Commodity Trade Mantra

Stop The Panic Selling In Gold Mining Stocks

Stop The Panic Selling In Gold Mining Stocks

Stop The Panic Selling In Gold Mining Stocks

Gold is on a monster run already in 2016, gaining nearly 20%, while the rest of the market remains mired deep in the red.

But many of you are sitting on the sidelines, fearful that you’ve missed gold’s move.

Don’t worry: You haven’t missed it. In fact, this is just the first inning of a monster bull market for gold mining stocks. And it’s going to allow you to buy gold 50% off from its current price and you could make 100% to 200% over the next 12 months.

And just so you understand what a phenomenal opportunity this is … these gains can happen even if gold’s price stays flat or even goes down a bit.

First, let’s break down the trade so you understand why this is going to happen…

Gold Mining Stocks Aren’t Dead

What makes gold mining stocks such a compelling no-brainer buy right now?

The easiest way to understand the opportunity is to focus on what happened to gold mining stocks over the last three months.

You see, from mid-October to early January gold mining stocks dropped by 30%. When you see stocks go down by this much, you would think their businesses were being wiped out.

Here’s the thing … in the last three months, gold mining companies were making money. Gobs of it.

How do we know this? We know this because most gold companies are done reporting their fourth-quarter results. We can see what was happening inside their businesses as their stocks were plummeting.

If you look at the elite — the blue-chip gold mining stocks — companies such as Newmont Mining, Barrick Gold and Goldcorp, you’ll see that they were making an average of $215 for every ounce of gold they were digging out from their mines in the last three months of 2015.

Their total costs of mining an ounce of gold were just $836, while gold was selling for at least $1,051 during that time frame. As long as gold was trading above their costs, the mining companies were raking in profits.

And now … things are even better. Gold is now up more than 17% since the start of the year, trading near $1,250 an ounce. These companies are now making a profit of $414 an ounce.

The Disconnect on Wall Street

Why did gold mining shares crash at the end of 2015? Fear. Pure panic that you often see at the end of the worst bear markets.

Panicking investors sold their mining shares as if these companies were on the cusp of bankruptcy. That’s even though these companies were making money. Big money.

Bottom line: The selling in gold mining stocks was driven by pure emotion — in other words, panic selling. People watched gold prices tumble, panicked and unloaded their shares of mining stocks out of fear rather than due to any logic or reason.

From 25 years of investing, I can tell you that the best time to invest is after a panic.

Panic wipes out the dumb money or the so-called weak hands. Now, the smart money is scooping up gold mining stocks with both fists. That’s why, even though gold mining stocks are rallying right now, they are still crazy cheap.

Maybe you’re still a bit skeptical. Look at this chart of gold and gold mining stocks:

Stop Panic Selling Gold Mining Stocks

The gold line represents the price of the precious metal, while the green line represents gold mining stocks (as represented by the NYSE Arca Gold Bugs Index [HUI]). You see what’s going on?

Gold mining stocks are currently at price levels that match when the yellow metal was trading at under $600. Gold mining shares are at 12-year lows.

Gold is now trading near $1,250. That’s a greater than 50% difference. It makes zero sense.

The bear market in gold mining stocks took these companies to ridiculous levels.

You know this isn’t that unusual. It’s what happens during a panic that marks the end of bear markets. Investors dump stocks blindly, not caring about what price they exit at, just that they are no longer holding the shares. Stock prices fall to extremes that are no longer connected to reality such as a company’s fundamentals.

Just remember that underpinning this new bull market are solid fundamentals — low costs and profits.

That’s because we know that gold mining companies can get an ounce of gold out of the ground for $836. At current prices, gold mining companies are making $414 per ounce. Even if gold went down from here, these companies are making money.

Beat the Big Money

Gold mining stocks are perfect investments to buy right now. That’s because as the bull market takes off, the shares will start rocketing up. And they are going to keep going up for a long time.

Here’s the opportunity for you in a nutshell. Right now, you’re buying gold mining shares as if gold is under $600 — over 50% below its current price of $1,250.

It’s as simple as that. You’re buying gold at a 50%-plus discount when you buy the shares of gold mining companies now.

You should know that in my experience opportunities like this don’t last. Soon, hedge funds and big-money investors are going to bid the prices of gold mining companies higher. The easiest gains will happen fast.

You’ll want to own the stocks of gold companies when this happens … because their prices are going to skyrocket.

Here’s how you can get in on this opportunity. Buy the Market Vectors Gold Miners ETF (GDX). This exchange-traded fund (ETF) has all of the elite gold mining company stocks in it, such as Newmont Mining, Barrick Gold and Goldcorp. It also offers exposure to medium-sized gold mining companies such as Kinross Gold and Eldorado Gold.

Now is your chance to make big money in gold mining stocks. You don’t benefit unless you own the ETF.




Courtesy: Paul Mampilly

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