Gold has been a popular topic with your fellow readers… Especially after Daily Cut editor Chris Lowe revealed industry insider E.B. Tucker’s favorite way to profit from the precious metal. (Catch up here if you missed it.)
So in today’s mailbag, our top mining expert, Dave Forest, answers some more questions about different types of gold stocks…
Reader question: Hi, I just read Chris Lowe’s article about gold miners and ETFs as possible investments. How do gold and silver streamers compare?
– Larry Z. (Legacy Research member)
Reader question: I have a question about gold. I have some physical gold, but also a lot in precious metals mutual funds (OPGSX and USAGX). During the 2008 crash, I recall these funds being sucked down with all the other stocks. They were high prior to the crash and recovered nicely. Is this still a safe way to invest in gold?
– Christopher L.
Dave’s answer: First, let’s clear up what a streaming company is. Then I’ll give you my thoughts on them as an investment. And I’ll address mutual funds, as well.
Streaming companies are relatively new firms, and not all investors know about them.
A streaming company gives money to mining companies to build new mines. In exchange, the streaming company gets the right to buy metals like gold from those mines, at a discounted price. The streaming company might pay $500 to buy an ounce of gold, even if the spot price is $1,500 per ounce, like it is today.
The streaming company can then resell the gold at spot prices. In my example, the streamer would get an instant $1,000 profit on every ounce (buy at $500 and sell at $1,500).
Streaming companies have a big advantage over normal mining companies… They’re not exposed to cost hikes.
A miner might see its mining costs go up because fuel got more expensive, or workers demanded higher salaries. Maybe it used to pay $400 to mine an ounce of gold, and now it costs $600 per ounce. So its profit margin drops.
A streaming company, on the other hand, is completely insulated from such cost hikes. Whatever happens, however much the miner pays to mine, the streaming company gets to buy gold at $500 (or whatever the set price is).
Streaming companies are thus less risky than miners. And they benefit if gold prices go up. So they’re a useful way for investors to get exposure to the gold market.
They’re especially attractive to passive investors, who don’t want to worry about all the problems potentially associated with running a mining operation.
These stocks have done well with the recent $200 jump in the gold price. Streamers like Sandstorm rose as much as 35%. These larger companies are now consolidating those gains, and I expect they’ll take a breather for the next few months.
I’m not familiar with the mutual funds you mention, Christopher – so it’s a bit hard to comment specifically.
In general, all gold-linked investments did very well in the wake of the 2008 crash. They initially dove with everything else, but they recovered those losses in a matter of months – and then went on to significant gains. So in short, yes, I think gold mutual funds would be fine for investing if you’re worried about a crash.
In the short to medium term, junior gold exploration stocks are a better bet. Those tiny stocks tend to enjoy a delayed rise, a little after physical gold prices move up. That “wave” is still coming, and I’m positioning in the juniors ahead of it.
But in the long term, all of these gold stocks are good spots to be in.
The wider stock market is rolling over, financial markets are strained, and the Fed is injecting hundreds of billions of dollars daily to keep them afloat. We don’t know for sure if a crash is coming, or exactly when another 2008 crisis might hit – but why make yourself worry about it?
Put a small amount of your portfolio in an investment like gold that goes up when the stock market goes down. Then, rest easy knowing you’ve got “catastrophe insurance” that will pay your bills even if the worst case happens and big stocks melt down.
You might even make a tidy profit in the meantime. Remember, gold stocks as a group gained 62.5% in the year leading up to the 2008 crash. Some junior mining stocks did even better. And the whole gold complex roared up over 180% after the crash.
To get ready for the next big gold rally, Dave enlisted some unexpected help… a NASA satellite that’s helped him discover huge, hidden gold deposits. And he’s already booked gains of 175%… 219%… and even 5,250% using this technology.
Go here to learn all about it… and to see the three stocks his NASA satellite is pinpointing right now.
Next up in the mailbag… a multipart question about gold, dollars, and real estate.
Since E.B. Tucker is my “go-to” guy for anything real estate… and he’s also an expert on gold… I turned to him for some answers…
Reader question: What do you think will happen to rental real estate if Trump decides to put the U.S. dollar on the gold standard?
If China’s and Europe’s economies collapse, the dollar will get stronger in the short term… What will that mean for us in the USA?
– Paul G.
E.B.’s answer: A “gold standard” would be incredibly deflationary in the short run.
We’ve been on an untethered paper money system for half a century. More credit fixes every problem in our current system. And a lot of that new credit finds its way into real estate.
Tying money to gold in theory means the central bank would have to find more gold each time it wanted to create more credit.
That said, if you survived the revaluation to sound money, rental real estate would be a great asset to own because you’d provide a basic human necessity… a roof.
As for your second question, I’m not sure the dollar would benefit from the collapse of the EU and China.
Total world GDP should come in at roughly $88 trillion this year. The U.S. is about 24% of that. China and the EU are around a combined 40%.
If 40% of the world’s economy chokes… grab something to hold on to.
Yes, there would be demand for dollars as chaos ensued. However, I’d prefer to wait out this hypothetical event holding physical gold.
I hope that helps.
Moving on, a question about holding periods for our Wall Street insider and Palm Beach Trader editor – Jason Bodner.
Reader question: Is your system geared only for a sweet-spot holding period of nine months, or can your recommendations be held for over a year? I’d much prefer the tax treatment of long-term capital gains. Thanks for your help with this, and I think you’re doing a great job!
– Ken W. (Legacy Research member)
Jason’s answer: Hi, Ken. And thanks so much for writing in! First, let me say that I can’t give tax advice. So for your specific situation, I recommend you contact your accountant or tax professional.
In an ideal world, I’d never sell. The best stocks tend to keep winning year after year. But even the monster winners have to pause for a breath every now and then.
Now, my system has found that nine months is our “sweet spot.” Yet it all boils down to whether the expectations are shorter-term or longer-term. For traders with a more short-term outlook, our sweet spot balances return and risk the best. But more patient investors with a long-term outlook can handle more volatility and runway for growth.
Last up in today’s mailbag… Jeff Brown shows us once again just how deep his technology expertise runs.
Jeff often gets questions – like the one below – about tech topics beyond what he covers in his regular publications… But I’ve yet to see him stumped by any of them. And this time is no different…
Reader question: Hi, Jeff. I follow all of your publications. Your work is truly amazing. So I’ll start with a big thank you!
In The Bleeding Edge, you reported about lithium batteries and the future of Tesla’s batteries. My question is: What about solid-state batteries? Are they not bound to replace lithium batteries in the short term? What is your take on that?
– Adrien F. (Legacy Research member)
Jeff’s answer: Adrien, thanks for being such a dedicated reader. I’m always happy to hear from subscribers who are benefiting.
Battery technology is one of my hot topics… and more specifically, one of the things that I am frustrated about. Very few technologies have shown less improvement over the last three decades than batteries.
Considering the incredible developments over the last 30 years, we still seem stuck with the same basic lithium-ion (Li-ion) battery design.
Yes, solid-state batteries are amazing. They use a solid electrolyte between the anode and cathode (the negative and positive sides of a battery). The resulting battery is capable of higher energy density.
It is safe, can’t catch fire, has a longer life cycle, deals with heat better, charges faster, and can even be smaller compared to an equivalent Li-ion battery.
So why hasn’t the industry switched over to solid-state batteries? Why isn’t it replacing Li-ion batteries?
Simple. Solid-state batteries are ridiculously difficult and expensive to manufacture. They are nowhere near being competitive on an adjusted price point with what Li-ion provides today.
We are going to need some major breakthroughs in design and manufacturing before this shift happens.
That’s all for this week.
Be sure to tune back in next week as Bonner-Denning Letter coauthor Dan Denning addresses a reader question that just came in about the U.S. dollar being replaced on December 31.
Until then… have a nice weekend.
Regards,
 |
James Wells
Director
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