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January
29
2019

How to Position Yourself for the Coming Gold Rally
Nick Rokke

Justin’s note: As regular readers know, owning physical gold for the long term is one of our core recommendations here at Casey Research. It’s real money, a safe-haven asset, and a way to protect your wealth.

Casey gold experts Dave Forest and E.B. Tucker both see gold prices ripping higher in 2019. And so do our friends over at Palm Beach Research Group.

Today, I’m passing along a recent essay from Palm Beach Daily analyst Nick Rokke that reveals more details on the coming rally. Not only that, you’ll find out how you can capitalize on this trend. Read on to learn more…

“Monster Gold-Mining Deals Pile Pressure on Those Left Behind.”

The January 14 Bloomberg headline above might not seem like much to you right away – but it immediately caught my attention.

Here’s why…

When an industry consolidates, investors can make a lot of money. Consolidation means buyouts – which usually come at a premium… And premiums boost stock prices higher. [For example, see my January 15 essay on mergers in the biotech sector.]

But that’s not the only reason the headline caught my attention. Mergers among mining companies are signaling a shift in the gold market, too.

Regular readers know that we at The Palm Beach Daily recommend holding a small percentage (5-10%) of chaos hedges like gold in your portfolio. These assets provide insurance in times of crisis. But under the right conditions, they can also boost your wealth.

In today’s essay, I’ll tell you why 2019 is shaping up to be a year in which holding gold will start to pay off.

Merger Mania

Over the past six months, the gold mining industry has seen two megamergers.

In September 2018, Barrick Gold bought competitor Randgold Resources for $6 billion. The merger made Barrick the largest gold mining company in the world… But that title won’t last long.

Two weeks ago, Newmont Mining announced it would buy rival Goldcorp for $10 billion. If the deal goes through, Newmont will unseat Barrick as the world’s biggest gold miner.

Expect this wave of consolidation to continue. According to Goldcorp CEO David Garofalo:

Both Barrick and Newmont Goldcorp still represent only six or seven percent of global mine supply, so it’s still a very fragmented industry and I think investors are rightfully demanding that there’s a bit more consolidation. 

And miners aren’t just merging because the industry is fragmented. They’re merging because it’s also necessary for their survival. That’s why the pressure is on for them to join forces.

Gold Supply Is Drying Up

Over the past seven years, we’ve seen a massive bear market in gold. As you can see in the chart below, gold is down $600 from its peak in September 2011…

Due to lower prices, miners have had to tighten their budgets. And in tough times, one of the first budget items to go is exploration. After all, if gold isn’t profitable, why look for it?

It hasn’t just been gold miners cutting back, either. Metals miners across the board have done so as well.

Capital spending is projected to be less than half of what it was at its peak in 2012. And smaller exploration budgets mean miners are finding fewer new deposits. On top of that, the new deposits aren’t as good as old ones.

In a recent private correspondence, Energold Drilling CFO Jerry Huang told me, “Mine grades and life are dwindling.”

He’d know… His company does the drilling for exploration teams.

Adding to the supply crunch are production costs. Over the past 15 years, they’ve skyrocketed about 300% for major gold companies.

For example, Barrick had an average production cost of $300 per ounce in 2004. Ten years later, it rose to $800. And Newmont’s production costs jumped from $278 per ounce in 2004 to $922 last year.

Lower gold prices combined with higher productions costs mean one thing: dwindling supply. That’s good for gold prices – and gold investors…

“The Cure for Low Prices Is Low Prices”

It’s a common saying amongst commodity investors.

When prices are low, miners aren’t making money. So they stop exploring new mines. The lack of supply creates scarcity. But scarcity eventually pushes prices back up.

That’s why miners are merging. They’re desperate for profits and hoping they can make up for lower profitability by increasing scale. But that’s a short-term solution.

Still, the long-term outlook for gold is positive. As gold becomes scarcer, prices will eventually rebound.

Now, it could take a couple years for this trend to play out. But when it finally does, we’ll see gold rise over 50% and reach new all-time highs.

The key is to get positioned now, before the move higher.

To capitalize on this trend, I recommend buying some physical gold… or shares of the SPDR Gold Shares ETF (GLD), which tracks the price of gold.

Regards,

Nick Rokke
Analyst, The Palm Beach Daily

Justin’s note: Of course, you’ll need to own the “best of breed” gold stocks to pocket the biggest gains during the next gold bull market. Unfortunately, most investors don’t know where to find those. They can’t tell the difference between a world-class miner and a crummy one.

That’s where we can help…

At Casey Research, we have an advisory dedicated to small mining stocks with massive upside potential called International Speculator. And editor Dave Forest has found the highest-potential gold stocks today. They’re primed to rip higher when the gold market rebounds.

If you’re a gold bull like us, you can’t afford to sit on the sidelines. You can sign up for Dave’s International Speculator letter – and see his newest money-making idea – by going here.

Nick Rokke is the lead analyst for The Palm Beach Daily. Nick has been captivated with the stock market since the age of 14, when he made his first investment in Intel. In one day, Intel went up 10%, earning Nick $50 (big money for a kid at the time). Since then, he’s been hooked.

 

 

 

www.palmbeachgroup.com