Physical gold and the companies that mine it have shown incredible strength since gold bottomed out at around $1,266 in May of last year. The path to record high prices for gold versus the U.S. dollar isn’t going to be a straight line – seasoned investors know that it doesn’t work like that – but every dip along the way is a compelling opportunity to add to your position.
While 10-year government bond holders are earning a measly 1.56% per year on their investment, gold just printed its biggest monthly gain since August of 2019 – which was itself pretty impressive as the gold price had rallied by 7.65% at that time.
Experts who have been watching and trading gold profitably for many years are anticipating much higher gold and mining-share prices from here. Billionaires like Ray Dalio and Jeff Gundlach remember 1980, when inflation was high, the Soviets were intervening in Afghanistan, and the Iranian revolution was destabilizing the Middle East.
It was in January of that year when gold spiked to $850 an ounce, an astounding number back then. In terms of percentage gains, 1980 proved that the spot gold price can literally jump hundreds of points in a short period of time.
You might recall that in January, gold achieved its highest level since April of 2013. That’s nothing, however, compared to the moves that gold made in 1980, 1999, 2003, 2008, and 2011. The catalysts are similar and the price behavior is mirroring the early stages of those huge moves.
Resource-sector shares have benefited from the run-up in gold and the gains tend to be exaggerated to the upside, so I use a small handful of handpicked stocks to enhance my profits in physical gold. Gold has been flirting with the $1,600 level but as soon as it breaks through, it’s off to the races for both gold and the mining shares.
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What causes the small price dips in the greater uptrend? It’s a principle that every successful investor understands thoroughly: large-scale traders are programmed to take profits at specified price levels. Sadly, beginners typically get shaken out of their positions whenever that happens because they don’t understand that these are just speed bumps along the road to higher prices.
Plus, there’s an unfortunate and tragic catalyst happening right now. We’re living in a time when the full impact of the coronavirus outbreak hasn’t been felt yet – not even close. Even if the virus’s spread was stopped completely today, the financial fallout will last for many months.
Again, experts are looking to past events for clues as to how this will impact the price of precious metals. 2003 was a strong year for gold, and that was also the time of the SARS outbreak. In terms of confirmed cases, the coronavirus is vastly outpacing SARS:
Courtesy: USA Today
This might or might not be the catalyst that propels gold to $1,700 and $1,800, but it’s a smart move to add gold and mining shares as governments grapple with a situation they cannot fully control. There’s even talk of postponing or canceling the 2020 Olympics, which are supposed to begin in July.
The companies that will generate the greatest returns for stockholders as the gold price inevitably increases will be the ones using the optionality model: they make gold-asset acquisitions when prices are depressed, but that are likely to be worth many multiples in a higher gold-price environment.
In other words, I specifically look for companies that buy gold reserves in the ground and have very little overhead and low all-in sustaining costs. The strategy is to purchase gold resources at a fraction of the cost to drill while the spot gold price is low, and then monetize these assets once the price goes up.
It’s a strategy that requires precise timing and a bold vision: capitalizing on weakness in the gold price and making acquisitions, engaging in strategic joint ventures and building the company’s project portfolio. If done correctly, it’s like buying gold at a deep discount – and for investors, the returns can be swift and startling when metals prices are surging.
And there’s one company in particular that’s already enriching shareholders as the gold price powers its way higher – to learn about our favorite gold play, click here right now.
Chief Editor, CrushTheStreet.com
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