Mr. Market Is Handing You The Gold Investment of a Lifetime
Let me show you something that doesn't make any sense in the gold sector with two charts.
It'll perfectly illustrate how the herd is handing us a fantastic opportunity.
The first shows a big run for two ETFs of gold stocks: GDX for the big names, GDXJ for the smaller ones.
While the S&P 500 posted about a 12% gain. Gold itself saw a much more modest 6.5%.
Meanwhile, the ETFs soared, with GDX gaining 54.4% and GDXJ gaining 69.9%.
Gold prices had bottomed after 2015 saw a drop of about 11%.
Investors flooded back in and recapitalized gold companies across the board.
This is how the gold market is supposed to look. Gains don’t happen at a one-to-one ratio. Gold miners, past a certain point, see nothing but greater profits.
Once the capital expenditures — which are massive, to be fair — are done, it is just a matter of pulling more and more money out of the ground.
Hence the multiplier effect we saw in 2016 when you look at changes in gold prices and gold mining stocks.
Everything was set up for a fantastic 2017 for miners. Then things got weird.
What Just Happened?
Here is our second chart. It has all the same components in it — SPY, GLD, GDX, and GDXJ — but there is something very strange about it.
Gold prices rose a fantastic 12% for the year. Yet the basket of stocks in GDX and GDXJ slumped.
The normal relationship we see between gold prices and gold stocks went into a bizarro world inversion.
There was nothing in the gold sector that spurred an exodus. Adding 12% to the underlying commodity that drives revenue and book value for all of these companies should have been cause for a windfall.
Yet the opposite happened, and it all has to do with the broader market, as represented by the S&P 500 going on a tear and gaining nearly 20%.
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The Contrarian Play
We’re looking at a small window for a contrarian play as the price of gold continues its upward climb in 2018.
All eyes are on the broader market and the gains it is posting, with more traditional sectors and blue-chip stocks drawing in investor funds that are pushing valuations into the stratosphere.
While the crowd was focused elsewhere, investment in gold companies fell off, with insiders noting a massive change in investor behavior.
As George Salamis, president and chief executive officer of Integra Resources, told Kitco News:
“Our financing book looked completely different from previous years. In previous financing, we saw 80% interest from institutional investors and about 20% interest from retail investors. This time around, it was completely reversed. Institutional money is almost gone from the mining marketplace.”
We shouldn’t expect that to last. In a stock market where value is hard to find, the best gold stocks are already starting to draw renewed attention.
In the last three months, that inverted pattern reversed and broke even. In the last month, gold miners once again outpaced the underlying gold price, with GDX up about 9% and GDXJ up about 11%, as compared to gold prices going up 6.5%.
There is still time to find fantastic investments in the sector though — before the herd catches on and institutional money floods back in.
Nick Hodge found one such company, and only in the kind of situation we’ve seen in the gold sector over the last year could it present such untapped potential.
No One Knows About America’s Largest Gold Discovery
The 50-cent-per-share company is sitting on a deposit that:
- Is cheaper to mine than almost any in America
- Has one of the highest-grade forms of gold
- And has minimal environmental impact
Most of the company is poised to nearly triple the official gold reserves it is sitting on, pushing the value of the deposit to around $240 billion at today’s gold prices.
It has everything going for it. It has a dream team in management, the EPA and locals are on board (even on the Board), and it'll produce a byproduct that has virtually no domestic production and is considered to be a "critical strategic metal" by the Pentagon.
That is the kind of information that turns heads and brings in a windfall for the company and its investors alike.
Check out Nick’s research before the tides turn and investors learn about America’s largest gold discovery.
Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page.
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