After topping out at around $2,075 per ounce for gold and around $29 per ounce for silver, both have corrected over the past week or so.
Gold is back to the previous bull market’s all-time highs around $1,900 per ounce. Silver is trading below $27 per ounce.
So, is it time to panic?
For those of you getting nervous about this recent pullback – or future pullbacks for that matter, take a closer look to see what fueled the rise in precious metals prices. Then, ask yourself, “What’s changed?”
Here are a few questions to ask…
- Have interest rates climbed to a point where holding term deposits in a bank generates positive real returns?
- Has the U.S. government stopped printing money to expand the money supply?
- Are they talking about stopping stimulus created out of thin air?
- Has sentiment for precious metals waned?
- Has the Gold/Silver Ratio dropped to the range of 35-50?
- Has the stock market become less volatile?
- Are we approaching the 10-year mark in this current bull market in precious metals?
- Is the world any more stable socially or politically?
- Have gold and silver prices come anywhere near the percentage gains realized in the past two bull markets (650% and 1,000% respectively)?
- Is the U.S. dollar consistently trading above 95 on the U.S. Dollar Index?
- Has our nation’s debt been diminished at all?
If you answered “No” to all of the questions above, nothing has changed.
Bull Market Corrections
Long-time readers have heard me say this before. Corrections, or dips, in a bull market are to be embraced… not feared.
When we start answering “Yes” to the majority of the questions listed above, I would consider taking profits in our for-profit precious metals holdings. Until then, dips are opportunities to buy more gold and silver cheaper than we ought to be able to buy them. But, in my opinion, you never sell your wealth insurance – or emergency money in gold – no matter what the price… unless you have a financial emergency.
Dips are healthy… especially after the significant and relatively quick move upward. The fact that gold broke out of it’s $1,200 to $1,300 range and achieved new all-time highs in U.S. dollar terms in about a year, suggests how necessary this bull market was and how strong it is.
But, nothing moves up in a straight line forever. And, to be healthy and sustained, this gold and silver bull market needs these corrections along the way. The very same thing happened in the precious metals bull markets of 1971 to 1980 and 2001 to 2011.
You Are to Be Commended
Of course, I am preaching to the choir.
I have been watching the buying patterns of our clients for 25 years now. I am always looking for insights into why people buy and when people buy.
From what I can see, you all should be commended.
When gold and silver prices drop, like now, we are seeing our clients patiently waiting for the first UP day in prices. Then, the buying begins again.
This is healthy and prudent. Let the short-term dip run its course, before you take advantage of it. This is calm, unemotional behavior. Well done!
There are some talking heads out there calling for gold to retrace to technical support around $1,800 per ounce. There are still some calling for gold to drop below $1,000 per ounce. Others believe we will hold at this level around the previous all-time highs.
Let me let you in on a secret…
None of them know with even an ounce of certainty where this goes next. But, as long as we keep hearing “No” to all those questions listed above, I see this as a short-term dip on the way to much higher prices.
From 2009 until 2019, greed won out over fear. The stock market, fueled by the easy money from the last government bail-out of banks and brokerages, bid the stock market valuations up to grossly unsustainable levels. Price inflation from the stimulus money triggered by the financial crisis of 2008-2009 is evident in the equities markets and virtually nowhere else.
Now, given the widening gap between the haves and have nots, along with the social and political unrest that caused, fear has taken control from greed. Gold and silver are on the move, and this should continue for another 5 to 9 years.
Embrace the dips.
Buy the dips.
Sleep peacefully at night.
Let us help you Keep What’s Yours! We are just one call away... (800) 831-0007. Or, email us.
And… don’t forget about your IRA’s as well.
"Michael, Rich and the team are not only my own personal go-to provider for gold and other precious metals, they are wonderful colleagues, friends and experts for discussion and insight into what's happening in the global markets.” Doug Casey // Founder, Casey Research
"Michael, Rich and the team are not only my own personal go-to provider for gold and other precious metals, they are wonderful colleagues, friends and experts for discussion and insight into what's happening in the global markets.”
Doug Casey // Founder, Casey Research
Editor's Note: For many years, we have known Adrian Day to be extremely experienced and competent in the field of asset management. Adrian Day is president of Adrian Day Asset Management, a firm that manages accounts in global and resource areas for investors. Accounts can be personalized and can be more or less conservative. To learn more, please contact Brian at firstname.lastname@example.org. Brian will gladly put you in touch with Adrian to determine if a managed account is appropriate for you. We have known Adrian Day since the 1980’s, and we are happy to refer clients to his firm.
Gold Stocks: The Stars Are Aligned
By Adrian Day
Rarely are investors faced with a market or sector whose fundamentals and outlook are so strong while the leading equity participants so undervalued. Yet that is precisely the situation in the gold market today.
With the Federal Reserve and other global central banks competing to see who can depreciate their currencies the fastest, the outlook for gold is extremely strong. We discussed this recently. If the various QEs after 2008 took gold on a five-year bull market that saw the price of gold almost triple while the major mining index (XAU) went up over 3.5 times, and many juniors far more, so today’s even more extreme “policy”, dubbed “QE Infinity”, could have an even longer and greater impact on the price of gold.
Yet despite increased interest in gold and gold stocks, despite the XAU having more than doubled since March, the gold stocks remain undervalued.
Large Gold Miners Lots of Room to Move
First, the gold stocks have been lagging bullion since 2011, and the gap continues to be wide. In fact, the gap between gold and gold stocks is wider today than it ever has been. If you are bullish on gold, you should be even more bullish on gold stocks. (Of course, bullion has a different function in a portfolio than gold stocks and, in my view, should form the foundation of a portfolio, before inherently more volatile gold stocks are added.)
Second, the gold stocks remain considerably cheaper than they were in 2010-2012. Despite the big run up in gold stocks this year—and up 350% since early 2016—they are still significantly less expensive than there were at the previous peak. The XAU index would have to rise more than 50% from here to equal the level of those years. But we should bear in mind that leading components of the index are the royalty companies which generally performed very well over the past decade. Remove those stocks, and the miners generally would have to double from here to get back to the levels they were a decade ago, the last time gold was at the same price as today.
Gold Stocks Remain Very Undervalued
We should not forget the words of Oscar Wilde about people who know the price of everything but the value of nothing. If we look at valuations, the story is even more compelling. On every valuation metric, the gold stocks today, despite record gold prices, are in the lowest quartile on a historical basis.
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 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! See nearby graph. And when the gold price is strong, multiples tend to expand, so it would be usual if valuations were above average today.
Today’s situation does not make any sense. Today we have record gold prices and an extremely bullish outlook. We have arguably better, more disciplined mining companies, and yet prices and valuations are far less than in 2011-2013. Let’s look at Barrick Gold, the company in which Warren Buffett just took a stake. Barrick today is a far better company than it was in 2011. It has superior management…a stronger balance sheet…no hedges…a more diversified production profile…and a deep pipeline. We could argue about some specifics, but there is little argument that Barrick today is a far better company than it was back then. And yet Barrick’s stock is trading at barely half the level it was in 2010-2013, and that is after the Buffett-inspired rally of the last couple of weeks. There is no logical reason for that.
Why the Undervaluation?
In a situation like this, we should ask “why”. The senior stocks (per XAU) fell over 80% from 2012 until they hit bottom at the beginning of 2016. That would shake the confidence of all but committed gold bugs. And generalist investors were angered by the disastrous decisions made by many major miners, particularly the overpaying for marginal assets that were later written off. (Over 75% of the dollars spent by gold-mining companies on acquisitions in the years 2010-2013 were written off within three years, an astonishing level of capital destruction. No wonder, until recently, the mining sector had a negative return on capital.)
Managements were wholesale sacked and replaced, while corporate “visions” of “growth at all costs” were replaced by “profitable ounces”. Despite this, generalists who do not follow the industry in great detail, are reluctant and slow—understandably—to return to the sector. If you bought Newmont, let’s say, because it is the largest gold mining company in the world and lost 80% of your investment in less than four years, you would probably avoid the sector too!
But over time, this is a positive. If something around 0.3% of investable assets are in gold (and gold stocks) compared to a long-term average of 2.5%-3%, there is potential for that interest and investment from generalists to increase. As gold continues to move up, they will return to the sector. Indeed, we are already beginning to see this.
It is unusual that after gold itself has moved so much (over 30% this year, 50% in the past year) to find the major companies still inexpensive. Investors are in a very unusual and advantageous position now that with gold strong and the outlook even stronger that the largest and best companies remain inexpensive. One does not have to go “down market” to the juniors and exploration stocks where the potential, but also the risk, is far higher. Gold stocks remain about the most idiosyncratic of any sector; one company can be a disaster even while the sector is strong. So selection remains critical. But this is unquestionably the time to take advantage of this anomaly in prices and valuations of the largest mining companies.
"Whether you believe international diversification is a necessity because the U.S. dollar is headed for collapse, or you just want the added security of owning physical gold, Asset Strategies has the knowledgeable staff and the resources to meet these needs." R. Hughes // Satisfied ASI Client
"Whether you believe international diversification is a necessity because the U.S. dollar is headed for collapse, or you just want the added security of owning physical gold, Asset Strategies has the knowledgeable staff and the resources to meet these needs."
R. Hughes // Satisfied ASI Client
Editor's Note: Dr. Steve Sjuggerud is the Founding Editor of DailyWealth and editor of True Wealth, an investment advisory specializing in safe, alternative investments overlooked by Wall Street. This article originally appeared in DailyWealth on August 18th, and we agree with his messaging that the more hated gold is, the better opportunity there is for savvy investors. To subscribe to DailyWealth for free, click here.
The Only Time My Dad Said 'No'
By Steve Sjuggerud
"Son, I have followed you into every investment you have ever recommended," my dad told me in 2003. "But I draw the line at your latest story on gold and gold coins."
When my dad said this to me, two things immediately went through my mind...
- I can't believe my dad is saying this to me.
- This has to be the greatest "buy" signal in gold... when gold is so hated that even my dear ol' dad won't follow me into this trade.
It turns out, 2003 was a fantastic time to buy gold... Gold traded for around $350 that year, when I first shared this story in True Wealth. Today, gold is around $2,000 – up nearly 500%.
Why did my dad hate gold so much back then?
Why did he draw the line at following my gold recommendations? And can we learn something from his experience today?
Today, I'll share the details with you. And they'll show that right now is a fantastic time to own gold.
Let me explain...
My dad's personal experience with gold was a lot different than what we've seen since 2003. He had the opposite experience. And he felt burned by gold, big time.
It turns out, my dad owned some gold coins... South African krugerrands, to be specific – which have roughly one ounce of gold in them. After booming during the 1970s, gold peaked at $850 an ounce in January 1980. Assuming my dad paid $700 an ounce, that would mean he lost half his money between when he bought and my True Wealth issue in 2003 – as gold went from $700 to $350.
Down 50%, over 25 years?! No wonder he hated gold and gold coins!
Last month, I inherited those gold coins from my father. (He passed away in 2008. And my mother passed away recently of pancreatic cancer.) Holding those coins in my hands brought back these memories.
Is there a lesson here for us today? Actually, yes...
The same conditions that set up the 1970s gold boom are in place today. But gold hasn't soared – yet.
Remember, gold went from $35 an ounce to $850 – in 10 years – ending in January 1980.
What caused it to soar?
In the simplest terms... It was a loss of faith in government.
The oil crisis in 1973 kicked off a dreary decade for the economy. Inflation took hold, rising at rates the U.S. had never seen. And unemployment started rising, peaking at nearly 11% in the early 1980s – the highest rate in our lifetimes (until this year).
As unemployment rose, the Federal Reserve cut interest rates to artificially low levels to try to stimulate the economy. Sound familiar?
And the government started running extreme budget deficits – spending far more than it took in – to try to stimulate the economy. The budget deficit reached 6% of gross domestic product by 1983.
Here's the thing... the numbers from the '70s and '80s pale in comparison to today's numbers. This is what we're seeing now...
- Unemployment hit 14.7% in April.
- Interest rates are at record lows... essentially at zero.
- The budget deficit hit record levels – by far – this year.
The numbers on the budget deficit are just crazy... This year alone, the government deficit will be $3.7 trillion. That means the government is spending $3.7 trillion more than it takes in – just this year.
So how will our government pay for this?
We will see higher taxes and more "money printing." Higher taxes will barely make a dent, though. So that means money printing is the answer – a lot more.
And you probably know what else this means... We'll see much higher gold prices.
It's an old, old story for most investors. Printing more money reduces the value of the dollar over time – which makes gold a better store of value.
This is certainly true today. And the conditions are in place to put this trend into hyperdrive.
My dad didn't listen to me when I told a similar story in 2003. And it's no surprise given his personal experience. But if you feel the same – if you don't like the idea of owning gold today – please hear me out...
Conditions are set up for a multiyear rally in gold prices. Don't allow yourself to miss it.
"If there's anything you need in terms of handling your bullion - buying, storage, certificates, etc. - The staff at ASI are the folks you want to do business with. That's the truth." Porter Stansberry // Stansberry & Associates
"If there's anything you need in terms of handling your bullion - buying, storage, certificates, etc. - The staff at ASI are the folks you want to do business with. That's the truth."
Porter Stansberry // Stansberry & Associates
The Inside Story
By Madeleine Coe
If you want to sell your gold at the right time, take the emotion out of it.
Whether gold and silver are surging ahead or pulling back, it’s important not to let your emotional state be a factor in your decisions to sell out of your position.
It’s not possible to time the markets, but if you act rationally in the face of bulls and bears, you’ll come out on top in the end. Instead of being swayed by fear or by greed, here’s how to break the cycle and take your emotions out of your precious metals investing decisions.
Why Invest in Gold?
Most investors fall into two categories: owning gold to minimize volatility in their portfolio or owning gold so they can sell it for profit.
Whether investors say they want it for wealth insurance or for profit, they tend to actually want both… just weighted one way or the other. If you’re wondering when the best time to sell gold is, start by examining your reason for owning it in the first place.
Gold for Wealth Insurance
Wealth insurance is a store of purchasing power, with high liquidity, for a potential financial crisis you hope to never have. For that reason, if you intend to own gold for wealth insurance, then it is most desirable to keep 10-15% of your portfolio allocated to gold at all times. Consider this your core holdings.
Regardless of the gold price hitting new all-time highs or new short-term lows, you want to have insurance and that means keeping your core precious metals holdings at a level that will act as a hedge against volatility. After all, if you stopped insuring your car or home because rates changed, then the insurance would not be in place for an emergency. This is the whole purpose for having gold as wealth insurance.
As a matter of fact, if your purpose for owning gold is wealth insurance, the only reason why you would sell gold is if you run into a financial emergency. In this case, you should sell immediately to meet the need, whether that is to meet margin calls in a plummeting market or to liquidate into dollars so that you can take care of a personal emergency. In these cases, selling the gold you owned as wealth insurance means that gold was doing its job, protecting you against potential harm in a financial crisis.
However, as soon as possible afterwards, you will want to replenish your gold allocation at any price. Yes, any price. This might sound extreme, but you can’t put a price on emergency preparedness. After all, you never know when the next potential crisis you hope to never happen will happen.
Essentially, investors who purchase gold for wealth insurance should pay no attention to market tops or bottoms, bears or bulls. The best way to reach your goal is by ensuring that you maintain your allocation. Once you’ve filled that allocation in your portfolio, however, you may start to shift your focus to selling precious metals for profit…
Gold for Profit
Only in gold and silver bull markets should you sell gold and silver for profit, and probably no more than 10% to 15% of your investible assets beyond your core holdings.
Don’t give into the temptation to sell out of your core holdings of gold and silver at the height of the market! Without the protection of gold and silver, you risk exposure to inflation and market volatility. And it’s impossible to know when the top of the market is until after it passes.
So, when do you sell gold for profit? Trust in the sage wisdom of famed investor Bernard Baruch.
“Don’t try to buy at the bottom and sell at the top. This can’t be done – except by liars.”
If you were to make moves throughout a bull market, rather than waiting for a top that you’ll never be able to time, you’ll be able to take profits while you continue to participate in the bull market. As gold and silver climb in price in the bull market, rebalance your position as needed. Consider selling when gold or silver double in spot price, then adding back into to your profit position whenever there is a dip.
The only tricky part of this strategy is recognizing the beginning of the bear market as opposed to the dips that naturally occur throughout a healthy bull market.
Keep your eyes peeled for a few key signals that the bull market will turn bearish:
- If the typical bull market lasts about a decade, then you have a good idea when the peak is starting to approach.
- Historically, once gold appreciates around 2 to 3 times its’ previous bull market high, things start to turn.
- Historically, when the Gold to Silver Ratio reaches 35-50 ounces of silver to buy 1 ounce of gold, things start to turn.
- When bullish sentiment is widespread, prepare to pivot. By the time everyone is talking about the money they are making in gold, it’s time to make your exit strategy.
With this strategy, if you catch the top exactly (note: you won’t), then you’re set! If you sell a little early, you’re still set. If you sell a little late, guess what… you’re still set. You’ve been taking profits all along in any of those cases, so there’s no need to regret the small part of the market that you didn’t capture.
Don’t let the fear of missing out allow you to make emotional investment decisions instead of rational ones. Greed will never serve your portfolio as well as a sound strategy does.
What Moves Should I Make in the Current Market?
In the currently ongoing gold bull market, the breakout of gold occurred in May of 2019, and we’ve seen a continued upward trend in the year following with periods of consolidation that gold has used to building strength before surging forward. Once a positive trend has established itself, it’s time to buy. We’ve been urging clients to add to their position in gold and silver since the breakout occurred, and there’s still plenty of time to jump in… even if you’ve missed the bottom, there should be a long way to the top.
A typical gold bull market lasts about a decade, so now is a good time to start building your position. Take care of your core holdings first, then you can start to accumulate and sell for profit, taking the emotion out of it.
“As the Publisher of The Oxford Club financial group for over 28 years, I've learned to be very selective in who I recommend to our Members. When it comes to buying precious metals and offering services for offshore diversification and protection of assets, there's only a few groups I would trust. Asset Strategies International is one of the select firms I recommend without hesitation. I've worked with them for decades. ASI is a family-led business that offers the perfect complement of hard asset services and expertise for our Members, with the utmost professionalism and responsiveness." —Julia Guth // CEO & Executive Publisher, The Oxford Club
“As the Publisher of The Oxford Club financial group for over 28 years, I've learned to be very selective in who I recommend to our Members. When it comes to buying precious metals and offering services for offshore diversification and protection of assets, there's only a few groups I would trust. Asset Strategies International is one of the select firms I recommend without hesitation. I've worked with them for decades. ASI is a family-led business that offers the perfect complement of hard asset services and expertise for our Members, with the utmost professionalism and responsiveness."
—Julia Guth // CEO & Executive Publisher, The Oxford Club