Now Is Still a Great Time to Buy Gold Mining Stocks
By Porter Stansberry
Saturday, May 30, 2009
This year, the federal government is conducting a fiscal experiment – something that's never been done before.
The government will attempt to borrow 50 cents of every dollar it spends, pushing our annual deficit to more than $2 trillion. This amount of deficit spending will equal between 15% and 30% of our country's total GDP. That's a level of fiscal stimulus that's never been attempted before – ever, except in time of war.
There is a war of a kind underway. Most people don't understand it because it's not a war that involves soldiers or guns. It's a war against sound money. It's a war against creditors. While every battle involves uncertainty, there is no doubt who will win this war: inflation.
Last year, I began to write about my fears the government would go overboard in its efforts to prop up the banks and the economy. Those fears have more than come to pass. In addition to the enormous amount of fiscal stimulus, the Federal Reserve has tripled the size of its balance sheet and bought long-duration U.S. government bonds, monetizing our debts. We will pay for this profligate spending, not through constitutional means – as approved by Congress – but through inflation.
Right now, inflation is moving various base metals, financial stocks, and transportation stocks higher. But the best and most historically significant way to protect yourself from the debasement of the currency is through gold.
At the end of last year, when I could see what the government was going to do to our money, I recommended readers of my investment advisory buy shares of the gold miners exchange-traded fund (GDX). As you can see, the recommendation has done very well. We're up nearly 60% in about six months.
I told my readers to buy gold stocks because I noticed the spread between the gold-mining stocks and the metal itself had never been larger. You can see the big gap with your own eyes in the following chart. (The price of gold is in red – GLD – and the price of gold stocks is in blue – GDX.)
For obvious reasons, the price of gold and the gold-miner fund are normally tightly correlated – as they were at the beginning of 2008.
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But then, in the big financial blowup, the shares of gold miners fell while the price of gold remained essentially unchanged on the year. Why? Because when hedge funds were forced to deleverage as credit became scarce in the third quarter of 2008, they had to sell their holdings – which included gold stocks. The unwinding of many leveraged commodity bets created an unusual anomaly between the price of gold stocks and the price of gold itself.
As you can see, the gap between the two, which went as wide as 40%, hasn't yet been closed fully and still stands at about 15%. If you don't own gold bullion yet, I hope you buy some soon. It's going much higher. If you want extra leverage to this rise, it's not too late to take a position in gold stocks. The war against sound money will send them hundreds of percent higher in the next few years.
Good investing,
Porter Stansberry
P.S. The downside to buying gold stocks, of course, is they are extremely volatile. But I recently showed readers of my Put Strategy Report how to profit on gold stocks while reducing the impact of that volatility and collecting cash up front.
Essentially, we can go back in time to when the spread between gold stocks and the price of the metal was near its widest point, recapturing the same incredible opportunity we had last December. To learn more about my strategy, click here. |
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50,000,000
Number of units Japanese video-game maker Nintendo has sold of its "Wii" console since it launched in late 2006. That's the fastest a video-game system has reached this milestone. |
The Recession Just Ended... Here's What to Do
By Dr. Steve Sjuggerud
Friday, May 29, 2009
In short, companies and investors still feel bad. Employers are laying people off. That's normal at the end of recessions. And right now, I believe we're extremely close to the end of this recession, if we're not there today.
If You're About to Buy Stocks, Make Sure to Read This First
By Chris Weber
Thursday, May 28, 2009
I was a 19-year-old know-it-all who was convinced that Russell was wrong about everything. It turned out I was wrong, and I have never since forgotten that lesson.
This Is the Fastest Way I Know to Make a Fortune Right Now
By Tom Dyson
Wednesday, May 27, 2009
The government's political agenda is often stronger than its desire to get a good deal for the taxpayer. So it gives tax breaks, low-interest loans, and below-market prices to investors who buy these "toxic assets."
How to Make 40% a Year in Boring Government Bonds
By Dr. Steve Sjuggerud
Tuesday, May 26, 2009
Add up 12% interest, plus double-digit gains in the bonds, and the currency... and you're looking at the potential for 40% gains here annually. In boring government bonds!
Memorial Day - Markets Closed
Monday, May 25, 2009
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