Now’s the time to buy gold…
That’s the word from Daily editor Teeka Tiwari…
Most of the time, gold is an atrocious investment.
It pays no dividend. It has limited industrial uses. And it can go through long stretches of time where its price goes nowhere.
But under certain conditions, gold prices soar. And along with them, certain gold stocks explode even higher.
During gold’s last bull run from 2008–11, the three best-performing gold stocks were up as much as 23,673%, 20,250%, and 14,000%…
Today, we’re seeing a similar setup in gold to the one during the financial crisis.
So for the first time in more than 20 years, I’m going back into the gold market… and buying sizable quantities of gold for my personal account.
In today’s essay, I’ll share with you why Teeka’s pounding the table on gold – and more specifically, gold stocks.
Inflation Will Boost Gold Prices
Last month, President Trump signed into law a $2 trillion stimulus package to rescue the U.S. economy from the coronavirus pandemic. And the Federal Reserve may print twice that much to revive the financial system.
Plus, there’s an extra $390 billion from the U.K., $265 billion from the Bank of England, and another $800 billion from the European Central Bank.
That’s a total of over $7 trillion in direct and indirect stimulus.
They’re pumping new money into the global economy at an alarming rate – with no plans to remove it. And that’s the biggest danger.
As governments all around the globe add more and more paper money to the economy, each currency is worth less and less.
It’s simple supply and demand… the more you have of something, the less it’s worth.
Now, that’s where gold comes in…
You see, gold prices and gold stocks boom when central banks crank up their “printing presses.”
And it all has to do with something called real rates.
The real rate is the interest rate you receive on the 10-year government bond minus the current inflation rate. So if the bond pays 3% interest and inflation’s at 2%, it’d be 1%.
Here’s Teeka again…
As long as you’re earning a positive real yield, you’re maintaining and growing your purchasing power. But when real yields go negative, you’re no longer maintaining your purchasing power.
When real returns go negative (like they are now, globally), smart money flees bonds and paper money as they drop in value. Instead, they go for the protection of gold, which rises in value and offsets the losses from holding paper money.
That’s exactly what’s happening today.
Year-to-date, gold has gained nearly 9%, while major global currencies (excluding the U.S. dollar) have lost an average of nearly 8%.
When Gold Soars, Gold Stocks Do Even Better
As real rates have declined, gold prices have zoomed higher. Gold has risen as much as 26% since June 2019.
Just take a look at the chart below…
As you can see, it’s a pattern we’ve seen over the years…
For example, from 2008–11, real rates fell from 1.7% to -0.4%. Meanwhile, gold prices stormed 166% higher from its 2008 lows. And the average gold stock – as measured by the MVIS Global Junior Gold Miners Index – surged as much as 611% higher. But some outliers did even better…
From 2008–14, tiny companies like Northern Star Resources, Regis Resources, and Gold Road Resources went up as much as 23,673%, 8,729%, and 6,694%, respectively.
Just $1,000 into each would’ve made you as much as $237,730, $88,290, and $67,940, respectively.
So why do gold stocks perform so spectacularly during gold booms?
It all has to do with something called leverage.
Let’s say gold rises from $1,500 per ounce to $2,000. If you own physical gold, you’re up 33.3% at this point.
Now, let’s say it costs a gold miner $1,000 per ounce to mine the gold from the ground. At $1,500 per ounce, the miner is making $500 per ounce ($1,500 minus $1,000).
But if gold rises to $2,000, that miner is now making $1,000 per ounce. So a mere 33.3% increase in gold’s price leads to a 100% rise in operating profits.
That’s leverage at work. And that’s why high-quality mining stocks can skyrocket in a gold bull market.
The Perfect Setup for Gold Stocks
Remember, when the Fed and other central banks turn on their printing presses and real rates go negative… investors flee paper money and bonds… and flock to gold. And as gold surges, it’ll ignite a huge rally in gold stocks.
Teeka says this unique series of events doesn’t happen very often. But when it does, it can make you life-changing gains.
In our flagship Palm Beach Letter service, Teeka’s put together a report with three gold stocks he believes can go up 150–350% over the next 18 months. (Paid-up subscribers can read the issue here. If you’re not a subscriber, you can learn how to become one right here.)
If you want broad exposure to the next gold boom, consider the SPDR Gold Shares (GLD) exchange-traded fund. It’s tied to the price of gold and backed by gold secured in vaults around the world.
Managing Editor, Palm Beach Daily