Today’s letter is an important one.
Since I bought my first physical gold ounce and first silver rounds, I’ve come to realize that investors do not have the right understanding as to how precious metals fit into a portfolio.
We’ve been receiving many emails from you regarding our thoughts about why certain resource stocks are falling while their commodity prices are rising.
This year, for example, we’ve seen gold gaining 11% while the juniors are trading at 52-week lows.
For nearly a decade, the gold/mining shares have basically kept increasing.
In other words, gold (the metal) is performing better than the mining companies who explore, develop, and mine it.
The reason is because mining is a tough business, and gold is becoming next to impossible to discover.
The sector already went through a tornado between 2011 and January 2016.
It is now 16 months into another bear market, which started in August 2016.
Mining shares are in bear mode, but gold isn’t. Management teams are burning cash, making mistakes, and costing shareholders a fortune. Honestly, I only trust 4-5 people to handle my money, and I only bet on them.
The cycle that determines their trajectory is governed by the appetite for risk coming from big-money fund managers.
In 2016, between January and August, when they peaked, gold stocks saw buyers like the central banks of Switzerland and Norway, along with many reputable billionaire investors and pension funds.
They get into these shares when three things occur:
- The behemoths of the industry, such as Barrick and Newmont, make acquisitions, grow their margins, and pay out dividends.
- Operational costs are under control.
- Traditional stocks are risky.
In 2016, for example, the sector rallied when the S&P 500 was tanking, as was the case in the Dotcom days.
Right now, being a traditional investor is easy because everything is working.
For the first time in over a century, the Dow Jones has reached four 1,000-point marks in a single year.
That is one factor that makes mining shares completely hated and ignored at the moment.
Secondly, the large-caps aren’t fast to pull the trigger when it comes to takeovers.
Now, I want to go back to the original issue with gold investors: expectations.
Physical gold and silver aren’t mechanisms by which investors become rich. It would take a disaster of epic proportions for precious metals to rule the day like they are in Venezuela or Zimbabwe.
Gold will get you plenty of real estate in these countries, but who would want to live there?
In other words, gold only makes you rich when calamity strikes and others are unprepared.
Gold stocks, however, are wealth mechanisms, but they’re extremely sophisticated ones.
This was one of my biggest personal winners in the 2016 rally, for example.
A 616% return can take traditional investors close to 20 years – not 9 months. That’s the power of this asset class, but when it’s suffering, it is brutal.
As you sit down and recalibrate for 2018, reconcile in your mind that physical gold and silver are catastrophe hedges.
You buy them, store them, and they retain value and purchasing power over long periods of time, almost without fail.
If you want to see serious gains, you must act like the anaconda, which waits all day for one big prey, conserves its energy, and disregards the innumerable distractions.
Gold prices will keep rising next year because in 2019, supply will peak – it’s a known fact.
The big question is whether or not the stock market will peak as well. If it does, the more shares you bought cheaply, the bigger your profits from mining shares will potentially be as the multi-year trend reverses from tech to hard assets.
Portfolio Wealth Global will be publishing data in the following manner in light of all the above:
- The most explosive sectors right now are blockchain tech and cannabis. Our main focus is on those right now.
- The cheapest sector right now is natural resources, and what we’ll do is show you which companies are the world’s most undervalued ones.
I personally plan to invest and wait. I’ve been early, even by 2 years, to the cobalt boom this year. I began accumulating shares in 2015. The earlier you are, the bigger your position could become over time.
Being early is awkward, painful, embarrassing, and it shakes your confidence, but it sure beats being one day late.