Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Iran's Death Spiral -- 40 Years And Counting - 17 Feb 19
Venezuela's Opposition Is Playing With Fire - 17 Feb 19
Fed Chairman Deceives; Precious Metals Mine Supply Threatened - 17 Feb 19
After 8 Terrific Weeks for Stocks, What’s Next? - 16th Feb 19
My Favorite Real Estate Strategies: Rent to Live, Buy to Rent - 16th Feb 19
Schumer & Sanders Want One Thing: Your Money - 16th Feb 19
What Could Happen When the Stock Markets Correct Next - 16th Feb 19
Bitcoin Your Best Opportunity Outside of Stocks - 16th Feb 19
Olympus TG-5 Tough Camera Under SEA Water Test - 16th Feb 19
"Mi Amigo" Sheffield Bomber Crash Memorial Site Fly-past on 22nd February 2019 VR360 - 16th Feb 19
Plunging Inventories have Zinc Bulls Ready to Run - 15th Feb 19
Gold Stocks Mega Mergers Are Bad for Shareholders - 15th Feb 19
Retail Sales Crash! It’s 2008 All Over Again for Stock Market and Economy! - 15th Feb 19
Is Gold Market 2019 Like 2016? - 15th Feb 19
Virgin Media's Increasingly Unreliable Broadband Service - 15th Feb 19
2019 Starting to Shine But is it a Long Con for Stock Investors? - 15th Feb 19
Gold is on the Verge of a Bull-run and Here's Why - 15th Feb 19
Will Stock Market 2019 be like 1999? - 14th Feb 19
3 Charts That Scream “Don’t Buy Stocks” - 14th Feb 19
Capitalism Isn’t Bad, It’s Just Broken - 14th Feb 19
How To Find High-Yield Dividend Stocks That Are Safe - 14th Feb 19
Strategy Session - How This Stocks Bear Market Fits in With Markets of the Past - 14th Feb 19
Marijuana Stocks Ready for Another Massive Rally? - 14th Feb 19
Wage Day Advance And Why There is No Shame About It - 14th Feb 19
Will 2019 be the Year of the Big Breakout for Gold? - 13th Feb 19
Earth Overshoot Day Illustrates We are the Lemmings - 13th Feb 19
A Stock Market Rally With No Pullbacks. What’s Next for Stocks - 13th Feb 19
Where Is Gold’s Rally in Response to USD Weakness? - 13th Feb 19
US Tech Stock Sector Setting Up for A Momentum Breakout Move - 12th Feb 19
Key Support Levels for Gold Miners & Gold Juniors - 12th Feb 19
Socialist “Green New Deal” Points the Way to Hyperinflation - 12th Feb 19
Trump’s Quest to Undermine Multilateral Development Banks - 12th Feb 19
Sheffield B17 US Bomber Crash 75th Anniversary Fly-past on 22nd February 2019 Full Details - 12th Feb 19
The 2 Rules For Successful Trading - 12th Feb 19 -
Financial Sector Calls Gold ‘Shiny Poo.’ Are They Worried? - 11th Feb 19
Stocks Bouncing, but Will They Resume the Uptrend? - 11th Feb 19

Market Oracle FREE Newsletter

The Real Secret for Successful Trading

Three Gold Charts, One Big Gold Stocks Opportunity

Commodities / Gold and Silver Stocks 2018 Apr 17, 2018 - 04:37 PM GMT

By: Chad_Champion

Commodities

This week’s about knowing when it’s a low risk time to buy gold stocks.

We’ve had two things happening over the past several years…

One… The S&P 500 has soared to record heights as the economy came out of the housing crisis dungeon.

Two… Gold stocks, plus other commodities went into the dungeon due to a multi-year bear market in commodities.


Since both things have been taking place for almost a decade now, it’s time to take advantage of good old reversion to the mean.

In short, a new gold bull market started to take place in early January 2016.

Gold stocks soared, along with the price of oil, when most commodities bottomed out in early 2016. The good thing is that you didn’t miss out.

You still have a great opportunity to buy gold stocks. The easiest way to get exposure is via an ETF like VanEck Vectors Gold Miners ETF (GDX) or VanEck Vectors Junior Gold Miners ETF (GDXJ).

GDX holds the larger-cap, more mature companies. GDXJ holds a basket of smaller-cap gold companies primarily involved in mining for gold… The kind that carry more risk but that will see much bigger moves (Maybe 2,3, 5, or 10 times as much as a large-cap gold stock) when the price of gold goes up.

Here’s why it’s a good time to take advantage of this opportunity…

One of the best indicators for knowing when it’s a low-risk time to buy gold stocks is the gold/silver ratio. It’s just the spot price of gold divided by the spot price of silver.

Look at this chart…

Chart courtesy of StockCharts.com

The blue arrows show the start of each previous gold bull market over the past 20 years. The green arrow shows that the current bull market has taken a breather.

Which means it’s an opportunity for those who missed the boat back in early 2016 to get in.

The next chart tracks the price of gold over the same time-period.

Each blue arrow points to the price of gold when the ratio was at 80. As you can see, the price of gold saw big gains each time.

The red arrows point to the price of gold when the ratio dropped to around 45. Which is when gold went into correction mode. The big gold bull market that ended in 2011 went well below 35.

You can see the action here…

Chart courtesy of StockCharts.com

Now, the reason to buy gold stocks (as opposed to physical gold) is because it’s a way to magnify your returns.

For example, ABC Gold produces gold for $1,000 per ounce. If the gold price is $1,300 when it sells its gold, it makes a $300 profit on every ounce.

The company’s earnings are calculated from that $300 profit. Of course, this is assuming the company doesn’t have any financial issues.

Let’s say the gold price rises to $1,500. Now it has a $500 per ounce profit ($1,500 – $1,000 = $500).

But look at what happened to its profit: it grew by 67%…while the price of gold only increased by 15.4%.

Think about this for a moment… The company’s profit went up $200 per ounce, from $300 to $500 and it didn’t do anything different.

That’s with a 15% jump in the gold price. Hardly a massive bull market in gold. If gold rises to $2,000, it’s profit would soar 233% from $300 per ounce to $1000 per ounce.

That’s why it pays to have an allocation to gold in your portfolio. Because when the stock market tanks, the dollar tends to tank, which means the price of gold tends to go up significantly.

By having exposure to gold stocks, you can more balance to your portfolio. It’s a big reason why you hear gold termed as “portfolio insurance.”

When stock markets are in complete chaos, investors run to gold for safety.

The outsized returns you get from the move up in gold soften the blow from the drop in stocks. Depending on your allocation you could actually see nice gains in your portfolio.

Ok…. Now back to what I said in the beginning. I told you we’ve had two things happening over the past several years.

The stock market going up. Gold and commodities going down.

Check out this next chart…

Chart courtesy of StockCharts.com

As you can see, the S&P 500 is up 290% since March 2009 when the stock market bottomed as the worst of the financial crisis faded.

GDX and GDXJ are now down close to 30% and 60% respectively. You can see them start to take off in early 2016 when the new gold bull market began.

But they have cooled off since then.

Therefore, investors still have the opportunity to get in on the next gold bull market and to do so at good prices.

As I mentioned earlier, GDXJ will offer the chance at bigger returns than GDX. Simply because it’s comprised small-cap gold mining stocks.

The good thing is that by buying the ETF, it helps eliminate the bankruptcy risk or other company-specific risk you face when you buy just one or two.

The bottom line, unless your plugged into what’s happening in the world of gold stocks (this can be said of stocks in general too), the ETF is a great way for the individual investor to take advantage of the coming gold bull market over the next 3-5 years.

By Chad Champion

http://thechampioninvestor.com

Chad Champion is the Founder and Chief Investment Strategist at The Champion Investor. .

The Champion Investor is focused on helping investors navigate the global markets, find undervalued investment opportunities, and create a second income stream using options.

You can sign up for The Champion Investor’s Global Research & Strategy Notes for free here.

Chad has a Finance and Investment Management background with a Master’s Degree focused in Investment Management and Financial Analysis and a Masters of Business Administration focused in Financial Management.

He spent the past couple of years working as the lead analyst at Casey Research and as a research analyst for Bill Bonner at Bonner and Partners.

© 2018 Copyright Chad Champion - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Chad Champion Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules