There’s one indicator that stands out above the rest and lets you know when it’s a low-risk time to buy gold stocks. E.B. Tucker, editor of The Casey Report, says it has signalled every gold bull market so far this century…yet most investors simply overlook it. In today’s essay, E.B. explains what it is…and, more importantly, what it’s telling us today…
One chart signals the time to buy gold stocks more accurately than any other piece of research I know of.
It’s more valuable than mine site visits, company presentations, and even geology.
Since 2000, this chart flashed a buy signal on gold stocks only three times. The first was in the spring of 2003. Back then, gold was already in a new bull market. From the time the signal flashed “buy,” gold went on to double. Mining stocks, specifically the NYSE Arca Gold Miners Index (GDM), went on to triple.
It flashed again in late 2008. Over the next three years, gold doubled again…while mining stocks tripled.
And it flashed for the third time this century back in January. Since then, gold is up 20%. And mining stocks are up 96%. (At one point, they were up 148%.)
You see, mining stocks run farther and faster than almost any other investment. In fact, they often have more millionaire-making potential than biotech or technology stocks in a bull market.
But they’re also tremendously risky. If you ask your broker about buying mining stocks he’ll likely tell you to “stay away.” He’ll tell you about the bottom falling out after a gold bull market ends. He’ll tell you about a speculative frenzy that ends in disappointment.
What your broker won’t tell you is that timing matters more in gold mining stocks than almost any other sector of the market. Maybe he had a client that missed the buy signal before the speculative frenzy…or one who got in when it was too late.
But there’s one indicator that stands out above the rest and lets you know when it’s a low-risk time to buy: the gold-silver ratio.
The chart below shows the value of silver ounces to one gold ounce. If you sold one gold ounce and used the proceeds to buy silver ounces, this chart tracks how many you’d be able to afford at any given time.
As you can see, these buy signals are powerful. They signal the start of a multi-year run in gold stocks. You can also see that the current run has a long way to go.
When the number is high, mining stocks are usually suffering. As they rise in price, the gold-silver ratio falls. A low gold-silver ratio typically indicates the late stages of a bull market in gold stocks. This is the time your broker is warning you about.
Notice the third buy signal that flashed earlier this year. It set off a powerful move in gold mining stocks. Just two months ago, those stocks were up 148% from their January low. But as I mentioned, today they’re only up 96% from that low.
If you bought in August, you’re probably wondering if this is what your broker warned you about. It’s not.
Look back to the last two times this buy signal flashed. In 2003 and 2008, the buy signal predicted a multi-year bull market. During both of those powerful markets, gold stock buyers had to endure a few short but painful pullbacks.
Pullbacks, or sharp corrections in stock prices, are a normal part of any bull market. They can test your resolve in a way that almost nothing else can. But that’s only if you own shares.
If you don’t own shares, a correction is the most valuable opportunity you’ll find to jump in. That’s exactly the situation we have today.
After a huge seven-month run earlier this year, gold mining stocks have cooled off. The gold-silver ratio fell more than 20%, from 83 to 65. During that time, gold mining stocks ran up 145%.
Over the past two months, the gold-silver ratio shot back up to over 72. Mining stocks suffered. They gave up part of their gains. And they gave investors a golden opportunity to buy shares.
We expect the gold-silver ratio to reverse course and continue its fall. If the last two gold bull markets are any indication, it may fall well into the 40s before it’s over. That means big profits for investors holding gold mining shares.
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