We don’t know what stocks are really worth nowadays.
Most of the time, stock prices predict the future earning power of a company. That’s why when a company updates its quarterly guidance, raising its profit forecast, shares jump up to match.
But during a wave of panic-selling, like we’re seeing today, it’s harder to gauge a company’s value. Tenants don’t pay rent, passengers don’t get on airlines, and sports teams don’t play games.
Even grocery stores are hard to value when every register runs all day long to rush panicked shoppers through the lines with carts full of everything you can imagine.
So the trick to making a fortune in this crisis is not by buying stocks that look cheap.
In fact, “cheap” stocks often continue falling. Instead, you want to buy stocks where business is about to get a lot better, and people haven’t noticed yet.
That’s why during uncertain times, the best investors step back, take a broader look, and pick sectors set to outperform the overall market before you pick certain stocks.
There’s a method I use to do just that. And it’s telling me that there’s one industry you need to keep your eye on…
The Gold Bull Market Just Started
Regular readers know I’m very confident about gold. I co-managed an investment fund focused on precious metals stocks. Today, I sit on the board of a fast-growing gold royalty company. I’m close to the gold business.
In December 2018, I predicted that in 2019, gold would rise 22% to hit $1,500 an ounce. My naysayers were all proven wrong when it hit that mark last August.
And I’m still convinced we’re in the early innings of this gold bull market. I expect gold to break its all-time high of $1,900 in 2020.
Take a look at the chart below of SPDR Gold Shares (GLD). This is an exchange-traded fund (ETF) that aims to track the price of physical gold.
It’s easy to see in the chart that gold suffered in the fall of 2008, along with stocks and real estate. It fell 29% top-to-bottom in 2008, but finished up 6% for the year. It then went on to rally 167% from its 2008 low in 24 months.
However, just looking at this one gold chart doesn’t tell us much…
In fact, this chart is really only useful for short-term moves. So when it comes to what’s going to get hot next, we look at ratio charts.
The Closest Thing to a Crystal Ball
Ratio charts pit one stock against another. They’re the closest thing we have to a crystal ball.
Say we’re looking at oil stocks compared to industrials. Industrial companies are big oil users. If oil stocks looked weak, we’d guess industrials may follow. If oil stocks looked strong, we’d bet on an uptick in industrials.
For example, say a reliable oil stock ETF traded for $50 a share, and an ETF tracking industrial stocks traded for $100 a share. If we saw the oil stock ETF move to $55 a share while industrials stayed at $100 a share, we’d know oil companies were doing well, and industrials could be driving that demand.
We can use this same strategy to pit gold against stocks. The chart below tracks the ratio of gold to the Wilshire 5000 Total Market Index, a broad index of the market value of all actively traded U.S. stocks, back to 2008.
A rising line in the chart signifies a time when gold did better than stocks. With a falling line, stocks outpaced gold.
As the chart shows, gold did far better than stocks the first few years following the 2008 crisis. As time passed, stocks recovered. They found new footing in a bull market, and gold lagged for years. But that ended last year.
This ratio of gold to stocks shows us two things.
First, stocks might languish or flatline for several years to come. This happened back in 1968, when the Dow touched 985 and wasn’t able to decisively overcome it until 1982.
Few investors think that could happen today… which means it’s the one risk nobody takes seriously. When everyone agrees on something, watch out.
Second, this bull market in gold is only in the first inning. Which means there’s still time for you to get involved.
If you’re new to gold, you should start with buying physical gold. I recommend looking at the 1-ounce coins offered by Gainesville Coins here. Hold it in your hand, and understand what it feels like, where it comes from, and why it’s the one asset in the world that’s not someone else’s liability.
I asked Gainesville Coins to create this special page as a starting point for Casey Daily Dispatch subscribers who are new to physical gold. (We do not receive any compensation from Gainesville Coins for bringing you this offer.)
Then, after you own some physical gold, you can look into gold miners. Gold miners have leverage to the price of gold. That means when gold moves an inch, they can move a mile.
Again, if you haven’t picked up any gold or shares in gold miners, it’s not too late.
Editor, Strategic Trader
P.S. In this market, you might be wary of buying stocks right now. And that’s understandable. But there’s another way to gain exposure to this gold market WITHOUT owning stocks…
They’re called “Gold Placements.” And I’ve seen them deliver gains you rarely see with stocks… I’m talking returns like 5,509% and 6,200%.
They have nothing to do with bonds, ETFs, options, futures, or cryptos… but they can be bought easily through any broker.
I explain it all in this special online presentation. Go here to watch it now.