The crash is coming – buy gold
From Finanz und Wirtschaft:
Few investors have a deeper understanding of the tech sector than Fred Hickey. All the more concerning is his warning when it comes to the outlook for U.S. equities. The renowned editor of the popular investment newsletter The High-Tech Strategist draws alarming parallels to the bursting of the dotcom bubble in the year 2000 and spots high risks in stock market darlings like Amazon and Apple. For the industry veteran, one important reason to be concerned are rich valuations. He also sees troubles ahead with respect to the rise in interest rates and the growing mountain of debt around the world. Against this background, the outspoken contrarian sees bright opportunities in gold and in attractively priced mining stocks…
Gold and especially gold mining stocks had an amazing run in that last decade. But since 2011 gold’s glimmer seems to have faded.
Two factors were responsible for this: growing production and shrinking demand from financial investors. But now, I think the gold market bottomed in December of 2015. Gold production is going down because many mining companies have slashed their exploration and development. There are no new major mines that have been found and there aren’t many which are being developed. That means supply has started to shrink and it will continue to shrink. On the other side, we had a great disinvestment in gold by U.S. investors who have poured all their money into stocks. But when the stock market declines, as I expect, they are going to do what they usually do: They are going back into gold and demand will increase at the same time as supply is decreasing.
How will this impact the stocks of gold miners?
In the last gold bull market which started in 2001, gold was up 650% but the gold miners were up 17 times. Also, in the first phase of what I consider the new gold bull market which began in 2016, gold went up 30% but mining stocks went up 160%. So, you can see the leverage, especially when these stocks are depressed like today. For me as a contrarian, this is an amazing moment. On one hand, it’s a demoralizing moment like it was in 2000. But at the same time, it’s the most exciting moment since gold is on the cusp of an explosion higher. All you have to do is to be willing to wait and to be patient for it to happen, but most people are not.
Which are your favorite mining stocks?
One of my favorites is Agnico-Eagle Mines. This company has been around for nearly 60 years. It has multiple first-class mines, a great management and it paid dividends for decades. Another good one is Kirkland Lake. I was fortunate enough to identify this stock early and it became the best performing gold stock last year. I still think it’s undervalued, and it will attract a lot of money when gold stocks are in favor again. I also like Goldcorp and Pretium Resources. The later one is a controversial stock because there was a short attack. It has some characteristics that make it bumpy. But again: you’re talking low costs and high margins, so it could be a huge winner over time.