Mining Stocks Are the Best Way to Play the Gold Rally
Mining Stocks Are the Best Way to Play the Gold Rally By E.B. Tucker for Casey Research
Gold is up 11% over the last two months.
While that might not seem like much, it signals the start of a new bull market.
As the chart below shows, the gold price moved higher quickly.
And it just broke out of a key level it hasn’t hit since 2013.
In the latest issue of my Strategic Investor newsletter (which subscribers can access here), we said we expected a huge rally. We pointed out that we couldn’t find one fund manager positive on gold. Now, we can’t find one who thinks the $141 run in the gold price is real. That tells us there’s more to come.
You see, at the beginning of a new bull market, even the most loyal industry veterans don’t trust higher prices. At the end of a bull market, every fool tells you there’s more to come.
There’s more to this new bull market in gold than lines on a chart. The three largest central banks in the developed world declared they’ll do anything to stimulate their economies. That’s central bank lingo for “create more money.”
Keep in mind, the Federal Reserve’s balance sheet was $800 billion before the 2008 crisis. It rose more than five-fold to $4.5 trillion by the end of 2014.
The Fed promised to “normalize” its involvement in the U.S. economy. After reducing its bloated balance sheet by a mere 15%, it cried uncle, promising to reverse course.
Gold sniffed that in advance of the announcement. As plans for the Fed’s next monetary ruse formalize, we expect gold to know first.
We think $1,500 per ounce this year is a lock. In an interview with the popular gold industry news network Kitco News, I made this prediction last December, again in March, and recently in May. Each time, the $1,500 call seemed crazy. After moving up $104 per ounce in June alone, my prediction doesn’t seem so crazy.
A decisive move over $1,500 will wake up asset managers who haven’t looked at gold in years. They’ll buy exchange-traded funds and mutual funds.
But those asset managers don’t realize funds own a declining number of mining stocks. You see, the mining industry is in the middle of a consolidation wave. (This is a rising trend… and my colleague Teeka Tiwari came up with a unique way to profit from it. Go here to learn more.)
Everything looks to be in place for the mother of all gold rallies. If you don’t own any gold, start with buying physical ounces.
The Power of Leverage
After owning physical gold, mining stocks can provide leverage to a rising gold price.
The word “leverage” usually means borrowing. That’s not the case at all in the gold market.