Masters Series: I'll Be Buying Gold and Gold Miners Soon
Editor's note: After falling nearly 70% over the last three years, investors have left gold stocks for dead.
But as Steve Sjuggerud explains in today's Masters Series essay – originally published in our free DailyWealth e-letter on August 6 – they're now cheap and hated... two of the hallmarks of a perfect investment opportunity...
I'll Be Buying Gold and Gold Miners Soon
By Steve Sjuggerud, editor, True Wealth Systems
Now is a great time...
Nobody is expecting a crisis (similar to the one Greece just had) in the U.S., so the prices of classic "hard assets" – like gold and gold miners – are attractively priced today.
The price of gold – astonishingly – is at a five-year low. Compare that with the price of stocks, which has run up for six consecutive years.
And gold is HATED today. According to my friend Jason Goepfert (who runs SentimenTrader.com), gold sentiment today is lower than it was in February 2001 – when gold was around $260 an ounce.
Longtime DailyWealth readers know we like to buy what is CHEAP and HATED. Right now, gold ticks both of those boxes.
However, I'm not heavily buying gold just yet. Let me explain...
For me to get really interested in an investment, I also want to see an UPTREND in place. (Cheap, hated, and in the start of an uptrend – that's my investing mantra.) With gold at a five-year low right now, we don't have an uptrend.
So even though gold is cheap and hated – and even though gold is THE great crisis hedge throughout history – I'm not heavily buying the metal yet.
And if you think the situation in gold is bad, then you ought to take a look at mining companies...
"Prices of many mining companies have fallen by over 90%," my friend and successful natural resources financier Jeff Phillips reminded me over lunch this month in San Diego.
Jeff is using the massive bust in small-cap mining companies as a buying opportunity...
"I don't know if the new bull market in resources starts six months or 12 months from now," he said. "But the prices right now for quality assets are incredible. You don't have to buy lower-quality assets that are cheap... Why do that when you can buy high-quality companies at great prices today? I'm buying."
Junior gold-mining companies are down 85% as a group in less than five years – as measured by the performance of the Market Vectors Junior Gold Miners Fund (GDXJ) – which holds a basket of small-cap gold miners.
Smaller mining stocks are definitely CHEAP and HATED today. But like gold, we don't have an uptrend yet – so we don't have our green light to buy.
Prices are cheap, but they could continue to get cheaper. We don't want to try to "catch a falling knife."
Don't worry, you won't miss it. There will be plenty of upside potential when the trend starts moving upward.
The great part about holding gold and gold miners is that your downside risk will be limited. With gold at a five-year low and the shares of mining companies down by 85%, you will hardly be buying at the top when the time comes!
The general consensus is that there is no crisis on the horizon in the U.S. I don't expect a crisis soon, but it is possible eventually. And because no one sees it coming, the cost of protecting yourself today is cheap.
Once the uptrend kicks in, I suggest you buy these "crisis hedges" heavily.
Good investing,
Steve Sjuggerud
Editor's note: Since Steve's essay, gold prices have climbed more than 8%. Gold stocks, as measured by the Market Vectors Gold Miners Fund (GDX), are up more than 20%... and the uptrend is officially in place.
That's why Steve just released a brand-new presentation explaining why gold stocks could rise 1,000% or more in the coming years. He's so sure of it, he put $100,000 of his own personal money into a handful of junior gold stocks this week. Get the details here.