Close
FEATURED STRATEGY

Scientific Breakthrough: No Chemo, No Radiation, But Kills Cancer Dead!

Five-Minute Fortunes12 million Americans have cancer. But this tiny $75 million company just discovered a safe way to eradicate the disease.

(Must see!) And by investing in this tiny little stock… investors could grab 5,320% gains in as little as 3 minutes. 

Click here now for details.

 

Thinking About Buying Gold? Read This First

During his first speech to the United Nations on Tuesday, President Trump said if threatened the United States would “totally destroy” North Korea. In a September 17 tweet, Trump also mocked the country’s autocratic leader, Kim Jong-un, calling him “Rocket Man” because of Jong-un’s repeated testing of nuclear ballistic missiles.

If bombastic rhetoric like that from an America president isn’t bullish for gold, nothing is.

Thinking about adding gold to your portfolio? Perhaps more than any other investment, the yellow metal is susceptible to manias. If you want exposure to gold, you need to do it the right way.

Here’s the good news: gold doesn’t appear close to peaking, as credible analysts project further gold price appreciation. The price of gold currently hovers at $1,312 an ounce; the bullish consensus is that gold will reach at least $1,500 by year’s end.

The time to gain exposure to select gold assets is now, before geopolitical tensions get even worse and the investment herd starts screaming buy buy buy! By then, you’ll be buying into a bubble. Below, I pinpoint the best-in-class gold investments that trade at attractive entry points.

Stock market timing is a powerful tool, especially when you remember a basic rule of investing: Most of the time, the majority of stocks go up or down together. Even experienced fund managers have trouble consistently finding the market’s “tops” and “bottoms.” A good rule of thumb for identifying these extreme peaks and valleys is to look for extreme behavior.

Classic signs of a bottom include hyperbolic pessimism in the media; extremely high bear signals from professional stock analysts; heavy insider buying at corporations; and huge mutual fund cash reserves. On the other hand, if it ever feels to you that the market is in a buying frenzy, it’s probably a good time to sell (or hold off on buying).

Investors who chose to get into gold toward the end of 2009 learned this lesson the hard way. At the time, everyone was foaming at the mouth over gold, and for a good reason: Gold prices had steadily climbed +40% since the beginning of the year (see chart below).

The Great Gold Bubble

Source: Investing Daily (in $US dollars)

However, while conditions are setting the table for gold, the yellow metal hasn’t reached frenzied levels yet. The SPDR Gold Trust ETF (NYSE: GLD), the exchange-traded fund that’s the benchmark for gold, has generated a year-to-date total return of 14.79%, a healthy gain that only modestly beats the S&P 500’s YTD return of 11.74%. There’s further room for gold to run.

With a stock market correction looming, you need to hedge your portfolio with gold. The traditional yardstick is for an allocation of about 5%-10% in either gold mining stocks, ETFs or physical bullion itself. However, keep in mind: The conditions that are favorable for gold will prove fatal for overvalued stocks that are looking for a trigger to tumble.

When gold prices are on the way up, the biggest profits will come from plays that tag along for the ride. Gold ETFs hold bullion as their only asset but trade just like regular stocks. They move directly in tandem with gold prices. The two major gold ETFs trading in the U.S. are the SPDR Gold Trust and the iShares Comex Gold Trust (NYSE: IAU).

If you’re interested in gold but risk averse, I recommend the SPDR Gold Trust, the most popular bullion ETF and the most liquid physically backed gold offering available. Launched in 2004, GLD was the first gold ETF available in the U.S. GLD seeks to replicate the performance, net of expenses, of the price of gold bullion.

Also consider a new sister fund, SPDR Long Dollar Gold Trust (NYSE: GLDW), the first physically backed gold ETF with a currency hedge against a strong U.S. dollar. GLDW gains when gold prices spike and the value of the dollar increases. Historically, a stronger dollar has been a drag on gold prices. But if both gold and the greenback rise together, GLDW’s investors win both ways.

Gold mining stocks follow the price of gold somewhat, but there is more risk since these companies also need to contend with the trials and tribulations of running mining and production operations. However, when these companies reap profits, they tend to be very big.

Consider one of the world’s fastest-growing gold miners, Goldcorp (NYSE: GG). Headquartered in Vancouver, British Columbia, Canada, this senior gold miner boasts operations and development projects throughout the Americas.

With a market cap of $10.6 billion, Goldcorp enjoys many advantages over its more volatile rivals, including production growth combined with low cash costs, a strong balance sheet, and operating jurisdictions that are politically safe.

The average analyst expectation is that GG’s year-over-year earnings growth will reach 29% for the current year and 25% next year.

Also consider Barrick Gold (NYSE: ABX). With a market cap of $18.9 billion, Barrick Gold is one of the more stable and proven gold miners. ABX also is in growth mode. The company is undergoing several large-scale development projects but is talking more openly about acquisition opportunities. The average analyst expectation is that ABX’s year-over-year earnings growth will reach 5.7% for the current year and 5.4% next year.

Setting the (gold) bar higher…

If you’re an aggressive investor, consider junior gold miner Pershing Gold (NSDQ: PGLC). With a market cap of $84.3 million, Pershing Gold is an efficient producer with a strong balance sheet that’s aggressively expanding operations.

Headquartered in Colorado, the company’s principal growth driver is the Relief Canyon Mine in Pershing County, southwestern Nevada, where it operates low-cost but highly productive mining facilities.

The Relief Canyon Mine comprises about 25,000 acres in Pershing County, made up of about 948 owned unpatented mining claims, 120 owned millsite claims, 172 leased unpatented mining claims, and 2,235 acres of leased and 2,770 acres of subleased private lands.

Pershing’s Relief Canyon Mine got a boost on August 31 from Uncle Sam, when the U.S. Secretary of the Interior issued an order to significantly streamline the Environmental Impact Statement process by imposing a limit of 12 months to complete. This order is manna for PGLC’s Relief Canyon project; the company expects to submit to the government its expansion plans for the project by early next year.

The takeaway from the Interior Department’s order is that Pershing can mine below the water table, which enhances the company’s Net Asset Value (NAV), because the company now has more gold available to extract in an already proven mine. The firm’s NAV of $4.27 per share is more than double its market cap.

The average analyst expectation is that PGLC’s year-over-year earnings growth will reach 42.7% for the current year and a whopping 123.3% next year. PGLC offers greater capital appreciation potential than its larger peers. But take note: Pershing also is a small-cap stock that confers greater risk and isn’t appropriate for conservative investors.


You might also enjoy…

 

Boost Your Annual Income By As Much As $12,036

We’ve uncovered a unique income-boosting opportunity that allows you to collect up to $1,003 a month in extra government cash. 

This plan is available to everyone over the age of 18.

The amount you make isn’t dependent upon your marital status…

How much money you currently make…

Or even how much money you made in the past.

Best of all, because of the way Uncle Sam views the money that comes from this plan, your current—or future—Social Security benefits won’t be affected, either. 

There’s still time to get your name on the list for the next check run. 

I’ll show you how here.

Stock Talk

Rick W.

Rick W.

Hi John,
A while back you suggested OR as a gold-proxy investment. How does it stack up to your picks in this article? Also, which do you feel has more upside, streamers like OR, FNV and RGLD or gold stocks like GG, ABX and PGLC? Thanks!
Rick

John Persinos

John Persinos

Rick: As you doubtless already know, “streaming” companies reap the benefits from investing in gold while minimizing the risks. Streaming companies provide early stage financing for mine development and in return receive either a royalty payment on future production or a “stream” as an exchange for an upfront cash investment. A stream is the right to purchase a percentage of future production at a low fixed price for the life of the mine. Without exposure to the actual production side of the business, streaming companies such as the aforementioned Osisko Royalties (Toronto: OR), Royal Gold (NSDQ: RGLD) and Franco-Nevada (NYSE: FBV) are purer plays on gold prices.

If you buy an ounce of gold at $1,000 and the price goes up to $1,100, you’ve just captured a +10% return. Not too bad. And chances are good the price of your asset won’t fall all the way to zero, so the limited upside you’re exposed to is balanced out by the limited downside risk. Un-leveraged positions such as streaming companies are inherently conservative.

But if you own gold mining stocks and the price of gold goes up, the notion of “operating leverage” comes into effect. A bump in gold prices will likely exert an exponentially huge boost on a gold producer’s top line revenue. And because the producer doesn’t have to put a whole lot of additional labor or capital into digging out increasingly valuable gold, its earnings-per-share should go up and take the stock’s share price with it. For these reasons, gold mining stocks such as GG, ABX and PGLC are much better plays if you’re seeking outsized capital appreciation.

Rick W.

Rick W.

Hi John,
Thanks for your response. Are there any junior miners you like? In particular, GFI, IAG or NGD? I’m a bit torn between investing on these individual stocks rather than the ETF GDXJ. Thanks again.
Rick

John Persinos

John Persinos

Rick: If you’re an aggressive investor, consider junior gold miner Pershing Gold (NSDQ: PGLC). With a market cap of $84.3 million, Nevada-based Pershing is an efficient producer with a strong balance sheet that’s aggressively expanding operations. The company’s principal growth driver is the Relief Canyon Mine in Pershing County, Nevada, where it operates low-cost but highly productive mining facilities.

Pershing’s Relief Canyon Mine got a boost on August 31 from Uncle Sam, when the U.S. Secretary of the Interior issued an order to significantly streamline the Environmental Impact Statement process by imposing a limit of 12 months to complete. This order is manna for the miner’s Relief Canyon project, which expects to submit to the government its expansion plans by early next year.

The takeaway from the Interior Department’s order is that Pershing can mine below the water table, which enhances the company’s Net Asset Value (NAV), because it now has more gold available to extract in an already proven mine. The firm’s NAV of $4.27 per share is more than double its market cap.

The average analyst expectation for PGLC’s year-over-year earnings growth to reach 42.7% for the current year and a whopping 123.3% next year.

But keep in mind: PGLC is a small-cap and risky.

Rick W.

Rick W.

Sorry John, I meant to ask if there are any OTHER junior miners you like in addition to PGLC.

Rick W.

Rick W.

John,
The largest holding in the GDXJ portfolio is IAG with $2.96 billion market cap. ABX is the second largest holding in GDX. How do you see it as a junior with $19 billion in market cap,? Thank you,
Rick

John Persinos

John Persinos

I’ll rephrase my answer about junior gold miners to be clearer: a shrewd way to get exposure to junior gold miners is by purchasing shares of stable, major gold miners that appear likely to acquire promising junior operators. Right now, Barrick (NYSE: ABX) is such an opportunity. I think Barrick could be on the verge of purchasing junior miner Pretium Resources (Toronto: PVG). Based in Vancouver, PVG primarily explores for gold, silver, and copper deposits in British Columbia. Debt is low, as are operating costs, but estimated earnings growth is off the charts. The average analyst expectation is that PVG will rack up year-over-year earnings growth of 154.5% in the current year, 371.4% in the next quarter, 138.3% in the current year, and 427.8% next year.

Rick W.

Rick W.

I don’t mean to be a pain in the butt, but why not buy PVG instead of ABX? If ABX follows through, PVG will likely make a big jump after the announcement at which point it could be sold and reinvested in ABX. Sounds good in theory anyway.

John Persinos

John Persinos

The scenario you choose depends on your risk profile. And you’re not being a pain in the butt. I enjoy feedback and engaging with readers.

Bruce Demko

Bruce Demko

I have been looking into a company called goldmoney that buys and sells precious metals.

They hold the metals in storage for you (or send the actual metal to you) much like a savings account. They also having a card that will access your savings and allow you to use your balance to make purchases point of sale like a credit or debit card.

Could you share your thoughts on this company?

CD

CD

Hi John, I always look back to the 2008 market correction when I’m buying a stock to see what happened in the following few years with that stock. Most Gold stocks also seemed to go down until the end of 2008 during that correction but then greatly increased in value in the next few years. Is that the trend? Do you think Gold will continue to go down more for the next few months during this correction before it starts to go up? I’m just trying to figure out if I should buy now or wait a bit yet. Thanks! CD

Add New Comment

You must be logged in to post to Stock Talk OR create an account