In 1977-1978 the Dow Industrial Index fell 28% – Gold soared 92%.
Remember the crash in 1987?
When the Dow Industrial Index tumbled 39% – Gold was up 8%.
Closer to home, when the Dow Industrial capitulated 32% in the 2008 crash – Gold rose 44%. 2018?
We have already seen a correction – and I believe this is only the beginning.
Appreciate that history is not always a precursor to what may happen in this day and age, so I dug a bit deeper to see what others are saying.
I did not have to dig very deep.
Bank of America has a Bull and Bear Indicator.
When it gets triggered, it’s a remarkable event.
According to Bank of America back-tests, not only does this particular indicator have a 100% hit rate once triggered…
…but on 11 out of 11 signals since 2002, the market dropped on average 12% after it was triggered.
And it’s moving fast – in January 2017 it was a “comfortable” 2.8 and just over 12 months later – it’s flashing red.
Click to enlarge image
Same old, same old?
If you’re not a fan of gold, you might think it’s boring, non-yielding and very cyclical.
But about every ten years the market takes a tumble. And there’s no denying gold has done very well in those periods.
In 2008 the financial system was close to completely collapsing – but Quantitative Easing saved the day. Printing money at ultra-low interest rates has been great.
But what happens when there’s another crash?
Interest rates are already low, debt is already at eye watering levels.The dollar is already in free fall.
They’ve run out of road. There’s nowhere else to kick the can.
QE papered over the cracks, but this can’t go on forever.
What do we know that ain’t so?
Will Rogers once said: “It’s not what we don’t know that hurts, it’s what we know that ain’t so.”
Most people think the bull market in stocks is because the economy is on fire – meriting increases in interest rates.
But that ain’t so. If things were so great the dollar should be rising, but it’s falling.
Something else is happening.
Take a look at this chart:
Click to enlarge image
There’s almost a perfect match between the performance of the S&P and the growth in the Fed’s balance sheet caused by Quantitative Easing.
Here’s the thing.
The bull market is nothing to do with a roaring economy. It’s because so much money has been pumped into the market.
Central Bank policy has essentially meant that investors have bought every dip, knowing there are some very deep pockets nearby with a ready bid.
This has supported the price. But when that support goes, look out below!
Surely bonds are a safe haven?
OK, I hear you say, but what about bonds? They’re the safe haven assets of choice.
Well, take a look at these charts – and remember the lower the yields, the higher the bond price.
I’m just showing the US, UK, Switzerland and Japan, but I can assure you the rest are very similar.
Click to enlarge image
Bonds are already very expensive.
So is real estate for that matter. And if you’re so inclined, cryptocurrencies don’t seem much of a bargain to me either.
Which is why I like gold.
As far as I’m concerned, at least some of your portfolio should be in the yellow metal.
And if you want to try and make some spectacular returns, you should take a look at the miners.
Let me explain why.
If a mining company is operating with All-In Sustaining Costs of $1,100 per ounce, then at the current gold price of [$1,324] they are making about $250 per ounce.
But if the gold price goes up to $1,700 per ounce – an increase of 26%, the miner’s profit could increase from $250 per ounce to $600 per ounce – an increase of 140%!
When investors find out that what they firmly believed isn’t so, they will flood into gold stocks, ultimately driving incredible gains.
The beaten-down and left-for-dead gold miners’ stocks are deeply undervalued today with gold still out of favour.
This is the only sector in all the stock markets likely to power much higher when everything else heads lower.
That’s why I believe great gold stocks are essential to own today. When the markets crash, gold stands to do very well indeed.
If you expect the bull market in stocks and bonds to end soon like I do, investing in gold miners’ stocks could be the best investment decision you make this year.
But don’t just take my word for it…
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