Rachel’s note: Despite COVID’s continued spread, markets keep rising. The government is still trying to paper over the insanity… but it can’t prop up the economy forever.
With all this uncertainty, we’ve been getting a lot of questions from readers – especially when it comes to gold.
If you’ve been with us for a while, you know our globetrotting resource expert Dave Forest believes we’re in the early innings of a historic gold bull market.
But that doesn’t mean it’s going to be a straight shot higher.
We understand this can be unsettling for those of you who have positions in gold. So in today’s Dispatch, Dave’s responding to a reader’s question… and sharing his thoughts on what to expect in the months ahead…
By David Forest, editor, Strategic Trader
“Hi, Casey gang. I really, really appreciate you guys. Will gold stocks sink as deep as they did in March if we have another crash? Why or why not?”
– Daniel L.
Hi, Daniel. Thanks for your question.
Since the corona crash in March, the Fed has pumped out $3 trillion in new money supply. There’ll be more coming.
It’s possible the Fed’s helicopter-money tactics might work. [“Helicopter money” is when a central bank balloons the money supply by directly topping up people’s bank accounts.]
Intuitively, made-up money shouldn’t solve real economic problems. But it worked in 2008. It might get us through the current crisis as well.
Stock markets could glide on and continue rising. In fact, stock prices might rise faster than ever because of all the new money sloshing around.
But these are uncharted waters. No one knows what’s going to happen. Common sense dictates the Fed can’t prop up the economy forever. If the music stops, it’s going to be ugly.
This is especially important as we near the third quarter. September, and especially October, are a historical “witching season” for market crashes. It’s almost a self-fulfilling prophecy. Everyone worries, and selling can quickly accelerate into a runaway collapse.
It pays to be ready in case that happens during the coming months.
What does this mean for your resource portfolio? After all, aren’t gold stocks and precious metals supposed to protect us against these black swans?
If we do get a major crash, physical gold likely will offer protection. Historically, gold prices fall less than other assets during financial panics.
But here’s the critical point: Gold will fall initially if we get a crash. During crises, people sell everything. That includes physical gold.
Past Crashes Show What Lies Ahead
As for what could happen in the months ahead, I’d like to point to a couple of historical examples.
In 2008, gold bullion dropped from $1,000 per ounce to $700.
It quickly rebounded. By September 2009, it was back to $1,000. It then soared to a record $1,927.70 in 2011 – triggering a massive bull market in gold stocks.
Many people don’t realize, but the 1930s were the same. Gold mining was one of the few industries that prospered.
Again, it wasn’t a straight line up. The initial shock in 1929 wiped out many investors and companies. And a second collapse clobbered more investors in 1930. You can see that in this chart below…
But here’s the surprising thing. That collapse triggered big gains for gold stocks.
Here’s another chart, showing major gold miner Homestake through the 1930s. Notice how the gold major took flight starting in 1931, when the big crash was in full swing.
Gold stocks like Homestake got a big lift in 1934, when President Roosevelt raised the gold price nearly 70% to $35 per ounce. That touched off a gold mining bull market that lasted through much of the Great Depression.
Although we’re now off a gold standard… and presidents can’t revalue gold… over the past 15 months, gold prices have already risen 44%. So I think we could see something similar unfold.
That’s why I’ve been telling readers that this could be a gold bull market for the ages.
And it’s not too late to get in.
The first step is owning physical gold. After that, consider taking a position in VanEck Vectors Gold Miners ETF (GDX). As the price of gold rises, gold miners could skyrocket even higher.
But if you’re looking to be more aggressive, I’ve discovered a secret way to get in on this gold boom… that can deliver returns as high as 6,200%.
In fact, my team and I have already put this strategy to the test. And it’s my favorite way to play the yellow metal. For all the details, go right here.
Keep walking the path,
Editor, Strategic Trader