Despite last week’s pullback, the precious
metals market is off to an impressive start in 2014. Gold is up 10.6%, silver
4.3%, and the PHLX Gold/Silver (XAU) 17.1%. Gold, in particular, had a great
February, rising above $1,300 for the first time since November 7, 2013.
This has led to some very handsome gains in
our Casey International Speculator portfolio, with a few of
our recommendations already logging triple-digit gains from their recent
bottoms.
Why Junior Gold Mining
Stocks Are Our Favorite Speculations
One of Doug Casey’s mantras is that one
should buy gold for prudence, and gold stocks for profit. These are very different kinds of asset deployment.
In other words, don’t think of gold as an
investment, but as wealth protection. It’s the only highly liquid financial
asset that is not simultaneously someone else’s obligation; it’s value you can
liquidate and use to secure your needs. Possessing it is prudent.
Gold stocks are for speculation because they
offer leverage to gold. This is actually true of all mining stocks, but the
phenomenon is especially strong in the highly volatile precious metals.
Most typical “be happy you beat inflation”
returns simply can’t hold a candle to stocks that achieved 10-bagger status
(1,000% gains). In previous bubbles—some even generated 100-fold returns. And
we may see such returns again.
It’s Not Too Late to
Make a Fortune
Here’s a look at our top three year-to-date
gainers.
What’s especially remarkable is that all
three of these stocks shot up much more than gold itself, on essentially no
company-specific news. This is dramatic proof of just how much leverage the
right mining stocks can offer to movements in the underlying commodity—gold, in
this case. Two of the stocks above are on our list of potential 10-baggers, by the
way.
So have you missed the boat? Is it too late
to buy?
Looking at the chart, two bullish factors
jump out immediately:
·
Gold stocks have just now started to move up from a
similar level in 2008.
·
Gold stocks remain severely undervalued compared to
the gold price. A simple reversion to the mean implies a tremendous upside
move.
Now consider the following data that point to
a positive shift in the gold market.
1.
After 13 consecutive months of decline, GLD holdings
were up over 10.5 tonnes last month. The trend is similar to other ETFs.
2.
Hedge funds and other large speculators more than
doubled their bets on higher gold prices this year.
3.
Increase in M&A—for example, hostile bids from Osisko
and HudBay Minerals to buy big assets.
4.
Apollo, KKR, and other large private equity groups
have emerged as a new class of participants in the sector.
5.
Gold companies’ hedging of future
production—usually a sign of insecurity among the miners—shrunk to the lowest
level in 11 years.
6.
China continues to consume record amounts of gold
and officially overtook India as the world’s largest buyer of gold in 2013.
7.
Large players in the gold futures market that were
short have switched to being long.
8.
Central banks continue to be net buyers.
To top it off, there’s been no fallout (yet)
from the unprecedented currency dilution undertaken since 2008—and we don’t
believe in free lunches.
The gold mania train has not yet left the
station, but the engine is running and the conductor has the whistle in his
mouth. This means…
Any correction ahead is
a potential last-chance buying opportunity before the final mania phase of this
bull cycle takes our stocks to new highs, well above previous interim peaks.
http://www.caseyresearch.com/cdd/junior-mining-stocks-to-beat-previous-highs
Disclaimer: This
article was posted with the permission of a third-party contributor
and the opinions contained therein do not necessarily reflect
those of Smallcappower. Smallcappower does not endorse any investment
advice provided by these third-party contributors. Please consult
your investment advisor before making any investment decisions.
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