Why I'm Buying Back into Gold Stocks Now
Commodities / Gold & Silver Stocks Mar 05, 2010 - 09:09 AM GMTBy: DailyWealth
Back in December, I got spooked about gold...
I actually told my subscribers to sell their gold. We sold a position we'd bought back in 2003, when gold was incredibly unpopular.
Here's what tipped me over the edge... The morning the issue was going to print, I'd already seen ads for gold on TV. I'd already heard ads for gold on the radio on my drive to the office. And it was only 5:30 a.m.
The financial data at the time backed up my anecdotal evidence... Investors were loading up on gold.
If you know me at all, you know I want to buy when nobody is paying attention, and I want to sell when everybody is interested. In December, everybody was interested. So in December, we sold our gold.
The timing was excellent. The price of gold peaked in early December. And so did the price of gold coins. Coin prices have fallen maybe 20% since then. The precious-metals stocks we sold – Silver Standard and Seabridge – have also fallen since we got out, by roughly 20%.
My opinion of gold has changed 180 degrees since December. It's because investor opinion about gold has switched, from remarkably bullish to pretty darn bearish, pretty quickly. Let me show you what I mean...
Back in December, the "sentiment surveys" showed investors were at highs for the year. Now that has changed... Two weeks ago, public opinion hit its lowest level since last April (when gold was at its lows for 2009, below $900. Now THAT was a time to buy). That's what we want to see.
Investors have also fled gold stocks since December... For example, the Rydex Precious Metals Fund saw its assets fall by more than half from December to today (from over $350 million to $177 million now). Traders like to use Rydex funds to chase trends. They were bullish on gold stocks in December. Now they've given up on gold stocks. That's what we want to see.
Meanwhile, gold's "price action" is just great right now... The dollar has soared in recent weeks. But gold is soaring more. Also, investors who didn't want dollars now don't want euros either. They don't want paper currencies at all. They're buying gold. New highs are part of bull markets, and gold is now hitting all-time highs in terms of euros. That's what we want to see.
The bull market in gold is back!
Typically, I'll try to find a crafty way to get into an attractive asset... I try to find a way that has extraordinary upside with little downside risk. For example, when my True Wealth readers first got into gold, we bought gold coins. Our downside risk was limited to the gold content of the coin. (We pocketed 273% profits on our MS63 Saint Gaudens coins.)
Often I find a "backdoor" way to buy... an undiscovered way. I try to at least. But today, the "backdoor" way into gold is right through the front door...
In the latest issue of True Wealth, I shared my indicator that has led to 100%-plus gains within 12 months, every time it's signaled "buy" since 2001 (as far as the indicator goes back).
I don't think it's fair to my paid subscribers to share this indicator with you here for free in DailyWealth. But I will tell you its message:
Buy gold stocks now.
Good investing,
Steve
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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