This rare alignment could see gold rocket

Monday, 16 September 2019
Adelaide, Australia
By Bernd Struben

  • It’s not too late to jump in
  • Playing with fire

There are three main drivers of the gold price. One is just good old fashioned supply and demand, one is geopolitics and safe harbour concerns, and the other one has to do with interest rates and in particular negative real rates.

Today, all three of them are pointing towards higher gold prices at the same time.’

Global strategist, Jim Rickards

I hope by now you’ve had a chance to watch the ‘2019 Gold Mania Summit’.

If so, you’ll recognise the opening quote above. And you’ll know why Jim Rickards and Aussie gold analyst Shae Russell are convinced we’re about to enter a third gold mania phase. The first running from 1971–1980, and the second from 2000–2008.

If they’re right, we should see gold hit US$1,600–1,650 per ounce heading into 2020. But that’s nothing compared to the price rise they forecast over the next three to five years.

As a reminder, the ‘2019 Gold Mania Summit’ is brought to us by our friends over at AFAU. Hosted by publisher James Woodburn, it was first broadcast Friday afternoon. But it will remain available to view until tomorrow at midnight. As a paying subscriber to one of our advisory services, you can still tune in for free. If you haven’t watched already — or you want to review some key points — simply click here.

I had a sneak preview before it went out on Friday. One of the perks of the job. It’s packed with useful insights and some great charts. This is one of my favourites:



chart image
Sources: Bloomberg, 2019 Gold Mania Summit
Click to enlarge

In case you haven’t watched it yet, let me explain what you’re looking at.

This is a chart Shae Russell put together. It shows how an investment in select stocks within a certain asset class outperformed gold’s massive run up in the 2000s by a factor of 37 times. And this was during the second gold mania phase, when bullion gained more than 700% in 11 years.

Investors who got into the right stocks had the potential to turn a $1,000 stake into $38,000 in just six years.

I don’t have to tell you that going after these types of explosive gains comes with a fair amount of risk. In this case, that’s because the stocks in question here are microcap gold stocks. While they can see massive, rapid share price gains if they succeed, they can also head sharply lower on a hint of bad news.

Now, like the big producers, the share price of these tiny explorers is leveraged to the gold price. Meaning when the price of gold goes up 10%, the price of the miners tends to go up significantly more.

Unlike the big producers, though, these microcap gold stocks have the potential to deliver far more explosive growth. All it takes is one big strike for them to become takeover targets and send the share price soaring.

With gold marching higher and new technology enabling superior extraction techniques and improving surveying success, the story for microcap gold stocks looks good. In fact, it hasn’t looked this good since the last gold mania phase wound down.

But as Jim reminds us in the ‘2019 Gold Mania Summit’, you can’t just invest in any old gold stocks:

Miners come in all shapes and sizes – from penny stocks to the majors. So, picking your trade is critical.

The big differentiator is often management. That’s where Shae spends a lot of time, and it’s why [you] need to pay very close attention to the opportunity Shae is about to share...’

That opportunity involves five microcap gold stocks Shae believes could deliver 37…or more…times the gains of the price of gold as bullion’s bull run picks up pace.

And these aren’t any old gold stocks. Like Jim says, picking your trade is critical.

To drill down to the most promising tiny miners Shae uses something called the N.I.T.R.I.C test.

What’s that?

Shae explains it all in the ‘2019 Gold Mania Summit’. You can watch that by clicking here.

Now, a look at the markets…

Markets

Over the weekend, the Dow Jones Industrial Average closed up 37.07 points, or 0.14%.

The S&P 500 closed down 22.18 points, or 0.07%.

In Europe the Euro Stoxx 50 index closed up 11.25 points, or 0.32%. Meanwhile, the FTSE 100 gained 0.31% and Germany’s DAX closed up 58.28 points, or 0.47%.

In Asian markets Japan’s Nikkei 225 is closed for the Respect for the Aged Day holiday. China’s CSI 300 is down 0.31%.

In Australia, the S&P/ASX 200 is up 5.92 points, or 0.09%.

West Texas Intermediate crude oil is US$61.17 per barrel. Brent crude is US$68.21 per barrel. That puts WTI up 11.2% since I wrote to you on Friday. And we, allegedly, have the Iranians to thank. (More on that below…)

Turning to gold, the yellow metal is trading for US$1,510.36 (AU$2,196.56) per troy ounce. Silver is US$17.79 (AU$25.87) per troy ounce.

One bitcoin is worth US$10,309.65.

The Aussie dollar is worth 68.76 US cents.

It’s not too late to jump in

Staying with gold, you may have heard that Italian artist Maurizio Cattelan’s solid gold toilet has gone missing.

Here’s a picture of the fully functional loo before thieves ripped it from its plumbing. They left plenty of water damage, but not a single gold fixture.



chart image
Sources: Bloomberg / Christina Horsten / picture alliance via Getty Images
Click to enlarge

As Bloomberg reported on Saturday:

Burglars overnight broke into England’s Blenheim Palace, the birthplace of Winston Churchill, and stole an 18-karat gold toilet on display as part of an art exhibition.

The ‘artwork’ is a stab at the excesses of life in the modern West. It’s called American. Home of the Cadillac and triple decker hamburgers.

At time of writing, the thieves are still on the run. The estimated value of their solid gold haul is £1 million (AU$1.8 million). That’s up some $500,000 from last September, thanks to a 27% spike in the gold price.

As mentioned up top, over the same time many gold miners have seen their share prices go up by two or more times that much. Even the big players. The VanEck Vectors Gold Miners ETF [ASX:GDX], for example, is up 56.4% over the past year.

Those kinds of gains on the board can have investors wondering if they’ve waited too long to take a stake in gold stocks.

I’ll let Jim Rickards answer that one:

I analysed the last two great bull markets in gold. In fact, they’re the only two because gold was fixed from 1870 to 1971, so we haven’t really had a long history of bull and bear markets in gold.

But we have had two big ones. From 1971 to 1980, gold went up over 2,000%. 1999 to 2011, gold went up over 700%.

So, the fact that gold’s up 45–50% right now from the low in 2015 means you haven’t missed the boat. Put it this way, the best is yet to come.

So, gold is up a little bit but it’s not too late to jump in. Don’t wait too much longer, because a really exponential increase in the gold price is right around the corner.

You can get the full story on gold — and how you can potentially make $37 for every $1 rise in the gold price — from Jim Rickards and Shae Russell in the ‘2019 Gold Mania Summit’.

Playing with fire

Moving from yellow gold to the black kind, things are heating up in the Persian Gulf. Literally.

From Bloomberg:

State energy producer Saudi Aramco lost about 5.7 million barrels per day of output on Saturday after 10 unmanned aerial vehicles struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais.

For oil markets, it’s the single worst sudden disruption ever, surpassing the loss of Kuwaiti and Iraqi petroleum supply in August 1990, when Saddam Hussein invaded his neighbor.

As I mentioned in the market section up top, WTI crude is up 11.2% since Friday. Brent is up 13.2%. That’s a huge spike, though Brent futures originally leapt almost 20% following the drone attack.

Now the Saudis plan to have their production capacity back to full output within weeks. And they can dip into reserves in the meantime to meet supplies. Donald Trump has also said the US may open its massive strategic reserves if needed, tweeting, ‘PLENTY OF OIL’.

The attack was initially blamed on rebels in the Yemeni war. But the finger of blame is quickly turning towards Iran. If intelligence agencies can come up with some hard proof, the Iranians can expect a harsh response.

Trump, for one, promised US forces are ‘locked and loaded depending on verification’ that the Iranians carried out the attack.

This could be the trigger we’ve been hoping we would never see. One that could cost thousands of lives and see crude rocket past US$100 per barrel.

It’s a trigger my good friend Callum Newman has been watching closely. Here’s what he wrote on 13 August in Profit Watch, his free newsletter over at Agora Financial Australia:

The Yemeni war puts an ever-present danger of an attack on Saudi oil installations just over the border.

The world seems untroubled by this, naturally distracted as it is by demonstrators in Hong Kong and murderous mayhem in the United States.

But markets have a way of taking us by surprise. Some flashpoint or key event around Saudi Arabia wouldn’t surprise me in the slightest. Stay tuned.’

Callum hasn’t been sitting idly by as events unfolded, either. He’s been busy researching the best placed small-cap Aussie oil stocks.

Find out more on his top play here.

Cheers,
Bernd