I had the opportunity to visit for several hours with E.B. earlier this year. He is very passionate about his opinions and views on the markets, most of which I agree. E.B. Tucker is also a paid subscriber to my services at http://CommonStockWarrants.com. Perhaps you should also consider a subscription as well because I have many professional investors who want to know which stock warrants are currently trading along with the complete details.
I sat down for half a dozen media interviews earlier this year where I called for $1,500 per ounce of gold in 2019.
In several cases, the hosts nagged me about my prediction, asking if I would stick with it. I did. In August, it hit my target.
Now, the price has retreated a bit since, but gold’s still flirting with $1,500 per ounce, as I write.
Here’s why I’m writing you today: I believe $1,500 is only the beginning for gold.
I expect gold to take out its previous high of $1,900. That’s a 27% gain from here. And I expect that to happen in 2020.
In fact, as I told Kitco News recently, from there I see it hitting $2,200 – about a 47% rise from its current price of $1,492 per ounce.
Today, I’ll share why… and how you can start taking advantage…
A Major Gold Rally Is Underway
All of the serious money I’ve made investing came through positioning for a big move and sitting tight. Trading is tough. In and out all the time can work over a short period. But the big gains come from sitting tight and letting the bull market run.
After hitting an all-time high in 2011, the price of gold fell 45% to a low of $1,052 in late 2015.
While the Obama administration and the Federal Reserve experimented with radical money policies, gold stayed stuck. Notice in the chart above it didn’t do much after hitting its 2015 low.
What’s bad for gold is unbearable for gold miners. They commit to projects assuming they’ll sell produced gold for $1,500. Then it falls to less than $1,100. That means the project is bankrupt before it pours the first gold ounce.
That period is over.
I can give you a list of anecdotal evidence as proof. Several large mining firms combined this year in order to survive. These were not bidding war takeovers. CEOs got over their egos and merged to avoid losing their companies entirely.
Political dysfunction and ballooning deficits also set the stage for gold today. The three largest central banks in the developed world recently declared they’ll do anything to stimulate their economies. That’s central bank lingo for “create more money.”
But we need more than strong anecdotes to risk money on the gold sector.
From our view, that’s why the chart of gold is so important. It’s how I determined $1,500 was an important target for gold this year. If it hit that target, which it did, I felt it was a green light to invest more aggressively for higher prices.
The gold chart below goes back to 2014. Notice that after gold hit its low in late 2015 (circled in red), each rally that followed registered a higher low. The pullbacks of 2016 and 2018 (also circled in red) each hit low points higher than the last. To us, this meant it was a matter of time before gold exploded higher.
Breaking $1,500 was the first test. Now, I expect it to correct, which is market speak for rest and get ready for the next leg higher.
That next move for gold will catch mainstream asset managers off guard. As I said above, I expect it to eventually take out its 2011 high. That’s why the current pullback in gold is the perfect time to position for what may come next.
If you haven’t already, the first step is buying some physical gold. If you’re new to gold, start with common 1-ounce coins like the ones offered here by Gainesville Coins.
(I asked Gainesville Coins to create this page as a starting point for Casey Daily Dispatch subscribers who are new to physical gold. We do not receive any compensation from Gainesville Coins for bringing you this offer.)
After owning physical gold, you should consider speculating on select mining stocks, which can provide leverage to a rising gold price.
Let me explain…
Gold Mining Stocks… and the Power of Leverage
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. 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, all-in, to mine the gold. At a gold price of $1,300, the company has a potential profit of $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). This small move in gold can cause the stock price to increase 40%, 50%, or more.
This is why a small increase in the price of gold can cause a gold stock to soar many times that amount.
It’s happened before…
Gold producers boomed during three separate cycles when gold surged: 1979-1980, the mid-1990s, and 2001-2006.
First up, the king of all gold bull markets: 1979-1980…
Gold more than tripled during this period. But gold stocks more than quadrupled.
|Returns of Producers From 1979-1980|
|Sept. 1980 Peak||Return|
|Campbell Red Lake Mines||$28.25||$94.75||235.4%|
|Giant Yellowknife Mines||$11.13||$39.00||250.4%|
This wasn’t the only time gold stocks ran further than gold itself…
There was another boom in the 1990s. The average gold producer went up more than 200%…
Cambior rose 124%. Kinross Gold 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.
Gold returned 158%, while the average gold producer gained over 400%.
Newmont shot up 270%. Gold Fields soared over 500%. And Goldcorp returned over 800%.
As you can see, an increase in the price of gold (even a small one) can lead to huge returns.
Now’s the Time to Take Advantage
You don’t want to be sitting on the sidelines while the motherlode of all gold rallies gains momentum…
Remember, before owning a gold stock, it’s wise to have some physical gold.
Then, you can speculate on higher gold prices by buying gold miners, which gives you the chance to multiply your money in a gold bull market.
You can look into an exchange-traded fund (ETF) like the VanEck Vectors Gold Miners ETF (GDX), which holds a basket of gold stocks.
But the best way to take advantage is by following our advice in my newsletter Strategic Investor. In our core portfolio we have a world-class gold miner that shot up 56% during gold’s move from May to September of this year. This is no penny stock. This multibillion-dollar miner turns a profit and pays a dividend.
The same goes for silver. Our top pick surged 83% over the same period. It too pays a dividend.
In short, now’s the time to strike before gold really takes off.
Just remember, gold stocks are extremely volatile. Like in any industry, the stocks of stronger companies will go up more than those of the weaker ones. As always, never bet more money than you can afford to lose.
It only takes a small stake in the right companies to make a fortune as gold prices rise.
Editor, Strategic Investor