Investors are running for cover…
Financial markets around the world have had a meltdown over the last few days.
US stocks are coming off their worst week in four years…
The Euro Stoxx 600, an index that tracks 600 of Europe’s biggest companies, has lost 8% over the last five days…
And in China, the Shanghai Stock Exchange is down 38% since early June.
There’s been almost nowhere to hide from this global sell-off…except in gold.
The price of gold rose 3.8% last week, while US stocks lost 5.8%.
Louis James, editor of International Speculator, says gold is doing exactly what it should…
The worsening stock market crash in China is spreading around the world. The Nikkei is down in Japan. So are the markets in Indonesia, Malaysia, South Korea, New Zealand, Taiwan, India, Australia…and, of course, in the US.
In this context, it makes sense for gold to rise. That’s what a “safe haven” asset should do in times of financial chaos.
Gold is the ultimate wealth insurance. Unlike stocks, bonds, and paper currencies, gold is valuable no matter what happens to the global financial system. It’s preserved wealth through recessions, wars, and every kind of financial upheaval. That’s why people always flock to gold during a financial crisis.
• Gold miners are doing even better than physical gold…
GDX, an ETF that holds major gold miners, has gained 8% since hitting a record low on August 5.
Investors own physical gold for security. Gold stocks won’t give you security. They’re extremely risky and extremely cyclical. This means they go through huge booms and huge busts.
The reason to own gold stocks is leverage. During gold bull markets, gold stocks usually rise much higher and much faster than the price of gold. Gold mining stocks can make huge gains in short periods…if you buy them at the right time.
The chart below shows how gold stocks jumped 1,331% and 319% during the last two gold bull markets.
These are average gains. The very best gold stocks gained far more. In the 1990s, Doug Casey made a 26,000%-plus return on one junior miner.
It’s not uncommon for small gold-mining stocks to rise 1,000% during a strong market. We call these “10-baggers.”
• Right now, gold miners are coiled like a spring…
Gold mining stocks are some of the cheapest stocks on earth right now.
Gold miners are in their second-worst bear market since World War II. They’ve been falling since April 2011. As a group, gold miners are down 82% from their 2011 high…
The chart below compares the HUI, a gold miner index, to the price of gold. The lower the ratio, the cheaper gold-mining stocks are compared to physical gold. As you can see, gold-mining stocks are the cheapest they’ve been in the HUI’s 20-year history.
Most investors see these charts and vow to never buy a gold mining stock. They want nothing to do with a sector this volatile.
It’s true that investing in gold mining stocks isn’t for everyone. But if you do want a shot at the huge gains gold mining stocks can offer, now’s the perfect time to get in.
As we mentioned earlier, gold mining stocks go through huge booms and huge busts. And the best time to get in is just after a huge bust…like we just had.
Louis James, editor of International Speculator, travels the world to find the next 10-bagger mining stocks for his readers. No one knows more than Louis about gold miners…
You can find out Louis’ favorite junior mining stocks right now by subscribing risk-free to International Speculator. But you should act quickly…we’re doubling the price of International Speculator soon. Click here to get started.
• Meanwhile, most commodities continue to crash…
In June 2014, the price of oil topped $106. A barrel of oil now costs just $38.
While oil gets the most headlines, regular Casey readers know that it’s not the only commodity that’s hurting. Aluminum and copper have also hit fresh six-year lows. And just yesterday, the Bloomberg Commodity Index, which tracks 22 different commodities, slipped to its lowest level since August 1999. For comparison, the US stock market is 47% higher than it was in 1999.
China’s problems are dragging down commodities. China has the world’s second-biggest economy. It’s also the largest consumer of commodities.
During the first quarter, China’s economy grew at its slowest pace since 1990. And its stock market is crashing…The Wall Street Journal reports that Chinese stocks have lost $1.2 trillion in value over the last four days.
Two weeks ago, China’s central bank devalued its currency, the yuan, in an effort to help its economy. A weaker currency makes a country’s exports cheaper. But it also makes imports more expensive.
The Wall Street Journal explains how a weaker yuan will put even more pressure on commodities…
Most commodities are priced in dollars, so a weaker yuan will raise the cost of imports for buyers in China, weighing on demand. Given China’s role as a huge buyer of global commodities—it consumes nearly half of the world’s annual output of metals, for instance—any drop in demand there is likely to put further downward pressure on resource prices, many of which are already at multiyear lows.
E.B. Tucker, editor of The Casey Report, points out that oversupply is the other reason why commodity prices are so low…
Global copper production was 151,000 tons higher than demand during the first half of the year. It’s the same story for other commodities. The world produces more oil than it needs…iron ore production is running at full steam while prices crash… and this year’s corn crop will likely be the third-largest ever in the US.
Producers continue to flood the market despite weak prices. This is how commodities work. Prices rise. Suppliers ramp up production. They oversupply the market. Then prices collapse. It’s a predictable boom and bust cycle.
We’ll have more on the collapse in commodities later this week…
Chart of the Day
Stock markets around the world crashed yesterday…
The MSCI World Index fell 3.7% on Monday. This index tracks stock markets in the United States, Japan, and other developed nations. It was the index’s biggest single-day drop in four years.
According to Bloomberg Business, Monday’s sell-off erased $2.7 trillion from the value of stocks worldwide.
The crash pushed the MSCI World Index into a correction. A correction is when an index falls 10% or more from its high.
The MSCI World Index is now down 12% from the all-time high it set in May. It’s down 7% on the year.
Today’s chart shows yesterday’s $2.7 trillion drop-off in the value of stocks worldwide.
Delray Beach, Florida
August 25, 2015