Editor’s note: Casey Research founder Doug Casey doesn’t invest like most people. He doesn’t buy safe, blue-chip stocks. He doesn’t chase “the next big thing.” Instead, he likes to put his money in industries and companies that most investors wouldn’t even think about investing in.
To have success with this unconventional approach, you have to do your homework. For Doug, that often meant visiting parts of the world most investors wouldn’t go near.
In today’s special essay, Crisis Investing editor Nick Giambruno recounts one of Doug’s most interesting “boots on the ground” experiences. As you’ll see, Doug’s research paid off big time.
What’s more, Nick says there’s a similar opportunity staring us in the face right now. And this time, you can make a fortune from the comfort of your own home.
By Nick Giambruno, editor, Crisis Investing
They call it “death by necklacing.”
It has nothing to do with jewelry. Necklacing is a torture technique that was common in South Africa during the violent 1980s.
A mob would place a rubber tire, the “necklace,” around the victim’s neck, douse the tire in gasoline and light it on fire.
The victim would slowly burn alive.
Nelson Mandela’s wife at the time, Winnie Mandela, widely publicized the practice when she said…
“Together, hand in hand, with our boxes of matches and our necklaces, we shall liberate this country.”
Winnie Mandela’s famous quote illustrates a nuance to the conflict most people overlook.
At the time, South Africa was still under apartheid (legalized racial segregation). Black rebels fighting against the government would frequently necklace other blacks, “traitors” they suspected of collaborating with South Africa’s white government. It was a nasty but powerful deterrent.
I’m not bringing this up to churn your stomach, but to highlight that, from time to time, South Africa goes through horrible crises. The country’s bloody history of racial division pretty much guarantees recurring turmoil.
In 1976, South Africa was in one of those crises. Massive riots erupted in Johannesburg’s suburb of Soweto. There was literally blood in the streets as police killed hundreds of protestors. Everyone thought South Africa, and its gold-mining industry, would collapse.
As you may know, South Africa has been one of the world’s largest gold producers for over a century. In the mid-1970s, the price of gold was plunging. Gold hit a low of $103 in August 1976… nearly 50% off its $200 high two years earlier. Nearly everyone holding South African gold stocks sold them.
It was a classic crisis investing situation…
The conventional wisdom turned out to be dead wrong. South Africa didn’t collapse. And gold rocketed to $800—a 700% gain.
Higher gold prices meant higher profits for South African gold miners. Higher profits meant higher dividend payments for investors.
Over the next few years, South African gold stocks rose an average of 600%. Most paid out more in dividends than it would have cost to buy the stock. This led to one of Doug Casey’s biggest investment hits ever.
Doug Casey: One of the biggest percentage hits I ever made in the market was when I bought South African gold stocks in 1976 during the Soweto Uprising. Market sentiment was so negative that the current yields on SA gold miners ran to 60% (this is not a misprint).
Those dividends doubled and redoubled several times as gold rose to its 1980 highs. Shares moved up tenfold. It was my first real home run in the resource market. It shows how cheap stocks can get, and the experience spoiled me in some ways; it was a once- or twice-in-a-lifetime event.
The critical element in profiting from these stocks has always been timing. That’s true of any stock, of course, but of these more than others because of the political element. Historically, the time to buy South African gold stocks has been when blood is running in the streets.
Today, South Africa is facing another crisis. This crisis is economic, not political. But it’s still very serious.
I think South Africa’s economic crisis and low gold prices are creating a chance to make huge gains that are on par with Doug’s 1976 gains.
South Africa’s Currency Crisis Is Our Opportunity
Since 2011, the collapses of the price of gold and South Africa’s currency, the rand, have crushed SA gold miners. The stocks of some quality companies are down more than 80% from their recent peaks.
However, it appears gold has finally bottomed. And this could be one of those “once- or twice-in-a-lifetime” events Doug described.
The rand has lost almost half of its value against the US dollar since 2012. Earlier this year, it hit its lowest value ever against the US dollar.
In other words, for US dollar-based investors, South Africa is one of the cheapest markets in the world right now.
The incompetence of South Africa’s government is surely part of the reason behind the rand’s collapse. But I think misplaced faith in the US dollar and the Federal Reserve’s ability to raise interest rates is also at play.
If the Fed raises interest rates, the dollar will appreciate against the rand (all else being equal). The market thinks this is going to happen.
I think the market is wrong and the dollar is near its top. This makes now a good time to buy assets denominated in rand, like South African gold stocks.
I’m confident the Fed won’t raise rates in any meaningful way. It can’t. It’s trapped.
The Fed is publicly pondering dropping rates into negative territory. So, it’s puzzling why anyone expects it to raise interest rates any more than a token amount.
As Janet Yellen, the chair of the Federal Reserve, has said, “Potentially anything—including negative interest rates—would be on the table.”
The truth is, more than seven years of yields of near zero percent and successive rounds of money printing have warped the US economy. At this point, the Fed doesn’t think it can handle even the tiniest increase in interest rates. A rate hike would be the pin that pricks the biggest stock and bond market bubble in all of human history.
The Fed doesn’t want that to happen. And it’s willing to take interest rates negative in a misguided effort to keep the bubble from bursting.
The Fed can’t raise interest rates in any significant way. It would trigger a financial meltdown that would quickly force it to reverse course. The Fed might be able to get away with a token increase, but that’s all.
If rates rose to a meager 2%, it would add about $400 billion to the US government’s annual interest bill. They would no longer be able to service their debt.
That means the Fed’s only option is to print more money. And that’s going to be a positive for gold and countries that produce it, like South Africa.
Now is the time to take advantage of South Africa’s currency woes and pick up a quality mining company at an extraordinary price. South African gold-mining companies have delivered triple- and quadruple-digit returns in the past. In the coming gold bull market, I think some will offer a 10-to-1 upside or even better, just as they have in previous bull markets.
Editor’s note: If you’ve been reading the Dispatch, you know the price of gold plunged after the U.S. presidential election. Naturally, many precious metals investors are worried about the recent pullback. Some have even sold their gold and gold stocks in a panic.
Not Doug. As we told you last week, he’s using the downturn as a chance to load up on more gold stocks. He’s doing this because he understands that “going against the grain” is the key to making huge investment returns.
If you would also like a shot at making big gains in gold stocks, we encourage you to sign up for Crisis Investing. As you’ll see, Nick recently found a South African gold stock that could deliver incredible gains in the near future. Best of all, you can buy this stock as easily as you would a share of Wal-Mart (WMT).
We also encourage you to watch this eye-opening presentation. It explains why Doug and Nick think the price of gold could soon start soaring again. Click here to see why.