Volatility took a bit of a breather this week, as the stock market ticked up four out of five days.
But more brinksmanship in the US/China trade war, not to mention a Twitter battle about rate cuts, left investors with a general feeling of uncertainty. And that meant one thing…
Gold – the ultimate safe haven asset – was the most popular topic in this week’s mailbag.
So get ready for an (almost) all gold edition of The Daily Cut mailbag…
Reader question: In the uncertain economic and stock market we are in right now, I keep hearing about the value of investing in gold. I’d love to know more, but my early research shows there are so many pitfalls to investing in it that I’m very wary.
Can you provide guidance on whether it’s really a good thing to invest in, how to invest in gold, what kind(s) to buy, what companies to do it through, and whether to keep it yourself or have it stored? I would really appreciate this information.
– Ellen M. (Legacy Research member)
There are so many ways to invest in gold, it’s easy to get overwhelmed.
Is it best to buy physical gold in the form of bullion, jewelry, or something else?
Or what about gold certificates?
And then there are gold stocks. But what’s better… miners, explorers, royalty streamers, or prospect generators?
Luckily, the expert resource investors on Doug Casey’s team put together a comprehensive Gold Investors’ Guide. Whether you’re a long-term gold bug or a first-time gold investor, I urge you to read it cover to cover. We’ve unlocked it for Daily Cut readers.
You should also read the Wednesday and Thursday issues of The Daily Cut:
Sticking with gold… our next Q&A focuses on International Speculator’s “must-own” gold stocks. Editor Dave Forest supplies the answer:
Reader question: As a new subscriber, I see a lot of companies within the portfolio and really don’t know where to start. In order to take advantage of the increased price in gold, could Dave please provide a list of three or four gold company “strong buys” or “top picks” that should be in every subscriber portfolio?
– Jose P. (Legacy Research member)
Dave’s answer: Great question for all our gold investors out there. First, it’s worth noting we’ve recently lost one of our top gold stocks… in a good way. Atlantic Gold (AGB.V) was bought out by St. Barbara, giving us a 219% gain on this Canadian gold miner. But we’ve got lots of other arrows in the quiver.
The top two that are still in buy range are Liberty Gold (LGD.TO) up to C$0.67 and Renaissance Gold (REN.V) up to C$0.36.
Liberty holds projects in excellent mining destinations including Nevada, Utah and Idaho. These are proven gold mining areas, where Liberty’s crack geological team is finding more gold – below and beside historic pits.
Renaissance is a partner with major miner AngloGold in what appears to be the industry’s newest gold discovery, in Nevada. Anglo themselves have been tight-lipped about the find. But we were on the ground recently, and sources told us the company has drilled over an incredible 3-kilometer length, indicating they’ve found something huge.
All our readers should have these two companies in their portfolios.
Next up in today’s gold-heavy mailbag… one reader questions Bill Bonner’s claim that gold is real money. And Dan Denning, Bill’s coauthor on The Bonner-Denning Letter, provides the answer…
Reader question: Bill, when I hear you touting gold as real money, I cringe. To me whatever serves as medium to buy real goods or services is real money. Yes, even the fiat dollar is real money as long as it can buy such goods and services or even other currencies competitively, which as of today it does.
Gold responds to fear and greed, which makes its value fluctuate sometimes dramatically. But to measure real wealth, you need a medium that remains constant as only time is.
The dollar is strong relative to other global currencies, meaning global economies trust its safety as they see our economy stronger and interest rates high relative to their own. Money, as you know, flows to where it’s treated best. Much goes into the treasury bond market, driving prices up and rates down. The key word is “relatively.”
– Erich K. (Legacy Research member)
Dan’s answer: Great note! Thanks. I’ll take the liberty of speaking for Bill since we’ve been sitting at the same table in a small office for the last two weeks, talking about this very subject. We don’t disagree as much as you think!
You said that “to measure real wealth you need a medium that remains constant as only time is.” Spot on!
That medium is gold. It has been for thousands of years. Bill calls it “vernacular money” in his new book, Win-Win or Lose. It’s a way of saying that we should trust money that the past has trusted based on what worked for people.
Gold works as a store of value. But as you point out, money has at least two other functions. It acts as a medium of exchange and a unit of account (in commercial transactions). For a long time – up until the 15th and 16th century – gold coins were used as a medium of exchange (everyday transactions big and small).
But claims on gold – goldsmith’s notes – replaced circulating coins in the 17th and 18th centuries. Gold became almost too valuable to use every day. Most paper money was “backed” by a real asset “that remains constant as only time is” (gold and silver).
We just updated our asset allocation strategy in The Bonner-Denning Letter to reflect the move in dollar-denominated assets (which as you point out, is partly driven by US government bonds having some of the only positive nominal yields left in the government bond world… although in “real terms” – adjusted for inflation – US yields are negative, too).
You might be surprised that we have a large allocation to cash (it’s second only to our allocation to tangible assets and precious metals). Cash is liquidity… and more importantly… we believe it will become more valuable during a big deflation in financial asset prices (a crash).
Bonds might do quite well in the short term, too, by the way, either as a “flight to safety” or a chase for the last positive government bond yields on the planet (30-year bonds and 90-day T-Bills). But we don’t think the risk – that the second largest bond bubble of the last 700 years is about to pop – is worth the reward (whatever upside is left).
In a secular bear market – or even worse, in a kind of mean-reverting crash in the value of financial assets – you own gold because it is the best store of value on the planet. Nothing else comes close.
And for our last Q&A on gold… master trader Jeff Clark breaks down the technical setup.
Reader question: Wonder what Mr. Clark’s view on gold is today. Last week or the week before he talked about the COT [Commitments of Traders report] on gold and said he was thinking of going short on gold like the smart money was. Is he still thinking that way? Thanks.
– Jeff M. (Legacy Research member)
Jeff’s answer: We’re getting some weakness in the gold sector. If it continues then the bullish percent index for the gold sector (BPGDM) is likely to turn lower from the current overbought level. That would generate an intermediate-term sell signal for the gold stocks.
It has not been a successful strategy to try to short the sector so far. But I think aggressive traders should consider having some mild exposure to the short side of gold.
Ultimately, I think the gold sector heads even higher from here over the longer term. Traders can look to use any pullbacks as buying opportunities. And, in the short term, we’re way overdue for a pullback or a shakeout.
Next up in the mailbag, we diverge from gold… but not too far.
We go back to International Speculator editor Dave Forest, who fields a question about another popular resource investment.
Reader question: Hello David Forest.
Uranium stocks are all down, especially in the last two weeks. The original premise on these stocks has been that the lights will go out if uranium prices don’t rise.
I would love to hear your view on uranium’s difficult year, and if it is time to bail? Thanks for any insight, regards.
– Jack N. (Legacy Research member)
Dave’s answer: The original thesis on uranium still holds. My Casey Cost Curve analysis shows that almost no uranium mines globally are making money at current prices. This is evidenced by recent shutdowns of major uranium mines in even the lowest-cost mining camps, like Canada and Kazakhstan.
When prices sag below the cost curve, it’s one of the surest signs that a price rebound must come. It can take time for supply-and-demand dynamics to work themselves through the system – but given the fundamentals, I’m happy to wait and hold my current positions in uranium.
That’s all for now.
Have a nice weekend. And safe wishes to all my fellow Floridians… and anyone else who finds themselves in Hurricane Dorian’s path.
Regards,
 |
James Wells
Director
P.S. I had a call last week with Anthony Scaramucci – the keynote speaker at next month’s Legacy Investment Summit. And he told me he’s going to talk about “the state of the economy, the election, and observations on the future.”
I can’t wait to hear him…
And there’s still a little bit of time left for you to hear him, too… Secure your physical or virtual ticket right here.