The most important question of the year… “There aren’t many gold bugs left”… This hard money indicator says gold is cheap… In the mailbag: Does Doug Casey need to rethink his stance on drugs?…
To help guide your investments in the new year, we’ve been sitting down with our gurus across Legacy Research to pin down the threats and opportunities they see in 2019 and beyond.
We’ve sat down with Legacy Research cofounder Bill Bonner, master trader Jeff Clark, and Palm Beach Trader editor, Jason Bodner.
And today, we’re talking with colleague E.B. Tucker.
If you’re wondering whether now is a good time to buy gold, today’s Q&A is a must-read.
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He’s also one of the most knowledgeable guys on the gold market here at Legacy Research.
E.B. was a founding partner and managing director of an investment firm focused on gold and silver stocks. He also sits on the board of a gold royalty company. (Royalty companies invest in mining projects in return for a slice of their revenues.)
So when E.B. makes a big call on gold… it pays to listen.
Today, E.B. reveals his favorite gold market timing tool… and why it points to double- and even triple-digit gains from here. As you’ll see, the last three times this indicator said buy, gold rose 28%… 85%… and 171%.
But before we get to that, you may be wondering what our Roundtable series is all about.
Some events, of course, are unforeseeable.
But market cycles all share the same contours. They go from bull to bear… and back to bull again.
That means one of the most important things you can do to build wealth over time in the markets is to think about where we are in the market cycle.
The ruinous losses come from buying when the champagne corks are popping… only to ride the cycle all the way back down.
Instead, you want to buy what’s out of favor. As billionaire investor Warren Buffett put it, “You want to be fearful when others are greedy and greedy when others are fearful.”
Unfortunately, most investors struggle with this seemingly simple advice. They pile into the latest hot sector… after all the gains have been squeezed out of it. And they ignore investments when they’re selling at bargain prices.
Gold is one of those investments today. In fact, E.B. thinks gold is in the cycle’s “sweet spot”… And, on the flip side, he warns that there’s still more pain ahead for an investment that’s often compared to gold – bitcoin.
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Chris Lowe: You share a series of big-picture market predictions with your readers at the end of every year. Let’s start with why you think macro level thinking is important in the first place.
E.B. Tucker: Sure. Each December, my lead analyst, John Pangere, and I predict the direction of prices for stocks, oil, gold, real estate, cryptocurrencies, and so on. We’re looking at key markets that our readers will likely be invested in.
We don’t care about the exact price. That’s as useless as guessing the weight of a cow at the state fair. Nobody knows what price these things will be 12 months from now. We want to answer a simple question: Will prices be higher or lower by the end of the year?
This is one of the most valuable insights we can share with our subscribers. When one particular sector becomes the new hot market – it’s been tech and healthcare for most of this bull market – the stocks in that sector tend to do well. Even the worst-run companies in a hot sector benefit. A rising tide lifts all boats, as they say.
The same is true on the downside. Even if you’re an ace stock picker, a stock in an out-of-favor sector is going to flop if its sector goes out of fashion and slips into a bear market.
And the cycle continues. Focusing on buying when a forlorn sector or asset class is heading back into upswings… and staying away from those nearing downswings… is the key to building substantial wealth in the market over time.
Chris: Speaking of new hot markets… In your 2017 predictions, you called the top of the bitcoin bull market four days before it peaked. Before we dive into what’s going on with gold, let’s start there. Are you bullish or bearish on the world’s most popular crypto in 2019?
E.B.: John and I wrote an entire essay about bitcoin in December 2017. We warned that bitcoin was in a classic bubble. And we told our readers that if they owned bitcoin, they should sell at least enough to take their initial investment off the table.
Remember, it was peak bitcoin mania at the time. When we wrote that issue, bitcoin was up 1,700% so far for the year. But all bubbles eventually burst. And the 2017 bitcoin mania wasn’t an exception. It fell down to earth pretty hard in 2018… plunging 74% versus the dollar.
Chris: There are a lot of diehard crypto investors at Legacy Research. And some of the gains have been extraordinary. Even after all the ups and downs, Teeka Tiwari has open positions in his Palm Beach Confidential model portfolio that are up 839%… 1,574%… and 7,209%.
But it’s always great to hear the other side of the argument. What are the bulls missing, in your view?
E.B.: What I’m about to say may blow up your mailbag. [You can respond to E.B. at feedback@legacyresearch.com.]
There are a lot of very smart investors who believe in bitcoin, and who think it will head higher. But we think the bad news will continue in 2019… and that bitcoin’s price will go lower.
And it’s not just bitcoin. John and I believe cryptocurrencies as an investment trend are not going to rise in value. Period. As we told our readers in December, it’s essential to realize that bitcoin’s value has little to do with the coins themselves. The genius of cryptocurrency is the architecture behind the coins.
You’ve probably heard it called blockchain technology. This technology is separate from the actual coins.
IBM and Microsoft have blockchain projects in the works now. We speculate even the Fed will look to adopt the technology. This would make the dollar impossible to counterfeit, prevent tax evasion, and ultimately give the Fed total control of every dollar in circulation.
Chris: But isn’t bitcoin cheap now… after its big tumble last year?
E.B.: The problem is that bitcoin fails my “dogma test.”
You ask someone, “Have you ever, even for the briefest of moments, considered that you might be wrong?”
If you ask that to a gold bug right now – say, a guy like Bill Bonner – he’ll say, “Boy, I’ll tell you what. Maybe we were wrong.” With gold, it feels like everything has already gone wrong. Even the most diehard gold bugs are saying they may be wrong on gold.
That’s actually a good sign. Because when those guys are kind of ready to give up, you know you’re near a bottom.
Bitcoin is the opposite of that. If you make an even remotely critical comment about bitcoin on Twitter, you’ll have to change your account. You’ll be attacked. The level of belief is unreal.
You know to sell immediately when dogma takes over like that.
Chris: Let’s talk more about gold. You mentioned that gold sentiment is the exact opposite of where bitcoin sentiment was at its peak in 2017. What do you see ahead for gold in 2019? Will it be higher or lower by the end of the year?
E.B.: Well, like I say, gold fails the dogma test. There are not many gold bugs left. The ones who are still holding on are giving up hope. It’s seven years after the all-time peak for gold in 2011… and we’re still down 32%. That’s got to hurt.
It’s the same thing inside the gold industry. I’m on the board of a company that buys gold royalties. I can tell you firsthand that the state of the gold market is beyond dire. This is exactly the type of thing you typically see before a big rally.
Chris: Are there other factors that make you bullish on gold right now?
E.B.: The best indicator of a coming rally in the gold market is the gold-to-silver ratio. It measures the number of silver ounces it takes to buy one ounce of gold. In other words, it looks at the gold price relative to hard money silver, not a floating fiat currency like the dollar.
I’ll share with you a chart I showed my subscribers before Christmas. It shows that the average reading for the gold-silver ratio back to 2002 is 64. In December it hit 85 – a record high.
The extreme highs in this ratio – in 2003, 2009, and 2016 – signaled a major rally in gold and gold stocks within months.
Chris: What kind of figures are we talking about?
E.B.: From 2004 to 2006, after this ratio hit 80, gold rose 85%. From 2008 to 2011, gold rallied 171%. In 2016, it rose another 28%.
Gold stocks – as measured by the widely watched Philadelphia Stock Exchange Gold and Silver Index – did even better. From 2004 to 2006, gold stocks rose 116%. From 2008 to 2011, they shot up 256%. And they jumped 191% in 2016.
That’s three big moves higher for gold so far in the 21st century – or one bull market every six years. I believe we’re about due for the next one and it’s likely to be the biggest yet.
Chris: Thanks, E.B.
E.B.: My pleasure.
Chris here – We’ve spilled a good deal of ink on gold here at The Daily Cut. On August 27, 2018, we even told you to watch out for the coming bull market.
Gold is not only cheap and hated. It’s also in an uptrend. Since its low for 2018, set on August 16, it’s up 10%.
And if past peaks in the gold-to-silver ratio are predictive, like E.B. says, conditions are ripe for a powerful bull market in gold.
If you’re new to gold investing, E.B. says the best option is to buy physical gold. Here’s E.B. again…
Physical gold has limited downside and big upside from here. Not only that, it has also survived every major financial crisis in history. This makes it the ultimate safe-haven asset.
As a Daily Cut reader, you can learn the best ways to buy physical gold in this free special report: The Gold Investor’s Guide.
You’ll find details on the top four dealers E.B.’s team at Casey Research recommends. And you’ll learn why the Casey team thinks you should place 10-20% of your portfolio in gold bullion.
Plus, if you’re willing to bear more risk for higher upside, this guide even shows you the best way to buy gold stocks. As you’ll see, it comes down to three steps…
Read the guide for free here.
Legacy Research cofounder Doug Casey’s claims that ALL drugs should be legal kicked off a weeks-long debate. And it shows no signs of slowing down…
Today, reader Bill D.’s comment that “the position of total legalization of drugs is wrong” is fanning the flames…
Bill D’s position is correct. It is harmful to American society to legalize all drugs. People are not productive when they are taking drugs. And they are destroying their health. They are wasting precious time. It is better for our society if these people are instead being productive in some way.
There is an opportunity cost here. American society is obviously much better off if Americans are not hurting their health and wasting their time. Doug Casey needs to rethink his position to legalize all drugs. This position is unwise.
– Eugene G.
I believe that Doug Casey’s position on the legalization of all drugs is not well thought through. Leaving aside those who become addicted to painkillers, I believe that the reason most people use mind-altering drugs is to temporarily escape from their problems. Do the problems really go away? No, they are still there when the drug wears off. But with hard drugs, now there is a problem. The person becomes addicted. No longer is using the drug an option. It is a necessity. He/she will do anything to get the drug.
Unless Doug is recommending making all drugs free, there will still be those who can’t afford even the lower price at the local pharmacy. Why? Because their addiction has likely affected their ability to produce income. Many cannot even afford to feed themselves. So, the crime continues.
So, will legalization really reduce crime? Maybe, but not to a large degree. Doug’s solution does not address the real problem, which is why people need an escape to start with. The possible answers to that question are too numerous to mention, but that is at the root of the problem. I wish I could come up with a solution that would resolve this issue. I can’t, but I am convinced that making all drugs legal is certainly not it.
– Charles H.
I understand Bill D.’s fears, but, at the end of the day, I think that his argument is based on a false premise. Will America’s “hardworking and productive workforce” suffer in the short term as a result of legalization of all drugs? Maybe. But it takes willful blindness to not see that the worst damage inflicted by drug users is usually upon themselves. Let those who choose to bury their noses in substance abuse, rather than actually solve the problems in their lives, worry about the consequences themselves.
For all the religious fundamentalists who oppose drug legalization for its moral reasons: don’t worry. Extreme drug users will drag themselves and anyone foolish enough to join them to hell, regardless of the law of the land. For all the Darwinian cynics: never fear. Whatever gene it is that makes people cowardly, unproductive, and wasteful (at least with this specific medium), it’ll disappear along with those who overdose themselves as a result of having easier access to drugs.
Either way, it is apparent that drug legalization will, in fact, be the most efficient (and effective) path towards a human species that is that much more responsible with the substances it consumes. Why not seize the opportunity to profit from it as well?
– Frank S.
Do you agree with Eugene G. that Doug should rethink his view to legalize all drugs? Or will drug legalization help solve humanity’s substance abuse problems, like Frank S. says? Write us at feedback@legacyresearch.com.
Regards,
Chris Lowe
January 10, 2019
Lisbon, Portugal