Insurance on steroids [must-read for gold investors]

I’m about to head into the studio. So let’s get straight into it today.

I’ve been laying out the reasons for buying and holding gold for a while now. If you’d followed that advice at the start of the year you’d be up roughly 20% already in 2019. Not bad.

Remember: rising gold prices are a signal to those who want to see it. They’re not just a function of supply and demand in the gold market. People buy gold to opt out of the existing financial system.

Rising gold prices say: something is up.

What that “thing” is will vary depending on which currency you’re operating in. In Britain we have a perfect storm: pound weakness over no-deal Brexit, Boris Johnson getting ready to spend a fortune to buy himself a majority, and if that fails, the risk Jeremy Corbyn will find himself in Number 10.

In Europe we’re on the verge of another round of stimulus. All out “open-ended” quantitative easing designed to resurrect the ailing economy could launch before the end of the month, according to Societe Generale. I love the smell of printing presses in the morning, don’t you?

In the US things are lagging behind. But don’t worry. As the election heaves slowly into view, someone will seek to promise, borrow and spend enough to placate the people. Whoever does so most convincingly will win. And gold will rise as a result. You don’t win elections by being prudent.

But so far we’ve only really covered one side of the situation. Gold tends to rise when paper currencies – and the systems built on them – falter and fail. That’s why holding 5%-10% of your assets in gold is a good idea. It’s insurance.

Today I want to introduce the idea of insurance on steroids. If gold soars and you hold bullion or coins, you’ll make good money. If gold soars and you hold the right gold stocks, you could make a killing.

I say could with good reason. There are risks involved with gold miners. Badly run mining stocks can lose money. But in the right conditions – which come around rarely – they can soar.

For proof of that, let me share two charts with you.

Five key economic factors that we’re experiencing today – the collapse of a credit bubble, a post-bubble contraction, devalued currencies, rising gold prices and a toxic mix of inflation and deflation – combined in the early 1930s to send the price of gold stocks soaring.

Just take a look at this chart:

It shows what happened in the US markets in the aftermath of the Wall Street Crash of 1929. The red line tracks the Dow. As you can see, it collapsed in late 1929 and then kept on diving. But just check out the black line.

It shows what happened to the share price of Homestake, then the US’s premier gold miner. And Homestake wasn’t the only mining stock to jump.

This graph compares the performance of the two outstanding gold miners, Homestake and Dome Mines, against regular stocks between 1929 and 1933…

As you can see, the Dow got pummelled by a collapsing credit bubble – losing 73% of its value. Meanwhile, Homestake and Dome Mines rose 474% and 558% respectively. 

So what happened?

The answer is simple: as the credit bubble of the 1930s popped, and the price of gold shot up, certain gold stocks soared. They weren’t insurance. They were insurance on steroids.

Gold stocks are very different to bullion. They’re riskier. More volatile. But when conditions are right… they can deliver big gains at a time when other assets are falling.

That’s why getting the latest thinking on gold and gold stocks is so important. To do that I recommend signing up for our free Gold Summit. You’ll hear from some of the very best gold investors in the world. You’ll get their analysis. Their thinking. You’ll hear critical ideas that could help you make a fortune.

And you’ll get it all for free. Register here now free of charge.

Right, I’m off to the studio.

Until tomorrow,

Nick O’Connor
Publisher, Exponential Investor

Category: Commodities

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