The sector is deeply out of favor…
It hasn’t taken part in this year’s rally in stocks…
Quite the contrary.
It’s at its lowest level relative to the S&P 500 in two years.
Why am I (Chris Lowe) shining the spotlight on an out-of-favor sector?
Because buying what’s out of favor – aka being a contrarian – is one of the best ways to make outsized returns as an investor.
Bill is my mentor and one of the cofounders of Legacy Research.
He writes a daily big-picture e-letter, Bill Bonner’s Diary. (Sign up for free here.)
And at the start of the new millennium, he urged his readers, “Sell stocks and buy gold.”
Gold sentiment was in the ditch. The metal had slid 65% over the previous 20 years.
Meanwhile, euphoria was gripping the stock market. The tech-heavy Nasdaq had ripped 2,486% higher over that same time. The sky was the limit, as far as most tech-stock investors were concerned.
But Bill’s contrarian instincts were spot-on…
From 2000 through 2009, gold was one of the top-performing asset classes, rising 288%.
Over the same time, the S&P 500 fell 24%. The Nasdaq dropped 44%.
So says master trader Jeff Clark.
Jeff is a longtime friend of Legacy Research. He’s also one of the sharpest traders I know.
He routinely posts gains in excess of 100% on his gold stock trades.
The setup Jeff currently sees is all in a chart he showed his readers earlier this week.
It’s of the performance of the VanEck Vectors Gold Miners ETF (GDX) relative to the S&P 500. This gives us a good proxy for how the gold mining sector is doing versus the broad stock market.
When the line on the chart is falling, it means the S&P 500 is outperforming gold mining stocks. When it’s rising, gold mining stocks are outperforming the S&P 500.
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GDX hasn’t being doing this poorly relative to the S&P 500 since May 2019.
And that’s great news for contrarians. Because it’s out of whack with what’s going on “underneath the hood.” Here’s Jeff with more…
Gold miners have spent the past few years shedding unproductive properties and paying down their debts. So their balance sheets are stronger than ever. And with gold trading near $1,800 an ounce, most gold stocks have strong earnings power.
That’s a sweet spot… when sentiment is in the ditch, but fundamentals are strong.
Dave is a geologist and international speculator.
Over his more than 20-year career, he’s dedicated himself to finding natural resources buried under the Earth’s surface.
He’s explored countries on each of the world’s populated continents… hunting for deposits of copper, gold, nickel, cobalt, and natural gas.
He’s also given our International Speculator readers the chance to make triple-digit gains on natural resource stocks… particularly gold mining stocks.
Gains on his gold miner recommendations include 158%, 277%, and even 997%.
So when Dave speaks on gold stocks, we prick up our ears. And he agrees with Jeff that gold miners are a great contrarian buy right now. Dave…
Gold miners are now at bearish extremes relative to the S&P 500. The only other time gold stocks even approached this level was in the late 1990s. That set up the massive gold bull market of the 2000s. So now is a great time to buy gold stocks.
Dave has been knocking it out of the park with his gold miner recommendations at our International Speculator advisory.
If you want access to those… and new buy alerts as Dave sends them out… go right here.
Your next best choice is a broad play on the gold mining sector by way of a low-cost exchange-traded fund (ETF).
Two good places to start your search are the VanEck Vectors Gold Miners ETF (GDX) and the VanEck Vectors Junior Gold Miners ETF (GDXJ).
Each holds a basket of global gold mining stocks. But there’s an important difference between the types of gold mining stocks they own…
GDX is focused on the larger companies that own and operate several mines. GDXJ holds stocks in smaller companies. These typically are exploring for new deposits or developing mines for larger companies.
They bounce around in price more than the stocks in GDX, which bounces around more than gold.
But as we spilled a lot of ink on last week, the higher the volatility, the higher the returns you can expect to earn as an investor.
And as Dave explained it in a recent conversation I had with him, he’s particularly excited about junior gold miners right now.
Most of the world’s gold companies are making a lot of money. They’re looking to grow by buying smaller companies. And these buyouts can be extremely profitable for shareholders of the company being bought out.
For more on this, catch up on my Q&A with Dave here.
Regards,
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Chris Lowe
July 28, 2021
Barcelona, Spain