Precious metals are crushing the market.
If you’ve been reading the Dispatch, you know gold has taken off. It’s jumped 20% since January and is the top performing asset this year.
Silver has also rallied. It’s up 14%, which makes it the year’s best performing asset after gold and lumber. Platinum is up 11%, making it the fourth-best performing asset.
Stocks on the other hand are struggling. The NASDAQ has fallen 5% this year. The STOXX Europe 600, which tracks 600 of Europe’s biggest stocks, has dropped 7%. The Japanese Nikkei 225 has dropped 9%.
• Gold is a safe-haven asset…
Investors typically buy gold when the economy and stock market look shaky. For centuries, gold has protected wealth through stock market crashes and other disasters, like hyperinflation and depression.
That’s because gold is money. It’s durable, divisible, and easy to transport. Wherever you go, people recognize its value.
Silver and platinum are trusted stores of wealth, too. But unlike gold, silver and platinum have many industrial uses. Silver goes into everything from electronic circuits to solar panels. Platinum’s main use is in a car part that controls pollution.
• Almost every commodity has rallied this year…
The price of sugar has jumped 19% over the last month…coffee has jumped 15%…lumber is up 14%…and copper is up 10%.
Oil is also soaring. It’s spiked 47% since hitting a 13-year low in January. It’s trading above $40 for the first time since December.
The Bloomberg Commodity Index, which tracks 22 different commodities, just hit a four-month high.
• Companies that sell commodities have skyrocketed…
Anglo American (AAL.L), one of the world’s largest mining companies, has surged 95% this year. Mining giant Glencore (GLEN.L) jumped 85%. Freeport McMoRan (FCX), another huge miner, climbed 66%.
This is a huge shift. The past couple years have been a bloodbath for global mining stocks. Last year, Anglo American and Glencore were the two worst performers in the FTSE 100, an index of one hundred stocks that trade in London. The S&P/TSX Global Index, which tracks major mining stocks, plunged as much as 70% since 2011. This year, it’s climbed 18%.
• Mining companies sell “building blocks” of the economy…
Lately, global economic growth has come to a standstill.
China, the world’s largest commodity consumer, is growing at its slowest pace since 1990. The U.S. is growing at the slowest pace since World War II. Japan’s economy hasn’t grown at all in two decades.
With growth slowing, developers are building fewer homes, office buildings, and infrastructure. That means they’re using less copper, aluminum, and steel.
So why are commodities rallying?
• The U.S. dollar is weakening…
The U.S. dollar index has fallen 4% this year. This index tracks the dollar’s performance against major currencies like the euro and Japanese yen.
The U.S. dollar is the world’s most important currency. Most investors “think” in dollars. When you look up the price of coffee or soybeans or silver, the price is in dollars. So when the dollar loses value, it takes more dollars to buy the same amount of a commodity. That’s why a weak dollar is good for commodities.
• Commodities should keep rising if the dollar keeps falling…
However, the slowing global economy is bad for “building block” commodities like copper, aluminum, and steel.
This isn’t a problem for gold. Unlike most commodities, gold is money. It can do well no matter what’s happening in the economy.
• These days, governments will do whatever it takes to stimulate the economy…
After the 2008 financial crisis, governments borrowed huge sums of money. They created trillions of new currency units from nothing. They dropped interest rates to record lows.
Their actions were truly unprecedented…and they were giant failures. All that stimulus has failed to jumpstart the global economy.
However, don’t expect governments to admit failure and stay out of the way…
• Casey Research founder Doug Casey says governments always feel the need to “do something”…
But they only make things worse. In Wednesday’s Dispatch, Doug explained how you can profit from government stupidity.
Governments are constantly creating distortions in the market, causing misallocations of capital. Whenever possible, the speculator tries to find out what these distortions are, because their consequences are predictable.
They result in trends you can bet on. Because you can almost always count on the government to do the wrong thing, you can almost always safely bet against them. It’s as if the government were guaranteeing your success.
• It’s impossible to know how the government will respond to the next crisis…
It could print a few trillion more dollars. Or drop interest rates below zero. Or maybe it will take Paul Krugman’s advice and stage an alien invasion to “stimulate” the economy. Krugman is a liberal “economist” who writes for The New York Times.
Whatever direction the government takes, it’s bound to make an even bigger mess. As Doug says, you can always count on the government to screw things up.
Gold is your best defense against reckless governments. Unlike paper currencies, governments can’t create more gold out of thin air. Bad policies only make gold more valuable.
• Doug thinks we’re entering a “gold mania”…
He thinks gold prices will triple from current levels at minimum. Gold stocks will soar even higher.
Longtime Casey readers know gold stocks are leveraged to the price of gold. If the price of gold jumps 200%, the average gold stock can rise 400% or more. The best gold stocks can surge more than 1,000%.
• Gold stocks are incredibly cheap right now…
But they won’t stay that way for long. Doug explains:
When gold starts moving higher, it’s going to direct a lot of attention towards gold stocks. When people get gold fever, they are not just driven by greed, they’re usually driven by fear as well, so you get both of the most powerful market motivators working for you at once. It’s a rare class of securities that can benefit from fear and greed at once.
Investors will flood the small gold mining industry.
I’ve said it before, and I’ll say it again: When the public gets the bit in its teeth and wants to buy gold stocks, it’s going to be like trying to siphon the contents of the Hoover Dam through a garden hose.
Investors have poured a record $7.2 billion into gold exchange-traded funds (ETFs) in February, according to Zero Hedge.
• This small window of opportunity won’t stay open long…
The Market Vectors Gold Miners ETF (GDX), which tracks large gold miners, is already up 49% this year. It hit a 13-month high on Wednesday.
Keep in mind that gold stocks aren’t for everyone. They’re extremely volatile. It’s not uncommon for a gold stock to rise or fall more than 10% in day. If you can’t stomach these kinds of moves, stick with owning physical gold. Its price could easily double or triple in the coming years.
However, if you’re interested in the incredible upside of gold stocks right now, we encourage you to try International Speculator. This is our advisory dedicated to finding gold stocks with massive upside.
For a limited time, we’re offering International Speculator for $500 off the regular price. If you sign up today, you’ll get instant access to our special report, 9 Essential Gold Stocks to Buy Right Now. This report reveals stocks that could jump 10x, 20x, or even 30x in the coming years. These types of gains might sound impossible…but they have happened before.
Chart of the Day
The U.S. dollar has been weakening for decades…
Today’s chart shows the performance of the U.S. dollar index since 1973. As we said earlier, this index measures the dollar’s performance against other major currencies.
You can see the dollar was in a sharp downtrend since 1985. The dollar broke its downtrend in early 2015. Many analysts thought this signaled the beginning of a U.S. dollar bull market. We have our doubts…
The dollar didn’t “break out” last year because the U.S. government suddenly became more financially responsible. It broke out because other central banks like Europe’s and Japan’s are weakening their currencies even faster. As Doug said on Wednesday, “the U.S. dollar is currently just the healthiest horse on its way to the glue factory.”
We think the Federal Reserve will “double down” on its easy money policies when the next crisis hits. This will hurt the dollar, and gold will likely skyrocket.
Delray Beach, Florida
March 18, 2016
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