Gold has turned into a real barn-burner! The price of the yellow metal climbed above $1,450 on Friday, the highest level in six years! Miners are vaulting higher, too. And this leads many investors to ask, is it too late to ride this big, shiny bull?
No.
Make that, “hell, no!”
I’ll explain why. And how you can make the most of it.
Let’s start with a chart of gold’s breakout …
You can see that gold pushed above the overhead resistance that kept it in check for years. While gold zig-zagged back and forth in that narrow range, it built up what I call an “energy field.”
When these energy fields resolve, as we’re seeing now, the moves tend to come with great force. Busting out of a five-year energy field means gold could go higher than most people think possible.
Why? Well, we can point our fingers at the usual suspects: A supply squeeze due to lack of investment in new mines. Central banks buying the yellow metal hand-over-fist. The rise of Asia’s middle class.
But the main driver now, is the anticipation of negative real interest rates.
A negative real rate is when inflation is greater than the nominal interest rate. The Fed’s benchmark rate is now set at between 2.25% and 2.5%. The core U.S. Consumer Price Index in June was 2.1% year-over-year. That’s higher than estimates.
And now, the Fed is widely anticipated to cut its benchmark interest rate in just a matter of days. In fact, the market is increasing its bets that the Fed won’t just cut by 25 basis points, but 50 basis points.
The current effective Fed Funds rate is 2.41%. The market is ramping up bets that the Fed will cut rates to 1.99%.
Adding fuel to this policy bonfire is a comment by Fed policy-maker John Williams. On Thursday, he said the most-effective strategy for the Federal Reserve is to cut rates at the first sign of trouble. Investors are taking that as a hint that the central bank will cut by half a point at the July 30-31 policy meeting.
Now, I can tell you that if the market is anticipating this too much, then we’ll likely see gold pull back after that rate announcement. Miners will pull back, too.
And that brings me to the opportunity I talked about. It’s in gold miners.
Let’s look at one more chart. This one looks at price action in gold and the VanEck Vectors Gold Miners ETF (NYSE: GDX), the biggest gold miner ETF …
The black line is gold, and the blue line is gold miners. What this chart shows us is that gold is about 25% off the highs it hit in 2012. But the GDX is about 55% off the highs it hit in 2012.
Plain and simple: Gold miners are tremendously undervalued.
Sure, they’ve played catch-up in the last couple weeks. Not nearly enough, though. And the higher gold prices go, the more miners will have to catch up.
So, here’s what to do:
Wait for that next pullback. It may be around the Fed’s rate announcement; it may be something else.
Pick the companies you want to buy on a pullback. And when gold and miners pull back, buy them!
The GDX will underperform the best miners, but it should still do pretty well if you want to just buy that.
Or, you can roll up your sleeves and join us in Supercycle Investor, where we are sitting on a virtual, pardon the pun, gold mine of precious metals profits.
I’m talking about current open gains of 37.2%, 16.7%, 16.1%, 15.6% and 12.3%. And there are plenty more where those came from. Click here to see how you can get in on the action.
The bottom line is that, if you waited, yeah, you missed the early part of the rally. But there’s so much more to go.
All the best
Sean
