There’s Still Time To Profit From Gold Miners…
In hindsight, it seems blindingly obvious. But at the time, few were willing to take the bold step to capitalize on it…
If you recall, back on March 12, I said it was “time for gold to shine“. Then, a few days later, I made the case for gold miners.
Since March, the federal government has authorized over $3 trillion in emergency spending to support struggling families and keep small businesses afloat during the Covid-19 outbreak. Meanwhile, central banks are also using every stimulative tool in their arsenals to combat the economic malaise.
Those coordinated efforts have driven yields on the benchmark 10-year Treasury below 0.6%. That’s still above zero – barely. But not when you factor in inflation expectations, which have quietly crept up to 1.5%. In “real” terms, yields have sunk to negative 0.9%, a level unseen since the European debt crisis eight years ago.
Source: St. Louis Fed
Traders are betting that inflation will continue to rise over the next 12 months. And why not? The dovish Fed is printing money to purchase tens of billions in Treasuries and mortgage-backed securities each month. Meanwhile, Congress is already working on the next round of direct cash payments and stimulus benefits. Another $1 trillion, give or take.
This is all clearly visible in the changing yield spreads between ordinary and inflation-indexed bonds.
So let’s connect the dots…
Unprecedented spending. Ultra-loose monetary policy. Runaway debt. Rising inflation. It all points to a devalued dollar – sparking demand for precious metals. Silver just recently set a fresh 7-year high near $25 per ounce, while gold spot prices surged to a new all-time peak of $1,950.
Good News For Precious Metals
Keep in mind, traders were already flocking to gold for other reasons. Geopolitical tensions, simmering trade wars, market instability… you name it.
In the first half of 2020, investors pumped $34 billion into exchange-traded funds such as SPDR Gold Shares (NYSE: GLD). Those inflows – equivalent to 623 metric tons – have already topped the previous annual record of $23 billion set in 2016.
Meanwhile, refinery shutdowns have led to disruptions on the supply side, raising fears that there may not be enough physical bullion for some parties to deliver against futures contracts. Add it all up, and you can see why gold is streaking higher – even with equities soaring to new highs.
Should the market roll over, that would only make gold even more appealing as a safe harbor, in addition to a reliable inflation hedge.
The big boys are taking note – and advising their institutional clients accordingly. Goldman Sachs believes gold could reach $2,300 an ounce within the next 12 months. Bank of America issued an even more bullish forecast suggesting prices could hit $3,000.
Not surprisingly, this has been fertile ground for investors. Over the past six months, shares of industry leader Newmont Mining (NYSE: NEM) have climbed from $45 to near $70.
We’re Winning Big. Let’s Do It Again…
Fortunately, we are on board this rally thanks to our position in a small Canadian miner over at my premium service, Takeover Trader.
When we added this pick back in May, I told our readers how operating leverage for this efficient miner could turn a 17% uptick in gold prices (from $1,700 to $2,000 per ounce) into a 30% jump in operating profits. That was purely a hypothetical calculation back in May.
Not anymore.
Gold is now within shouting distance of $2,000 per ounce. And this pick has mines that are on track to cough up 250,000 ounces this year.
Not long ago, the company was expecting to generate $140 million in free cash flow this year. But that was assuming average prices of $1,500 per ounce. It’s safe to say that outlook will need to be revised sharply higher.
Action To Take
The cheapest place to buy gold is on the stock exchange. This, in a nutshell, is the appeal of gold miners. Rather than simply riding prices higher with an ETF like GLD, you enjoy a lot more leveraged upside. But, you can probably guess, you need to pick the right operator. Quality is key.
Fortunately, and our pick is sitting on 2.4 million ounces of proven and probable reserves – not to mention $23 million in cash on the balance sheet. All of this makes it an even more compelling takeover target.
The stock has already delivered a handsome 40% gain, easily outpacing gold prices (as well as most of its peer group). While it’s tempting to bank that profit today, my subscribers and I are holding on for more gains.
Unfortunately, I can’t share the name of our specific pick with you today. But I think the macro stars are aligned for even more dramatic gains over the next six months.
So if you haven’t looked into gold miners yet, there’s still time.
P.S. My colleague Dr. Stephen Leeb has recently discovered a company that’s sitting on what could be the largest gold deposit ever discovered…
Barely anyone is talking about this deposit right now… But he’s telling anybody that will listen that now is the time to get in on this pick. If he’s right, it could allow early investors to make 20-times their money… maybe more.