By Justin Spittler, editor, Casey Daily Dispatch
The commodities market is sending us an important signal.
This signal doesn’t appear often. We’ve only seen it three other times since the 1980s.
The first two times were in 1999, only months before the dot-com bubble popped.
The third time was in 2008… just as the U.S. economy was entering its worst downturn since the Great Depression.
• In other words, this signal indicates danger…
And every investor should heed it. It doesn’t matter if you’re invested in commodities or not.
But, as you’re about to see, it’s not all bad news. This signal is also pointing to a huge money-making opportunity.
I’ll tell you what that opportunity is in a minute… and how to position yourself.
But let’s start with the “bad” news…
• Oil is plunging…
You can see what I mean in the chart below:
The price of oil has plummeted 19% since April 23. It’s now trading at its lowest price since February.
That’s a bad sign for the global economy.
• Oil is the world’s most important commodity…
It accounts for 32% of the world’s energy consumption. It also goes into plastics, asphalt, and many chemicals.
Because of this, oil tends to rise when the economy is strong. When the economy is weak, demand for oil dries up. Its price falls.
We’ve seen this happen countless times. During the dot-com crash, oil plunged 53%. It also plunged 79% during the 2008-2009 financial crisis.
In other words, you should take notice when oil’s falling hard… like it is today.
But that’s not the only important signal coming out of the commodities space.
• Gold is rallying…
Its price has climbed 10 out of the last 11 days.
It’s now up 5% since May 28, and is trading at its highest price in over a year.
That, too, says a lot about the global economy.
I say this because gold is the ultimate safe-haven asset. It’s survived every financial crisis. Because of this, many investors turn to gold when they’re nervous about the economy or stock market.
So it shouldn’t come as a surprise that gold’s rallying in the face of weak oil prices. And that’s fueled a huge rally in gold stocks.
• Gold stocks refer to mining and streaming companies…
These companies are leveraged to the yellow metal. This means gold doesn’t have to rise much for them to take off.
You can see that happening right now.
The NYSE Arca Gold BUGS Index (HUI) – an index that tracks a basket of gold stocks – is up 17% since gold began rallying two weeks ago.
In other words, gold stocks are doing the exact opposite of oil.
This doesn’t happen often. When it does, it’s a bad sign for the economy and broad stock market.
I’m not the only investor saying this, either.
• Crescat Capital has taken notice of this divergence, too…
Crescat is a global asset management firm.
Two weeks ago, one of its macro analysts issued a warning because precious metals stocks and oil were heading in opposite directions. Specifically, it told investors to “buckle up.”
According to their research, it’s extremely rare to see explosive rallies in gold stocks while oil’s plunging. In fact, there have only been three other instances since the ’80s when precious metals stocks gained at least 5.2% in a week while oil declined by at least 8.7%.
See for yourself:
As mentioned earlier, two of those times were during the dot-com bust. The other was during the 2008 global financial crisis. The fourth time happened at the end of May.
That’s why I wrote this essay.
Of course, you should never let one or even two indicators guide your decision-making. You should always consider the weight of the evidence.
• And there are plenty of other reasons to be concerned about the economy…
Just look at U.S. auto sales, a key barometer of the economy. They fell 6% in April… their worst monthly drop in eight years.
The housing market is also weakening. In fact, existing home sales have now fallen 14 months in a row. In April, they plunged 4.4% year over year.
The Bureau of Labor Statistics also just released an ugly jobs report. According to the report, the U.S. economy added just 75,000 jobs last month. That’s 100,000 fewer jobs than analysts expected.
The government also revised job growth down for March and April by 75,000 jobs.
None of this bodes well for U.S. stocks. That’s why I’ve been encouraging investors to take some chips off the table… hold extra cash… and own physical gold.
These simple steps could save you from big losses should the global economy start to unravel.
• You could profit from this fragile market condition…
And owning gold stocks is one of the best ways to do this.
The easiest way to get exposure to gold stocks is with a fund like the VanEck Vectors Gold Miners ETF (GDX). As I’ve pointed out many times, this fund invests in a basket of gold stocks. It’s a relatively easy way to profit off higher gold prices.
For even more upside, consider speculating on the best of the best gold stocks.
Of course, that’s easier said than done. I say this because most investors don’t know where to begin when it comes to gold stocks.
But that’s our bread and butter at Casey Research. We even have our own in-house geologist, International Speculator editor Dave Forest.
• Dave is a true industry insider…
He spent the last 20 years of his career searching for new discoveries and breakthroughs in the resource space.
He also founded his own mineral exploration and development companies. To accomplish this, he raised over $80 million from some of North America’s most prominent resource investors.
He’s our go-to guy when it comes to natural resources…
• And right now, Dave says it’s time to own gold…
Gold is a good place to invest in before and during crises. Based on our research, gold outperformed all the other precious metals. It tends to perform really well ahead of financial crises. For example, gold had a huge run in 2007 and 2008, rising over 50% in under 12 months.
So gold is a perfect place to hide if you think there’s a crisis on the horizon. You could make a lot of money in the period leading up to the crash. If you sit on the sidelines, you’re going to miss that.
And as I said above, the best way to profit is by buying the world’s best gold stocks.
Right now in his International Speculator portfolio, Dave has a handful of the world’s most explosive gold stocks… primed to rip higher as more people flock to gold in the months ahead.
You can access the names of these gold stocks with a subscription to International Speculator. Not only that, by signing up today, you’ll also get your hands on Dave’s brand-new report that details another metal set to soar… one no one’s talking about.
You’ll want to hear about this huge opportunity from Dave himself. He explains everything you need to know here.
Delray Beach, Florida
June 13, 2019
P.S. Dave’s not the only Casey guru who says gold’s ready to rip higher from here. As we showed you last week, Casey Report chief analyst Nick Giambruno says there are eight reasons gold’s about to start a huge rally. Make sure to catch up here and here if you missed our special two-parter.
And Strategic Investor editor E.B. Tucker also is telling his readers to buy gold now. In today’s Market Insight, he reveals another indicator that’s bullish for gold…
Market Insight: The Mother of All Gold Bull Markets Is Underway
By E.B. Tucker, editor, Strategic Investor
The trade war with China is a big headwind for stocks. With Mexico barely dodging tariffs on its $300 billion of exports to the U.S., we think the trade war will get worse before it’ll get better.
This is a time to be deliberate about the assets you own. You might be stuck with them for a while. If that proves true, you might as well be happy with them.
Since the beginning of May, the S&P 500 and Dow Jones Industrials are both down more than 2%. Tech stocks fared worse. The Nasdaq is down 3% over the past month.
Usually in times of market turmoil, investors seek safe havens like cash and precious metals. In today’s world, some investors are fleeing to bitcoin, a popular cryptocurrency. Since the beginning of the year, bitcoin has more than doubled:
Last December, we said we expected bitcoin to be lower at the end of 2019. We also said it was due for a relief rally. We can’t say for sure whether this rally will last or fizzle out. Only time will tell. If you bought in early this year and sit on a double, we’d suggest taking your cost off the table. You might like to have some cash handy if asset markets do what we expect next.
It’s essential to remember that bitcoin’s value has little to do with the coins themselves. The genius of cryptocurrency is the architecture behind the coins: the blockchain. This technology is separate from the actual coins.
According to the recent price charts, bitcoin is a more popular safe haven than gold. Gold is money. Bitcoin is a speculation.
We know of almost zero professional money managers who own gold for their clients. They stick with the trades that worked over the last year or so. Most of these money managers are followers. Followers like being able to blame the leader if they go off-course.
With record-low participation, the state of the gold market is dire. With one check of the headlines, you’d expect strong demand for the ultimate safe-haven asset. We see almost none.
This is exactly the type of condition you see before a huge rally.
Add to that the Federal Reserve’s new stance on interest rates. What were more hikes now look like at least two cuts. That’s on top of winding down its plan to let maturing bonds roll off its balance sheet. Instead, it will reinvest those maturing bonds in new securities.
Mark our words, the mother of all gold bull markets simmers, waiting to explode.
Our take is not just conjecture. We’ve been at this for almost two decades. We watch a series of indicators that tend to signal gold runs months before they make headlines.
The best in our view is the gold-to-silver ratio. This measures the number of silver ounces it takes to buy one gold ounce at any time.
The average reading for the gold-to-silver ratio back to 1990 is 67. Today, it sits at 90. That’s not far off from its all-time high of 99 set in 1991.
Historically, readings over 80 mean a metals rally is imminent. The chart below shows the extreme highs in this ratio all signaled a major rally in gold and gold stocks within months. You can see this through the drop in the ratio just after it peaks (as the ratio drops, gold prices rise):
If you’ve been around for a while, you remember the big runs in gold during 2005 and 2009, and the brief run of early 2016. In all cases, the gold-to-silver ratio peaked just before the rally took off. Gold moved higher, and mining stocks multiplied.
With the gold-to-silver ratio higher than any time in the past 25 years, we don’t see any reason to wait.
The best way to play the setup in gold today is by owning physical gold. You can learn the best ways to buy and store gold in our free special report, “The Gold Investor’s Guide.”
Editor, Strategic Investor