Gold’s Once-in-a-Decade Opportunity

Posted On May 11, 2016 By Dave Gonigam

  • Why investors run the other way from a 76% rally
  • Prime time for gold stocks… but only if you have a strategy
  • Another step closer to the inevitable Saudi devaluation
  • A food stamp milestone (sort of)
  • Facebook outrage and free speech
  • Reasons for rallies… why we violate certain punctuation rules… a caveat about how the IRS enforces the Obamacare penalty, er, tax… and more!

In what universe would legions of investors dump an asset that’s performing like this so far in 2016?

Description: WhyAreInvestors.png

From a Bloomberg story three weeks ago: “After years of trying — and failing — to call a bottom for [gold] miners, investors are scared to buy into what is turning into the rally of a lifetime for ETFs tracking these once left-for-dead stocks.”

No more suspense: The chart above shows GDX, the granddaddy of those ETFs. As we write this morning, it’s up 76% on the year. But as of April 22, GDX has seen $514 million in outflows during 2016.

“That is practically unheard of,” says Bloomberg, “as inflows and performance are usually highly correlated when it comes to ETFs.”

“Many investors can’t seem to get it right when it comes to gold mining stock ETFs,” chimes in Jim Rickards.

It’s not just that they’re bailing from GDX and similar funds. “Investors are also increasing allocations to inverse gold miner ETFs (that’s where the ETF price goes down as the price of gold goes up).”

Heh… A triple-inverse gold ETF with the ticker DUST is down 90% year to date.

What gives? “Chalk it up to psychology and human nature,” says Jim. “After a brutal four-year bear market (2011–15) during which gold fell 45% from high to low, investors are throwing in the towel.

“They see today’s gold market as a chance to get out of long positions after recouping some prior losses. They see the gold rally as unsustainable, so they’re adding to short positions in the inverse ETF. In effect, investors see that gold is going up, but they don’t believe their own eyes.

“But this gold rally is not an optical illusion,” says Jim.

Hold that thought for a moment…

Right now let’s get back to basics: What’s the rationale for buying gold stocks in the first place?

Richard Russell knew well. He was the dean of financial newsletter editors, writing regularly until only a week before his death last year at age 91. He first recommended gold stocks in 1960.

“Gold stocks possess inherent leverage,” he once said — “since theoretically the cost of mining gold remains fairly constant. But the cost of the mining company’s merchandise — gold — can vary greatly. Thus gold stocks represent a leveraged speculation on the price of gold. So you hold gold stocks when you think the trend of gold is up.”

And make no mistake, the trend of gold is up.

“This gold rally,” says Jim, “has fundamental support from Chinese efforts to get away from the dollar system. It has technical support from scarcity on the physical supply side.

“The 2011–15 retracement in the gold price was not unusual in the history of commodity trading. Expectations of higher gold prices from here are reasonable.”

If you’ve been reading The 5 regularly this year, that’s probably old hat to you by now.

But here’s what might be new: “Once about every 10 years, you have the rare chance to make a fortune simply by tweaking the way you buy gold,” says Jim.

But success is not guaranteed simply buying an ETF like the GDX — or even the GDXJ, which is made up of “junior” miners that carry more upside and downside.

Instead, you need a strategy. That’s what Jim’s been working on with our team this year as gold’s begun this new rally.

Jim’s given it the name MIDAS — Mining Information to Develop Assets and Secure gold production. A bit of a mouthful, but Jim’s prepared an explanation of just what goes into this system — and why this moment, right now, presents a unique opportunity to turn every dollar invested into $192.

It starts with a short video — only 48 seconds — so if you’re put off by “boring, long-winded presentations,” you won’t feel as if your time’s being wasted. Click here to check it out right now.

Gold is moving up as the dollar’s moving down on this hump day. The bid on gold is up to $1,273 as the dollar index has retreated to 93.8.

The major U.S. stock indexes are down, but it’s nothing dramatic. The S&P 500 is off a little over a third of a percent at 2,076.

In earnings-land, Macy’s beat expectations but “guided lower” for future quarters. Disney missed expectations thanks to weakness in its cable TV unit; if it wasn’t obvious last year that the world had reached “peak ESPN,” it is now.

Otherwise, trader chatter is about a federal judge blocking the merger of Staples and Office Depot on antitrust grounds (and a questionable assumption that the marketplace can still support two brick-and-mortar office supply chains). As we write, SPLS is down nearly 18% and ODP nearly 39%. Ouch.

Crude has pushed past $46 a barrel for only the second time this year… despite a flat-out declaration that Saudi Arabia plans to up its oil production.

As we mentioned on Monday, the kingdom has shown the door to oil minister Ali al-Naimi after more than 20 years on the job — replacing him with Khaled al-Falih, a 30-plus-year veteran of the state oil firm Saudi Aramco.

Yesterday, Aramco threw open its doors to a handful of journalists — an unusual event. CEO Amin Nasser told them production will increase this year, the better to prepare the company to float shares to the public.

Higher production ultimately means prices that are “lower for longer” and a continued drain on the kingdom’s foreign exchange reserves. How long can the princes hold out before they double-cross their longtime American allies and devalue the riyal? Whenever it happens, it could be a lucrative profit opportunity.

For the record: The number of Americans on food stamps is now back to 2011 levels at 44.4 million.

The number peaked at 47.8 million in late 2012 and has been in a slow decline since. It’s still way above pre-Panic of 2008 levels…

Description: FoodStampNation-2.png

Some of the decline coincides with a falling unemployment rate. Some of it also has to do with many states reimposing a three-month limit on food stamps for unemployed childless adults.

Since when is it any of Congress’ business how a website decides what’s news?

Perhaps you’ve heard the howls of outrage about Facebook suppressing news stories from conservative sources in its “Trending Topics” in the upper-right corner of each user’s homepage. Preference is given to mainstream sources such as CNN or the BBC.

We understand the concern, and we hold no brief for Facebook here at The 5. But in the first place, does anyone even look at the “Trending Topics” box? And while it might be true that Breitbart and the Daily Caller are getting short shrift, so are Alternet and Common Dreams. Big whoop.

Anyway, congressional conservatives are trying to score cheap points with their base. Expect hearings this summer. Sen. John Thune (R-South Dakota) sent the proverbial sternly worded letter to Facebook CEO Mark Zuckerberg. “Facebook must answer these serious allegations and hold those responsible to account if there has been political bias in the dissemination of trending news.”

You really want to go down that road, Senator?

We went in search of an Internet meme to help make the point. We had to create one of our own…

Isn’t it conservatives who are (rightly) worried about rumblings within the Obama administration toward government regulation of Internet content? Do they not fret about a 21st-century version of the “Fairness Doctrine” that muzzled broadcasters from the 1950s through the 1980s?

Hats off to Trevor Timm at The Guardian, who uncovered a 2007 quote from none other than Sen. Thune. “I know the hair stands up on the back of my neck when I hear government officials offering to regulate the news media and talk radio to ensure fairness.”

Yep. Us too, Senator.

“A rally with no reason?” a reader raises an eyebrow after we touched on yesterday’s stock market action.

“It’s called front-running options expiration next week.”

The 5: Perhaps. But why that day as opposed to any other?

If we say there’s no obvious reason for some market move — or if we facetiously attribute the move to something like, say, the latest developments in the Michael Strahan-Kelly Ripa feud — it’s usually to mock the mainstream tendency to seek “reasons” for every hourly blip.

Here we much prefer to keep an eye on the longer-term ball… and we daresay that’s a trait common to all our editors, whether they’re macro guys like Jim Rickards or trend followers like Michael Covel. Even if they’re recommending options, come to think of it…

“I went back and watched it again,” writes the fellow who complained our infamous 11-second video clip isn’t really 11 seconds, “and sure enough, the part that was deemed to be NSFW was indeed 11 seconds long. I stand corrected.

“Initially, I was only counting the racy scene, not including the guy reacting to the racy scene.

“Incidentally, I had no idea it was that easy to get published in The 5. I will be sure to write in more often! Keep up the good work!”

“I cannot resist the temptation,” a reader writes. “You crow about your crack proofreaders. OK. I’ll admit that your editing is above average. But there is something wrong at the end of every issue:

Thank you for reading The 5 Min. Forecast!

“Two things, really, one being the needed hyphen. Can you figure out the other? It will take a ‘crack’ proofreader to notice. And when you find him (or her), ask how an ellipsis is correctly formed, and by ‘correctly,’ I mean according to the textbook. It would seem from the evidence that none of your team knows.”

The 5: We appreciate your concern. Really, we do.

We made a conscious decision when launching this e-letter nine years ago to not insert a hyphen between “5” and “Min.” for the simple reason that it would look awkward in our masthead.

Likewise, any use of ellipses that runs afoul of the The Chicago Manual of Style is a conscious (and totally subjective) decision when a dash might not feel right… such as in the middle of this sentence.

Or the end of this one…

“I question the reader’s claim yesterday about how the IRS can collect the Obamacare penalty,” reads our final entry from the mailbag.

As a refresher, yesterday’s reader wrote, “It’s also good to remember that if a taxpayer owes a tax penalty and doesn’t make the payment, the only way for the IRS to collect the tax is for them to withhold the money from the taxpayer’s federal income tax refund. The IRS cannot enforce the Individual Shared Responsibility Provision with jail time, liens or any other typical methods of collection.”

The riposte from today’s reader: “It appears to me on a close read of the code AND its current practice that the Treasury can and does reduce Social Security benefits by up to 15% to pay reimbursements for deficiencies in tax-related debt until full payment of taxes and interest and fees is made. Sadly, this has been (since 2011) the IRS’ interpretation of nontax-related debt as well, like secured SBA loans gone bad.

“I always enjoy the news, diversity and brevity of your great report.”

The 5: See, this is why we threw in the disclaimer yesterday about always consulting a qualified tax professional about your own situation. We do likewise today…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. How big an opportunity does Jim Rickards see in gold stocks right now?

Well, as we said above, it’s a chance that comes along once every 10 years or so.

How committed is he to his opinion?

“First,” he says, “my publisher and I just staked a total of $1 million on a new project to help you profit from this rare gold window.

“Second, I’ve dropped everything to find a partner who’s dedicated to helping you find the biggest opportunities in the coming gold bull market.”

Now it’s your turn to collect the fruits of Jim’s efforts. Start here.


Other Articles In 5 Min. Forecast

New Daily Issue Posted 15 Hours Ago By Dave Gonigam

Stock market volatility at another record low… while Bitcoin is up, down, all around. Today, a crash course in cryptocurrencies (including the most lucrative ones)

Read This Daily Issue