners is the right call.
It’s all happened several times throughout history. And I’m betting it’ll happen again this time around.
If you want to make that bet too, you can easily do it with the VanEck Vectors Gold Miners Fund (GDX). It holds a basket of gold mining stocks. And with gold prices booming, it’s easily positioned for a triple-digit boom.
You want to own gold right now… And gold miners could lead to even bigger gains. Don’t miss this opportunity.
Good investing,
— Steve
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Source: Daily Wealth