By David Forest, editor, International Speculator
Back in December, I did something unusual.
I added a precious metals stock to my paid-up resources advisory, International Speculator… even though I’d been avoiding gold stocks.
That’s because the spectacular run in precious metals last summer propelled valuations to towering – even ridiculous – levels.
It was hard to find good value. I was also concerned a further decline in gold prices would take the majority of stocks down.
That’s exactly what happened. Back in January, gold was trading around $1,850 per ounce. By the end of February, it dipped below $1,750. Then in March, it broke down as low as $1,685.
Many gold mining stocks dipped lower with the metal. The S&P/TSX Gold Index, for instance, fell 20% between the beginning of the year and late February.
But my research told me my portfolio addition wouldn’t be one of the casualties. Now, out of fairness to my subscribers, I can’t reveal it here. But my research proved right. The company’s share price held up well, and we’re still up a little from our initial entry.
I’m telling you this because I think it’s an important lesson for resource investing going forward: We’re in a stock picker’s market.
And today, I want to discuss what’s ahead for the gold market – and outline a strategy for profiting regardless of whether precious metals go up or down.
A Handful of Mining Stocks Will Clean Up From This Trend
As I said above, the gold sector as a whole has been moving lower since last summer’s big run in physical metal prices.
But the S&P/TSX Global Gold Index actually reversed its downward trend since the beginning of March.
That rise came even as gold prices were flat or slightly falling. This is a good sign the bottom could be in for gold stocks.
Large cap stocks on the S&P 500 have been rocketing higher lately. With gold stocks heading down the last several months, gold miners are now the most undervalued they’ve been in recorded history, relative to the S&P.
The only other time gold stocks even approached this level was in the late 1990s. That bottom set up the massive gold bull market of the 2000s.
That means gold stocks are some of the cheapest investments on the planet.
That makes now a fundamentally solid time to buy gold stocks.
We’re seeing a rising tide of investment and mergers and acquisitions (M&A) in the space. Big buys from gold majors are popping up all over… and the trend is just getting started. It’s going to propel select gold stocks higher, regardless of what metals prices are doing.
These Companies Will Reap Huge Profits – Maybe Very Soon
Gold miners are on a spending spree the last few months.
2020 was a great year for gold M&A. As the chart below shows, gold companies spent over $15 billion during the year on buyouts.
The 2020 M&A activity didn’t quite top the nearly $20 billion in gold deals we saw in 2019. But remember, COVID-19 heavily impacted 2020. With things now clearing up, it’s likely the trend toward more gold deals will continue.
The chart also shows that average deal value is rising. Gold majors are paying top dollar to acquire new projects. Even with the COVID-19 dip in 2020, deal values are still at decade-long highs.
It’s not just big miners pouring money into gold juniors. Interest from other large investors – including major funds – is also running high. The end of 2020 saw some of the biggest quarterly investment inflows ever to gold companies.
This is great news because it means cashed-up junior companies will be able to drill more projects than ever. Check out how drilling activity spiked so far in 2021. The majority of this is focused on gold, as the yellow bars in the chart below depict.
This creates a positive feedback loop. More companies drilling means more chances for discovery – at a time when larger gold companies are waiting to swoop in with a fat buyout if drilling hits good results.
With all that going on, I believe we’re going to have excellent chances for big profits in gold stocks – regardless of whether the gold price goes up, down, or stays flat.
A good way to get positioned in this trend is the VanEck Vectors Gold Miners ETF (GDX). It has exposure to major miners, as well as some early stage companies. Just remember to position size accordingly.
But if you’re looking to invest in individual stocks with the greatest profit potential, that’s what I do over at my paid-up resource advisory, International Speculator. And I just recommended a new gold developer this month that I believe will make us big profits. To learn how to become a subscriber, just go right here.
Keep walking the path,
Editor, International Speculator