Peter Krauth explains why he believes gold stocks are “churning out some serious profits that are likely to just keep getting better.”
It’s not too late for you to buy gold and gold stocks on the cheap.
If you haven’t already, you may want to seriously consider it.
That move might set you up for a run over the next few years that could turn into your single best investment…ever.
You see, gold stocks are churning out some serious profits that are likely to just keep getting better.
It’s true that, back in August, gold set a new all-time high at $2,067 on huge demand. It has since pulled back, but still managed to set another record: its eighth consecutive quarterly gain.
Despite all the fundamental and technical support that will push gold higher, I think we could still see some more near-term weakness/consolidation before the metal finally returns to rally mode.
And that buys you a little more time to determine your allocation.
Gold Strong, But Dollar Could Weigh Near Term
You know gold’s becoming mainstream when, as recently reported, Costco Wholesale (in the U.K.) is now selling gold and silver bars in their stores.
But if you read some of the media covering this story, you’d think gold is a dangerous investment option to be avoided at all cost. Yet gold generated more than 4 times the returns of the S&P 500 over the last 20 years.
And so far 2020 is no different…
Gold (and silver) remain obvious standouts against nearly all other asset classes so far this year.
I expect more strength to come later in Q4, though gold’s been pausing since its early August highs.
There are two main reasons. First, gold enjoyed a massive rally from its March lows, and needs to digest those gains. Second, the US dollar’s run up from its late August lows may not be finished.
We could see UUP come down to “test” the 50-day moving average, but then renewed strength could take the dollar higher. Although the MACD appears to be pausing, the RSI near 50 has room to run before becoming overbought.
Meanwhile, “smart money” dollar hedgers are the most bullish they’ve been since 2013.
With the second Covid wave rapidly growing and the U.S. election less than a month away, I wouldn’t discount the appeal of the dollar as a near-term safe haven.
Strength from the greenback could dampen gold and gold stocks temporarily.
Gold Stocks in Bargain Territory, But Fundamentals Remain Strong
On a historical basis, despite recent strength, gold stocks remain a true bargain.
On the fundamental side, gold miners had a superb Q2, thanks to much higher gold prices and despite Covid-related shutdowns.
Indeed, I would venture that Berkshire bought into Barrick Gold precisely because it sees just how lucrative the sector has become and is likely to remain.
Even Ohio’s Police and Fire Pension Fund has decided to move towards a 5% gold allocation in an effort to diversify and hedge against inflation. That speaks volumes and is likely to lead to many more institutional investors leaning in gold’s direction.
And now, with gold prices managing their 8th consecutive quarterly gain, I expect gold miners’ Q3 results to be very robust. That’s not only thanks to sustained high gold prices, but also because most gold mining has returned to full capacity while following strict Covid protocols.
Another consideration is how gold and gold stocks could turn out to be “sticky” money. By that I mean once investors make a new allocation, especially for diversification and inflation hedging purposes, they may choose to hold and not sell, even through corrections, as the bull market progresses.
One noteworthy example is the behavior of Robinhood account holders.
There were three standout corrections this year in March, May and August. Each of those times GDX (pink line) went through a clear selloff. And yet the number of holders hardly missed a beat, typically remaining very steady (green line) through those corrections.
As the corrections subsided, more buyers came in. This suggests that, at least millennials, are buying and holding gold stocks with the conviction that this bull market has much higher to run.
Money Manager Adrian Day of Adrian Day Asset Management, and sub-adviser to the EuroPacific Gold Fund, recently told Streetwise Reports:
On a price-to-book value, the gold stocks over the past five years have traded at the lowest multiples ever. As stock prices have gone up, so too have the book values of mining companies. At 1.3 times book, the major miners are trading at a better than a 40% discount to their trading range from the early 1980s to 2013.
Even more compelling is price-to-cash flow: Other than the last quarter of 2018, the gold stocks have never been cheaper! For most of the past 35 years, gold stocks have traded at two to three times the current valuations. And when the gold price is strong, multiples tend to expand, so it would be usual were valuations above average today.
In all likeliness, that’s what Berkshire Hathaway recognizes.
Now it’s your chance to see it too: gold stocks are cheap…for now.
Peter Krauth is a former portfolio adviser and a 20-year veteran of the resource market, with special expertise in energy, metals and mining stocks. He has been editor of a widely circulated resource newsletter, and contributed numerous articles to Kitco.com, BNN Bloomberg and the Financial Post. Krauth holds a Master of Business Administration from McGill University and is headquartered in resource-rich Canada.
1) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation. The author was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Guy on Rocks: Time to go gold shopping. This 1Moz in Victoria looks promising…
The view by many of the gold bulls that the USD may well have run or be close to running … Read More
The post Guy on Rocks: Time to go gold shopping….
The Subtle Art Of Orange-Pilling
The Subtle Art Of Orange-Pilling
Authored by Jesse Colzani via BictoinMagazine.com,
Every Bitcoin user has very different reasons for using…
Selling Into Daily S&P 500 Strength
S&P 500 staged a dead cat bounce following Thuursday‘s slide, and so did yields retreating a bit. Coupled with Japan … Read more
Energy & Critical Metals22 hours ago
Basin drilling returns up to 0.27% uranium at Geikie, highlights ‘scale potential to produce a major discovery’
Economics19 hours ago
Scarcity Is Not Enough
Base Metals15 hours ago
US Steel partners with NETL to test new NETL membrane for carbon capture from steelmaking operations
News Releases13 hours ago
NorthWest Copper Announces Property Sale Agreement
Uncategorized21 hours ago
Belararox eyes new targets to boost Belara 5Mt copper-zinc resource
Companies12 hours ago
West Red Lake Gold Strengthens Management Team
Energy & Critical Metals21 hours ago
Fin launches into maiden fieldwork over Mt Tremblant lithium projects in the prolific James Bay
Companies15 hours ago
First Quantum Minerals to expand Kansanshi copper mine with MECS technology for smelter