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
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.
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.
- After 13 consecutive months of decline, GLD holdings were up over 10.5 tonnes last month. The trend is similar to other ETFs.
- Hedge funds and other large speculators more than doubled their bets on higher gold prices this year.
- Increase in M&A—for example, hostile bids from Osisko and HudBay Minerals to buy big assets.
- Apollo, KKR, and other large private equity groups have emerged as a new class of participants in the sector.
- Gold companies’ hedging of future production—usually a sign of insecurity among the miners—shrunk to the lowest level in 11 years.
- China continues to consume record amounts of gold and officially overtook India as the world’s largest buyer of gold in 2013.
- Large players in the gold futures market that were short have switched to being long.
- 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 stock to new highs, well above previous interim peaks.