Published August 10, 2016

Why Gold Stocks Won’t Stay Cheap for Long

It's been decades since we've seen a buying opportunity this good in gold stocks…

We’ve been saying all year that gold stocks are on the launch pad. Casey Research founder Doug Casey even went on record a few months back and said gold stocks were poised to enter a “true mania.”

Doug's call has been spot on—the HUI Gold Index, which tracks large gold stocks, is up more than 150% this year. That’s a huge gain for such a short period. And it's likely only the beginning…

As you’re about to see, a powerful force could send certain gold stocks up 2x, 5x, 10x, or more from current levels… Doug has used this force to make giant gains in every gold bull market since the '70s.

Today, we’ll show you what this powerful force is and how to use it to your advantage. You’ll also learn why this is one of the best times ever to own gold stocks. As a bonus, we’ll explain why the average gold stock could soar 68% even if the price of gold doesn’t rise another dollar.

But first, we need to go back to December 2008…

• At the time, the global financial system looked like it was about to collapse…

Three months earlier, the iconic investment bank Lehman Brothers went out of business. Lehman’s bankruptcy, the largest in U.S. history, sent shockwaves around the world.

The U.S. government scrambled to contain the crisis. It bailed out America’s “too big to fail” banks. It cut its key interest rate to zero. And it launched its first-ever quantitative easing (QE) program. (That’s when a government creates money out of thin air and pumps it into the financial system.)

These emergency measures didn’t end the panic. The S&P 500 plunged 29% in the 12 weeks following Lehman’s collapse. Millions of Americans saw their life savings go up in smoke.

Many investors sold their stocks and bought gold.

• The price of gold soared 79% from December 2008 to March 2011…

Most folks would have been thrilled with that kind of gain. But you could have made far more money if you owned gold stocks during this period. Many International Speculator readers did just that.

Fifteen stocks in the International Speculator, our advisory dedicated to gold stocks with huge upside, more than doubled during those 28 months.

One soared 916%. Another surged 968%. And a third skyrocketed 1,288%.

Incredibly, the average gain of these 15 stocks was 493%.

• You might be wondering how gold stocks soared so high when gold rose “just” 79%…

The answer is a powerful force known as leverage.

You may remember this concept from your high school physics class. Leverage basically amplifies a force. Using leverage, small amounts of force can move large objects. For example, leverage allows you to move a giant boulder with just a long plank.

Leverage works the same way in gold stocks.

Let’s say the price of gold rises from $1,300 to $1,400. If you own physical gold, you’re up 8%.

Now, say a mining company owns a million ounces of gold in the ground, and gold trades for $1,300. The value of the gold in the ground isn’t simply $1.3 billion (1 million ounces X $1,300/oz.). It’s actually worth much less because it will cost a lot of money to extract the gold.

Say it costs the company $1,250 per ounce to mine the gold. At a gold price of $1,300, the company has the potential to make a $50 profit on each ounce of gold.

However, if the price of gold rises only 8% to $1,400, the company’s profits per ounce increase by 200% ($1,400 - $1,250 = $150 profit per ounce). This can cause the stock price to increase 40%, 50%, or more. All from a modest 8% rise in the price of gold.

You can see why leverage is such powerful force in the resource market. It’s why a small increase in the price of gold can cause a gold stock to soar many times higher.

• Leverage cuts both ways…

It’s why gold stocks fall much further than gold during downturns.

During the last gold bear market (which began in April 2011 and ended this January), the price of gold fell as much as 45%. The HUI Gold Index plunged 84%.

Gold stocks became incredibly cheap. Some traded for pennies on the dollar.

Most gold stocks are still cheap, even after this year’s big rally. The HUI Gold Index is 56% below its 2011 high.

Also, keep in mind that the average gold stock gained 602% during the 2000–2003 bull market. The best ones soared more than 1,000%.

Doug expects even bigger gains in the years to come.

• Remember, gold stocks are incredibly volatile…

Large gold stocks can swing 5% or more in a day. Small gold stocks sometimes move 10% or more in a day.

If you can’t stomach that kind of volatility, stick with physical gold. As we often remind you, gold is real money. It’s protected wealth for centuries because it’s durable, easy to transport, and easily divisible. It’s also a safe haven asset that investors buy when they’re nervous about stocks or the economy.

This year, gold is up 29%. It’s trading at its highest level in two years.

If you haven’t already done so, we encourage you to put 10% to 15% of your wealth in physical gold.

• Once you own enough gold, consider buying gold stocks for explosive gains…

Doug recently said the price of gold could hit $5,000 in the coming years. Today, gold is trading at around $1,360, meaning Doug thinks the price of gold could easily triple.

If gold gets anywhere near $5,000 an ounce, gold stocks will deliver enormous gains.

To help you take advantage of this rare opportunity, Doug is doing something he’s never done before. For the first time ever, Doug is stepping forward and sharing the specific method he’s used to make gains as large as 487%, 711%, and even 4,329% in previous gold bull markets.

The “Casey Method” is unlike any other investing strategy. But if used properly, it could make you HUGE gains over the next few years. Doug explains it all right here.

At that link, you’ll also learn how to get instant access to a special report that names nine gold stocks with huge upside. Each of these stocks could rise 100%, 200%, or more in the coming years. Click here to get started.

Chart of the Day

The average gold stock could gain 68% even if gold doesn’t move.

Today’s chart shows the ratio of the HUI Gold Index to the price of gold. The lower the ratio, the cheaper gold stocks are relative to gold.

You can see this ratio is 40% below its historic average right now. This suggests that the average gold stock has 68% upside even if gold doesn’t rise another dollar. Small gold stocks have even more upside. That’s because these stocks crashed even harder during the last bear market.

As you can see, the conditions for a “true mania” are all here. Gold is rising for the first time in years and gold stocks are dirt cheap.

Opportunities like this only come along every decade or so. Click here to make the most of it before it’s too late.

Regards,

Justin Spittler
Delray Beach, Florida
August 10, 2016

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