Three ways to beat the gold bear market

From Nick Rokke, Analyst, Palm Beach Daily:

“It’s a tough time to be a miner.”

That’s the message many CEOs had for attendees of the annual Sprott Natural Resource Symposium…

I attended the symposium in Vancouver a couple of weeks ago. It’s the world’s premier natural resource conference. There were well over 100 speakers and companies presenting, and hundreds more were in attendance.

But as I mentioned recently, the mood was gloomy. Most commodities topped out in 2011… They’ve been down since.


The chart above shows the SPDR S&P Metals and Mining ETF (XME), which holds a basket of mining companies.

As a whole, miners have lost 56% of their money over the last seven years. It’s no wonder these guys are feeling down in the dumps.

At the Palm Beach Research Group, we still like gold, though. It’s the original chaos hedge… and one of our favorite ways to preserve wealth.

Gold acts as a form of insurance against things that could go wrong. That’s why we recommend that you allocate a small amount of gold (about 5%) to your portfolio.

Despite the downturn in metals, I still see upside in gold. Today, I’ll tell you why… and share the three best ways to add gold exposure to your portfolio.

The Gold Bear Market

In September 2011, gold topped out around $1,900 per ounce. As you can see in the chart below, it’s down 35% since then:


Big swings are normal in the commodities markets… So are long drawdowns like what we’re seeing now. Commodities are known for their booms and busts—and always will be.

But as the chart shows, gold appears to be carving out a bottom. This process can take years, though. That can be very frustrating for mining companies and their investors.

It takes patience to make money in these markets. But while we wait for a turnaround, there are three niches within the mining space that will benefit from the next boom—whenever it comes.

That’s why you want to be positioned early…

Three Ways to Prepare for the Next Gold Boom

1. Royalty companies: These are companies that finance mining projects, and in return, receive royalties from all the gold, silver, or whatever else they produce.

Franco-Nevada is the largest royalty company in the space, and it’s weathered the bear market well. In fact, it’s up 77% since September 2011.

Other royalty companies include Wheaton Precious Metals, Osisko Gold Royalties, and Royal Gold.

2. “Picks-and-shovels” companies: These companies make mining equipment.

They don’t have to rely on finding major discoveries like mining companies do. They make money by selling the supplies necessary to hit these jackpots.

A major company in this space is Caterpillar, likely the world’s largest supplier of mining equipment. It is far from a pure play on the mining sector, though. Caterpillar also makes construction, oil drilling, and transportation equipment.

Ritchie Brothers Auctioneers is another picks-and-shovels play… The company auctions mining equipment. If this downtrend continues, more companies will need to quickly sell equipment to survive.

3. Companies run by legends: Look for management teams led by people who have been through a few of these boom-and-bust cycles… They know what it takes to survive the downturn.

It’s also nice to know if the people leading the company have become wealthy from the mining space.

During the “Legends of the Mining Industry” panel at the Sprott conference, mining tycoon Ross Beaty said he’s willing to put another $500 million into his companies—if needed.

Beaty should know a thing or two about mining. He’s spent almost 40 years in the industry. Since 1985, he’s founded and sold several resource companies. Today, he runs Pan American Silver and Equinox Gold.

On the same panel was Ivanhoe Mines founder Robert Friedland, who is a member of the Canadian Mining Hall of Fame.

Friedland said shares of mining companies (including his own) fall 50% or more all the time. It’s part of the business.

He’s not worried about the fall in Ivanhoe… In fact, he’s partnering up with CITIC Metal—a subsidiary of China’s largest conglomerate—to finance new projects around the world.

Beaty and Friedland are buying projects now to start mining when the tides turn. They plan on making a fortune doing this… You should ride their coattails.

Bringing It All Together

Those are the three spots I’m looking to start a position in. If there’s a further pullback in gold, I’ll add a little more to my positions.

Like I said, the turnaround in commodities could happen soon… or it might not happen for a while. But I want you to be positioned for when it does… because these types of companies have the ability to multiply your money.

Now, some of these companies are small—and can be volatile. As always, do your homework and research each company. And never risk more than you can afford to lose.




P.S. There’s another type of commodity that shares many similarities to gold that many Wall Street are calling the fastest-growing currency in the world. We call them “Reagan Dollars” because they follow President Reagan’s vision to return the dollar to the gold standard.

Like gold, these Reagan dollars are scarce and limited by supply. They aren’t controlled by a central bank like the Federal Reserve. And they’re completely secure and private. You can learn more about them right here.

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