Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Massive Stock Market Price Reversion May Be Days or Weeks Away - 22nd Sep 19
How Russia Seized Control of the Uranium Market - 22nd Sep 19
Dow Stock Market Trend Forecast Update - 21st Sep 19
Is Stock Market Price Revaluation Event About To Happen? - 21st Sep 19
Gold Leads, Will the Rest Follow? - 21st Sep 19
Are Cowboys Really Dreaming of... Electric Trucks? - 21st Sep 19
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

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