Why This Gold Bull Market Isn't Stopping Anytime Soon
Editor's note: Gold is the perfect hedge against the "death of trust" in America...
And it's even better to buy the precious metal when it's in a bull market – like today.
In today's Masters Series essay – adapted from the August 21, 2019 and April 29, 2020 editions of our free DailyWealth e-letter – we turn to Gold Stock Analyst editor John Doody.
John details what's driving the current bull market in gold... explains why it can last longer than anyone thinks... and shows a better way to profit than just buying physical gold...
Why This Gold Bull Market Isn't Stopping Anytime Soon
Today, gold is in a full-fledged bull market...
The metal blew past $1,700 an ounce in April for the first time since 2013. It's up roughly 40% in a little more than 18 months. And the thing is, I see no end in sight...
Bull markets end when there's no one left to buy. And as the coronavirus pandemic rages on, investors have several reasons to keep buying gold.
Importantly, the forces at work here are bigger than any individual crisis. They've influenced gold prices for hundreds of years.
So what's driving this gold bull market? Let's find out... And in today's essay, I'll show you a better way to profit than simply buying physical gold. We'll start at the top...
Gold-price increases are typically due to three interconnected fears – collectively known as the "Fear Trade"...
- Fear of War
Whenever war breaks out, the loser's currency becomes worthless – German marks and Japanese yen at the end of World War II, for example. (Less recognized is that the winner's currency also suffers from the inflation brought on by the deficit spending required to fight the war).
- Fear of Recession
Economic recessions bring low interest rates. This means there's less competition from income-yielding assets that "barren" gold has to overcome for price gains.
- Fear of the Unknown
The value of fiat money – the printed paper that governments declare to be legal tender – is based on confidence in the issuing nation's economy. The unknowns can influence confidence. These can be internal unknowns: How much inflationary paper will be printed to fund the government? Or they can be external: How will the spread of coronavirus hurt a nation's economy?
Currently, war may not be an immediate concern... but Fear of Recession and Fear of the Unknown are driving gold higher.
The Federal Reserve has lowered interest rates to near zero. Investors looking for a safe haven don't have much reason to look any further than gold. Meanwhile, no one knows yet how severe or long-lasting the pandemic's economic damage will be.
And that means this gold bull market can last longer – and rise higher – than anyone expects.
The Best Way to Profit From the New Gold Boom
From the Egyptian pharaohs buried with gold jewelry and coins... to the world's central banks stockpiling ingots to back their paper money... to today's most successful hedge-fund managers, who all say they own gold... gold has been a spending, saving, and investing medium throughout time.
It's a way of spending because it's accepted worldwide and can be converted into local currency for purchases. And it's used for saving and investing because it holds its purchasing power against inflation.
Many prominent investors have praised gold for these two benefits. These investors include Ray Dalio of $160 billion management firm Bridgewater Associates, who has said that the assets to own in the coming "paradigm shift... include gold." Bond King Jeffrey Gundlach, who manages more than $130 billion, says, "I am certainly long gold."
When you consider what happened after President Nixon set gold's price free in 1971, it's easy to see why. At the time, one ounce of gold cost just $35. Today, almost 50 years later, the same gold ounce is worth more than $1,500.
Demand for gold is timeless. But instead of simply buying gold bullion today, you can make far bigger profits another way... by investing in high-quality gold stocks.
And at Gold Stock Analyst, we have the track record to prove it...
Our independently audited 19-year track record shows a cumulative gain of 923% in our Top 10 gold-stock recommendations through the end of last year... crushing the return of the S&P 500 Index and more than double that of gold itself.
That's why we love gold stocks. A selection of the best gold stocks can deliver market-beating returns over the long term... even through bull and bear markets. Take a look at our outperformance over the past 19 years and see for yourself...
Since Federal Reserve Chairman Jay Powell said the central bank would do "whatever it takes" on March 23, our Gold Stock Analyst Top 10 portfolio is up 66.5%. In the same period, gold is up roughly 15%. That shows the Top 10 portfolio's effectiveness over just owning gold bullion.
When in a gold bull market like the one we're in today, the returns can be absolutely spectacular...
During the last gold bull market – a period of a little more than two years following the crash of 2008 – the Gold Stock Analyst Top 10 was up 1,070%. That's four times more than any other gold investment... and 22 times more than the S&P 500. Take a look...
So what's the big secret? These returns are possible because the best gold stocks have leverage to gold prices. This happens in two ways...
- Operating leverage
Suppose a miner's output is 100,000 gold ounces a year, and this amount costs $1,200 in labor, power, and materials to produce. If the gold price is $1,400 per ounce, the company's operating profit is $1,400 minus $1,200 times 100,000 ounces... or $20 million.
If gold rises to $1,600, the cost to produce doesn't change... But operating profits double to $400 per ounce... or $40 million total. And if 50 million shares are outstanding, profit per share doubles, from $0.40 to $0.80. The stock price will rise to reflect this.
- Asset leverage
Miners typically have 10 or more times their annual production in reserves. So for our example, the miner would have a minimum of 1 million ounces still in the ground.
At $1,400 per ounce, that gold has a gross value of $1.4 billion. At $1,600 per ounce, its value is $1.6 billion, an increase of $200 million. Again, if a company has 50 million shares outstanding, each would now be worth $4 more based on the value change. This, too, will show up in an increased stock price.
With fear running rampant in the markets today, the price of gold could ultimately soar to $3,000 per ounce or more. And the right gold stocks could outperform the precious metal itself hugely in the months ahead.
That's why you need to seize this moment... and own the best gold stocks in the industry today.
Good investing,
John Doody
Editor's note: To make the most money during a bull market in gold, you want to own high-quality gold stocks. And nobody is better at finding those opportunities than John...
Through the years, he has personally made more than $20 million in gold stocks. His profits helped pay for a waterfront mansion in Florida... a Ferrari... a speedboat... and more.
Even better, John's innovative system has helped Gold Stock Analyst subscribers to vastly outperform gold, gold exchange-traded funds, and even the broad stock market since 2001.
Last week, John joined his business partner, Garrett Goggin, and Stansberry Research Publisher Brett Aitken for a "Gold Rally Kickoff Call." During the free event, John explained why he believes gold will reach new highs at or above $3,000 in the near future... and revealed some of the secrets that have led to his success. Watch the full replay right here.