Gold stages a comeback… Our advice to buy proved prescient… This “golden switch” has flipped in Beijing… In the mailbag: “We have become polluted, addicted, and insecure”…
As Legacy Research cofounder Bill Bonner likes to say, “If you do the same as everybody else, you’re going to get the same results as everyone else.”
You can’t beat the market if you’re doing what the market is doing all the time. The only way to get outsized gains is to go against the crowd from time to time.
And as we’ve been telling you for the past couple of months… now is the time to go against the crowd and buy gold.
Gold is down 35% from its peak in 2011.
And over the summer, we got pretty darn close to what contrarian investing legend Sir John Templeton called the point of “maximum pessimism” for the gold market.
That’s the point at which all the bad news gets priced into an investment… and the only way is up.
As we told you at the time, we saw a major sign of this in the fund management industry.
The Vanguard Group – which oversees more than $5 trillion in assets – had shuttered its flagship precious metals and mining fund because investors just weren’t interested in it anymore.
Meanwhile, mom-and-pop speculators – the kind who buy most at the bottom – had amassed the largest “short” position in gold since the price of gold bottomed in December 2015.
In other words, they were betting that gold prices would fall… which told us that the opposite would probably happen.
Since then, the S&P 500 is down 9%. And gold is up 3%.
And according to colleague E.B. Tucker, the contrarian case for gold is alive and well as we head into 2019.
If you don’t already know E.B., he heads up our Strategic Investor advisory. And he’s the perfect guy to talk to on the setup in gold right now.
He sits on the board of a gold royalty company. (Royalty companies invest in mining projects in return for a slice of their revenues.) He’s also one of the most contrarian investors we know.
E.B. likes nothing more than to buy quality assets that are beaten down in price. For instance, during the mortgage crisis, E.B. bought several rental homes. As he put it…
Nobody was buying real estate back then. Nobody had any money. I didn’t have much. Some people say I was smart to cobble together a portfolio of homes. At the time, I didn’t feel smart at all. I was actually terrified.
You see, when absolutely nobody is buying rental houses… when you’re the only buyer, you don’t feel smart. You actually stay up all night wondering if you’re the biggest idiot out there.
But E.B.’s investment paid off. Today, he rakes in 20% after paying all expenses.
At the end of 2017, amid the euphoria over bitcoin’s 1,251% rise that year, E.B. predicted that the cryptocurrency market would head lower in 2018.
And he pleaded with bitcoin holders to at least sell enough of their position to recoup their initial investment.
That was just four days before it hit its all-time high of $20,089. As we write, bitcoin sells for 83% less.
Just as extreme bullish sentiment in cryptocurrencies led to a market rout… the extreme bearish sentiment on gold right now is setting up the market for a major rally. E.B…
Dogma is when you believe something is true, no matter what. To test for dogma, ask an investor who has conviction about his idea, “Have you ever, even for the briefest moment, considered you may be wrong?”
If the answer is, “Absolutely not!” you know to sell immediately, because dogma has overpowered rational decision making. We’ve seen this all year with bitcoin investors, who believe nothing is wrong with the digital currency despite it crashing over 80% this year.
Gold passes the dogma test that bitcoin fails. There are not many gold bugs left. If you find one, ask him if he has considered that he might be wrong about gold. I bet he’ll say, “Yes, everything has gone wrong.”
This test may seem overly simple. But it’s exactly the kind of insight into investor sentiment extremes that helped E.B. make spot-on calls on real estate back in 2009 and bitcoin in 2017.
In fact, as he told Casey Daily Dispatch readers yesterday, he sees gold prices rising as much as 22% next year.
As our globe-trotting geologist Dave Forest told us, the Chinese government smells a bargain in the gold sector, too.
After having had the money spigots switched off for nearly a decade, it’s starting to pour money into new gold mining projects.
Here’s Dave, who heads up our International Speculator advisory, with more…
I was in Hong Kong at the end of last month to look for financing for a gold mining project I’m working on in Brazil. And I can tell you that the Chinese government is investing heavily in gold mining projects right now.
There was a period in the mid 2000s when this happened before. And there was a massive overflow of billions of dollars of money into resource projects around the world. It stopped in 2011 or 2012, right about when the gold market peaked.
But now, Dave says the Chinese funding bonanza is back…
In one of the first meetings that we had in Hong Kong the guy goes, “Oh, we really like this project. Can we buy it from you?” I said it’s quite early stage. Maybe you want to wait. He goes, “No, we like it. We want to buy it.”
The same thing happened in another meeting. The guy said, “We really like your project. How much do you want for it?”
These guys sense that gold is cheap at current prices. And they have a good track record of calling upturns in the market. The last big Chinese funding round was 2004 or 2005, which was when the last cycle was just getting started.
E.B. and Dave see higher gold prices ahead. They’ve positioned their readers to profit as we head into 2019. And we recommend you follow suit.
If you’re interested in adding some gold exposure to your portfolio, remember to check out The Gold Book.
It’s 48 pages filled with everything you need to get started as a gold investor – including a four-step checklist for buying the right coins… flexible storage options… and what to look for in a gold stock.
As a Daily Cut reader, you can access it for free here.
Switching gears, your fellow readers turn to liberty, the Nanny State, and the hot-button topic of pot legalization…
I really had to smile when reading your lines “Or is there no room for regulation in a truly free society?” Especially the term “a truly free society.” Obviously, we are very far from that. Do you have the choice not to use a bank? Not to pay taxes? Not to use the internet? Not to insure? Not to lock your car?
We are very unfree. Our “human nature” has been compromised and is not what it should be anymore. We have become polluted, addicted, and insecure, constantly trying to fill our emotional “holes” with external impulses: physical pleasure, exciting substances, and entertainment (read: sex, drugs, and rock and roll).
– Hubert N.
The government is here to defend our natural rights. The people on the Left and the Right who believe government is here to be our mommy and daddy are the reason for our lack of liberty and the reason we will devolve into tyranny. Some people only oppose the Nanny State when it isn’t being a nanny for their own personal pet viewpoint.
– John N.
The U.S. government should not legalize marijuana because they don’t have the constitutional authority to do so. They should decriminalize it (correct their past overstepping). However, I fear that they have forgotten (or choose to ignore) the limitations of their powers placed on them by our Constitution.
– Terry H.
Do the feds have the right to legalize pot? Does it risk us devolving into tyranny? Write us at [email protected].
December 11, 2018