Editor’s Note: We’re just one week away from The Stock Market Escape Summit.
E.B. Tucker believes we’re on the cusp of a major gold rally. This is important because a handful of gold companies offer “Premium Shares.” If gold rallies at all — even just a little bit — the Premium Shares of those gold companies are likely to soar. Details below…
Regular readers know that I think gold prices are headed higher in 2019.
Today, I want to show you an easy way to take advantage of this trend.
I’m talking about buying gold stocks.
Gold stocks aren’t much different than any other type of stock. They just happen to be shares of companies that produce gold.
These companies mine the ore that contains the metal and sell it to refineries. The process is similar to oil or any other natural resource in the ground.
The reason why gold stocks perform better than gold is simple: They offer leverage to the gold price.
That’s why the returns can be spectacular.
Let me explain…
The Power of Leverage
The word “leverage” usually means borrowing. That’s not the case at all in the gold market.
If you aren’t familiar with the concept of leverage in gold stocks, here’s a quick example of how powerful it can be…
Say the price of gold rises from $1,300 to $1,400. That’s roughly an 8% gain. If you own physical gold, you’re up 8%.
Now, say a mining company owns a million ounces of gold in the ground, and gold is trading at $1,300. The value of the gold in the ground isn’t simply $1.3 billion (1 million ounces x $1,300/oz.). Instead, the gold in the ground is worth much less than that, because it will cost a lot of money to extract.
Say it costs the company $1,250 per ounce, all-in, to mine the gold. At a gold price of $1,300, the company has a potential profit of $50 on each ounce of gold.
However, if the price of gold rises only 8% to $1,400, the company’s profits per ounce increase by 200% ($1,400 – $1,250 = $150 profit per ounce). This small move in gold can cause the stock price to increase by 40%, 50%, or more. This is why a small increase in the price of gold can cause a gold stock to soar many times that amount.
It’s happened before…
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History of Gold Market Booms
Below are the historical returns for gold producers during four separate cycles when gold boomed: 1979-1980, 1981-1983, the mid-1990s, and 2001-2006.
These are not hypothetical returns. They are real.
First up, the king of all gold bull markets: 1979-1980…
Gold more than tripled during this period. But gold stocks more than quadrupled.
This wasn’t the only time gold stocks soared…
From 1981-1983, gold producers returned over 70% on average. And this happened in less than two years.
Gold stock Campbell Red Lake Mines climbed over 120%. This stemmed from a mere 10.8% rise in gold.
There was another boom in the 1990s. The average gold producer went up more than 200%…
Cambior rose 124%. Kinross Gold returned more than 190%. And Manhattan Gold & Silver skyrocketed over 760%.
All while gold only rose 8%.
Then, another big boom hit from 2001-2006. This one rivaled the boom of the early 1980s.
Gold returned 158%, while the average gold producer gained over 400%.
Newmont shot up 270%. Gold Fields soared over 500%. And Goldcorp returned over 800%.
As you can see, an increase in the price of gold (even a small one) can lead to huge returns.
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And We’re Seeing This Play Out Today
Gold is on the rise again… and gold stocks are up even more.
From September 2018 through the end of January, gold has risen 10%.
Meanwhile, the VanEck Vectors Gold Miners ETF (GDX) — a fund that invests in a basket of gold mining stocks — is up 30%.
As gold prices rise, the best gold stocks stand to continue to soar much higher.
If you haven’t yet, consider adding gold stocks to your portfolio.
Just remember, gold stocks are extremely volatile. Like in any industry, the stocks of stronger companies will go up more than those of the weaker ones. As always, never bet more money than you can afford to lose.
It only takes a small stake in the right companies to make a fortune as gold prices rise.
Editor’s Note: Stay tuned for E.B.’s Stock Market Escape Summit on Wednesday, February 27th, at 8 pm (ET). Doug Casey will explain how he’s used Premium Shares of gold companies (and many other types of companies) to make millions… and E.B. will show you how you can start trading Premium Shares too. You can use them on all different types of companies, both in and out of the resource sector, and potentially make a lot of money in 2019.