We called the gold bull market last summer… This key ratio says it’s headed higher still… In the mailbag: “You keep the socialism, I love my freedom to choose”…
That’s the message I (Chris) had for you last summer.
Gold was going through a particularly bleak moment in terms of investor sentiment.
A month earlier, one of the largest fund managers in the world, The Vanguard Group, said it was shuttering its $2.3 billion precious-metals market fund.
And the mainstream press was full of stories about how investors had fallen out of love with the commodity.
Here’s what I wrote in the August 27 Daily Cut…
Today, we want to put an important market move on your radar – a turnaround in the gold market.
As we’ll show you, there are lots of contrarian signs pointing to a coming bull run in gold… and most folks are missing them.
And I drove home that bullish message on gold the next day.
I showed you how insider deals were running hot in the gold-mining industry while public investor sentiment was low – another telltale bullish sign.
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The S&P 500 is our regular stand-in for “the U.S. stock market.” It’s been flat since we put the brewing gold bull market on your radar.
But as this chart shows, gold is up 11%.
And gold stocks have done even better…
The VanEck Vectors Gold Miners ETF (GDX) tracks shares in 46 global companies involved in the gold mining business.
And it’s up 20% since we put the turnaround in gold on your radar.
As we’ll show you in today’s Cut, a key financial ratio says gold is going a lot higher… at least if history is any guide.
That’s the message from one of the most successful analysts in our industry – Palm Beach Research Group cofounder Tom Dyson.
Longtime readers will recognize the name. Tom is a legend in our industry.
Tom began his career in the City of London. He served on bond trading desks at Salomon Brothers and at Citibank.
He then went on to write one of the most popular advisories in America, the income-focused 12% Letter (published by our colleagues at Stansberry Research).
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For instance, in 2012, he put $25,000 into what was then an interesting new currency – bitcoin.
He walked away with $500,000 a year later, before most people even knew about it. (He’s the first to admit he sold too early.)
Tom calls these types of setups “asymmetric trades.” These are trades where the downside is limited, but the potential rewards are huge.
And now, he’s keyed in on another asymmetric trade…
As he said in a note he just sent into Legacy Research HQ in Delray Beach, Florida… this time it’s in gold.
I’m talking about the Dow-to-gold ratio.
It tells you how many ounces of gold it takes to buy the Dow shares. And according to Bill (one of our cofounders here at Legacy Research), it also tells you when to buy and sell gold.
Bill’s formula is simple…
When the ratio is above 15, it means gold is cheap relative to stocks. That’s when you want to be a buyer of gold and a seller of stocks.
When the ratio is below 5, it means stocks are cheap relative to gold. That’s when you want to sell your gold and buy stocks again.
Over the past 100 years, you would have made a total of six trades based on this strategy.
You can see them on the chart below. The trades are marked by arrows.
Let’s say you started in January 1918 with 10 ounces of gold, which cost $206.70 ($20.67 an ounce). If you followed Bill’s formula, you’d have ended up with $8.4 million a century later.
By contrast, a buy-and-hold investment in the Dow from 1918 to now would have yielded about half that amount – $4.3 million.
And if you’d just held your gold… and ignored the Dow-to-gold ratio… your 10 ounces of gold would now be worth just $12,310.
As he explained it over at Bill’s daily e-letter over the weekend, these moves take a long time to play out.
But when they fully express themselves, the payouts can be enormous.
And Tom isn’t just studying charts and writing about gold. He’s been betting big that gold will head higher. As he explained it…
It all started a few years ago. I was in Rwanda when I received a buyout from my previous employer.
First, I put 90% of my buyout fee into gold coins. I got a fantastic deal from leading coin merchant Van Simmons on beautiful, rare, pre-1933 coins trading for bullion prices. Cheaper-than-bullion prices, in fact. And I “buried” them…
And they will remain “buried” until the Dow-to-Gold ratio breaches 5 – which I expect to happen sometime in the next decade.
I took the remaining 10% of my buyout fee and bet it on the Dow-to-Gold ratio falling. I have total conviction in this idea. It’s almost entirely inspired by Bill’s work. But it is a trade that will play out over several years.
He’s a speculator with more than two decades of experience in the trenches.
He understands the risks. And he’s playing with money he can afford to lose.
But we do encourage you to get some exposure to higher gold prices… even if it’s just 1% to 2% of your portfolio.
For full details on how to buy gold… and gold stocks…. you can read up on our Gold Investor’s Guide for free here.
Gold isn’t the only form of money that’s making a comeback. Bitcoin just blew past the $9,000 mark.
Tomorrow, we’ll show you why it’s the start of the next big rally.
On Thursday we asked: Can socialized medicine ever work?
It’s one of the hottest debates in the Daily Cut mailbags these days, after reader David D. said socialized medicine is a win-win…
I think I finally get it, the win-win thing. Like free socialized medicine for everyone, that’s win-win… It’s a win for society, as governments, due to their size, are much better suited to negotiate better pricing and to keep costs under control.
Today, a U.S. veteran and a physician weigh in…
I’m one of many veterans that receives healthcare from the VA. If socialized medicine is so great – why can’t I see a doctor within 30 days? I served my country. So why are my friends and I spending so much money out of our pocket?
You keep the socialism… My civilian doctor treats me a lot better than any VA ever did. I love my freedom to choose… that’s why I spend so much money out of pocket and travel to get decent healthcare outside the VA.
– Dennis B.
Having been on both sides as a physician and as a patient, I can tell you with certainty that socialized medicine will never deliver the quality, availability, and latest best treatments that a free-market health care system can provide.
There is a caveat, though. What is presented as capitalist free-market medical care in the USA is far removed from what a free-market health care system could provide, if politicians and their crony cohorts were removed from the equation.
– Roy B.
While another reader turns back to another hot-button debate from last Thursday’s mailbag: Should all politicians get term limits?
Term limits, to me, should mean: out of government or lobbying. Move on and corruption will have to be fast or fleeting.
– John B.
If politicians and their cronies were removed from the U.S. healthcare system, could it provide far more, as Roy B. suggests? Or are we destined to spend tons of money for the freedom to choose? Write us at [email protected].
Regards,
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Chris Lowe
June 17, 2019
Lisbon, Portugal
IN CASE YOU MISSED IT…
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