What You Need to Know About Gold and Silver Now
What you need to know about gold and silver now... The 'dumb money' is extremely bullish... Great news for Stansberry Resource Report subscribers... 90% of companies are using 'fantasy math'?... An unusual new opportunity...
Gold and silver have been on a tear this year...
Gold rallied 16% over the first three months of 2016, its largest quarterly gain in nearly 30 years. Silver lagged initially, but has surged in April. It's now leading gold with a gain of more than 23% year to date.
Meanwhile, gold and silver stocks have absolutely soared. The benchmark NYSE Arca Gold BUGS Index ("HUI") is up more than 80% year to date. Many individual stocks have done even better.
As regular Digest readers know, several Stansberry Research analysts are bullish on the sector right now and expect much bigger gains to come.
Porter even launched a gold- and silver-focused advisory for the first time in the 17-year history of our firm: Stansberry Gold Investor. Folks who took us up on the offer to become charter subscribers to Stansberry Gold Investor are already up an average of 16% on their 19 recommended positions.
Again, we believe the rally has much further to run. But there are signs the market is getting a little "frothy" in the short term...
Longtime readers may be familiar with the Commitment of Traders (or "COT") report. The U.S. government's Commodity Futures Trading Commission publishes the report every week.
The COT report tracks positions among various types of traders in different commodities markets. When certain types of traders become extremely bullish or bearish, it can often lead to a market reversal.
Some of these traders are known as "large speculators." These are essentially big money managers. In the COT report, these traders are known as the "dumb money"... not because of their intelligence, but because of their behavior.
Large speculators are usually trend followers. They get more bullish as prices rise and more bearish as prices fall. When these traders are all betting the same way – either bullish or bearish – it's a sign the trade is "crowded," and a short-term reversal is likely.
As our colleagues Steve Sjuggerud and Brett Eversole explained to True Wealth Systems subscribers last week, the dumb money in the gold market has become extremely bullish recently...
Right now, large speculators are all betting on higher gold prices. Take a look...
Large speculators haven't been this bullish on gold prices since late 2012. And contracts have only broken above 200,000 three other times in the past four years.
Steve and Brett looked at what happened to gold prices each time net contracts rose to more than 200,000 and then fell back below that over the past four years.
According to their research, gold prices fell an average of 2.8% over the following three months. As they explained, this extreme suggests a pullback is likely, but it's no reason to get bearish...
Extreme bullishness is certainly not a good thing for gold prices. But these also aren't horrid returns.
A 2.8% fall over the next three months would be a healthy move. It would likely scare off the dumb money and allow prices to move much higher in the months that follow.
The latest COT report showed an even bigger extreme in silver...
Large speculators owned a net long position of more than 66,000 contracts. This may not sound like much compared with the number of positions in gold, but remember... the silver market is much smaller than the gold market. This is actually the most extreme speculative position on record. It's even higher than the extreme in 2011, when silver peaked near $50 per ounce.
This is unusual, but not surprising. Because large speculators are trend followers, you would expect to see net long positions rise as silver prices go up. And silver has had an incredible rally this month... It's up 13% in just the last three weeks.
It's no wonder the "dumb money" is falling all over itself to buy. But it means silver is now sending the same short-term warning as gold.
What should you do? Again, it isn't a reason to turn bearish...
We believe both gold and silver are headed higher from here, and a correction would offer a great opportunity to add to your positions.
In the meantime, if you own mining stocks or other speculative gold and silver vehicles, you're likely holding on to some incredible gains. Be sure to keep a close eye on your trailing stops, and don't be afraid to sell and lock in profits.
Speaking of mining stocks, Stansberry Resource Report subscribers just received some fantastic news...
Yesterday morning, copper producer Nevsun Resources (NSU) announced it has agreed to buy gold and copper developer – and Stansberry Resource Report portfolio holding – Reservoir Minerals (RMC.V).
Reservoir shares jumped nearly 30% on the news and closed at a new 52-week high. Stansberry Resource Report subscribers are up more than 105% in less than eight months.
Editor Matt Badiali sent an urgent alert to subscribers yesterday recommending they tighten their trailing stops to protect profits. But he doesn't recommend selling just yet...
In short, Matt believes a rival firm could make a larger, competing bid for the company... and a "bidding war" could ensue.
Congrats to Stansberry Resource Report subscribers for a big win, and what could be even bigger gains to come.
According to a new report from the New York Times, the overwhelming majority of large public companies are now using "fantasy math" in their earnings reports...
We've explained how companies are increasingly using "alternative" accounting to present their financial results in a better light. Electric-car maker Tesla (TSLA) is a great example. But even we were shocked to learn just how many are doing it today...
A recent study in The Analyst's Accounting Observer found that 90% of companies in the S&P 500 Index now report earnings that are not based on traditional accounting rules, known as "generally accepted accounting principles" or "GAAP." This is up from 72% of companies in 2009.
Public companies are still required to report a set of GAAP earnings. But the Securities and Exchange Commission ("SEC") has increasingly allowed companies to highlight non-GAAP results instead. And the study shows that can make a massive difference in earnings...
Among the 380 companies that were in existence in both 2009 and 2015, non-GAAP net income (profit) rose 6.6% year-over-year in 2015. Among those same companies, traditional accounting rules showed profits actually fell more than 10% in 2015.
Even more incredible, 30 of the companies showing GAAP net losses in 2015 were able to create profits using their non-GAAP methods. How is that possible? As the Times reported...
Among the more common expenses that companies remove from their calculations are restructuring and acquisition costs, stock-based compensation and write-downs of impaired assets.
Creativity abounds in today's freewheeling accounting world. And the study found that almost 10 percent of the companies in the S&P 500 that used made-up figures took out expenses that fell into a category known as "other." These include expenses for a data breach (Home Depot), dividends on preferred stock (Frontier Communications) and severance (H&R Block).
Of course, all of those expenses are real, and they should matter to investors. As Jack Ciesielski, the study's publisher noted, ignoring them can not only lead to "sloppy investment decisions," but can also give company executives a "free pass... in managing all shareholder resources."
Still, it seems even manipulated earnings aren't enough to help many companies today. Several big names in various sectors have missed Wall Street's earnings expectations this quarter...
In the tech sector, Alphabet (GOOG), Microsoft (MSFT), and Netflix (NFLX) all plunged last week after reporting weaker-than-expected earnings.
Soft-drink giant Coca-Cola (KO) and coffee chain Starbucks (SBUX) missed, too. Oil-services company Schlumberger (SLB) and industrial-machinery maker Caterpillar (CAT) reported terrible earnings. Even private-equity firm Blackstone (BX) – one of the biggest beneficiaries of the boom in cheap credit – reported weak earnings.
One of the few bright spots was fast-food giant McDonald's (MCD), whose recent turnaround strategy appears to be working. The company reported higher-than-expected sales, revenues, and earnings per share.
While sales are clearly slowing in many areas of the economy, it appears folks will still pay for cheap food and all-day breakfast.
Finally, a quick note to end today's Digest...
As you may have heard, our colleague Bill Bonner – founder of our parent company, Agora – recently announced a new service unlike anything he has ever done before...
In short, he has agreed to invest $5 million of his family's own money in the recommendations of just one of his analysts.
This analyst has a track record you may not believe... Over the 10-year period from 2005 through 2014 – which included the financial crisis of 2008 – he outperformed the book value of Warren Buffett's Berkshire Hathaway (BRK) by 2-to-1, and even beat billionaire hedge-fund legends like Carl Icahn and John Paulson by up to 3-to-1.
And those aren't back-tested results... Those gains were made in real time, in real, published recommendations. And he has the independently audited financial results to prove it.
Incredibly, Bill has also agreed to let his readers invest alongside him. In fact, you'll even have the chance to get into each recommendation before Bill himself does.
You don't have to be wealthy to participate. But if you're interested, you must act now. This offer is only available until midnight Eastern time tonight.
For all the details on this new service, click here now.
New 52-week highs (as of 4/25/16): Becton Dickinson (BDX), Ciner Resources (CINR), Medtronic (MDT), and Reservoir Minerals (RMC.V).
A light day in the mailbag... What's on your mind? Let us know at feedback@stansberryresearch.com.
Regards,
Justin Brill
Baltimore, Maryland
April 26, 2016
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