Business & Investment

A secret clue telling me that gold should skyrocket — gold stocks

If you intend to invest in gold stocks, you need to know what I am trying to tell you.

The dynamics of the market over the last two years have changed significantly.

We see inflation creeping into the economy and (literally) all asset markets.

You need to start thinking about spending money on your portfolio. And if you’re looking for an edge over other investors, keep reading …

Gold as a pioneer?

First we need to look at some small history.

Look at the relative performance of gold prices and gold prices Van Eck Gold Index [US:GDX] After January 2015 in the graph below:

The graph shows that gold prices and GDX moved at about the same time from 2015 to early 2018.

Gold prices then lowered GDX in mid-2018. This changed in the May 2019 rally.

Many gold stocks plummeted during the COVID panic as the market panicked. Meanwhile, gold prices have risen steadily. The recovery of gold stocks in mid-March followed the recovery of gold until August.

Since then, things have become volatile for gold investors. Physical gold recovered while gold inventories continued to decline.

This is because there is a multiplier effect on the profit margin of the mining business against changes in gold prices.

That is history. Now, to today’s profit opportunity …

The question awaiting an answer is who will take the initiative, gold or gold stocks.

Next, let’s take a look at the Australian gold market …

The chart below compares the price of gold in Australian dollars with the ASX Gold Index.

Recall that AUD Gold works with slightly different dynamics than USD Gold.

It is important to note that the AUD Gold is a secondary major. It is not a key indicator, but its value is derived from the US dollar gold price and the US dollar and Australian dollar exchange rates.

The ASX Gold Index appeared to follow the Australian dollar gold price for most of 2015-19. This is because the profit margins of these companies depend on the gold price and many of these companies report their financial results in Australian dollars.

What’s interesting since mid-2019 is that the Australian dollar gold price seemed to lead the gold stock. But it’s not a very lead. Of course, they move in the same direction with little delay, except from late February to mid-March 2020, when gold inventories fell sharply.

In the last two weeks, you’ll notice that ASX-listed gold inventories have diverged from gold and have continued to decline as gold recovers after its shocking sale. Gold traded near the highest price this year at AU $ 2,500 / oz.

Many are wondering where gold and gold inventories will move in the future. They seem to be at a crossroads now. Gold seems to maintain its ground while the gold inventory is treading water.

I buy and recommend certain gold stocks in a big way, as investing in gold stocks has more opportunities to make a profit than the price of gold. (Of course, the possibility of loss is more important, but you know it.)

Why am i doing this?

Basic economic momentum … with a twist

It will also tell you the price of oil!


Yes! Oil prices are a useful clue.

Think of oil as a barometer of business activity and self-confidence. Gold prices are the opposite.

Therefore, the combination of gold as an indicator of business credibility and oil as an indicator of economic activity can provide intuitive and sensible economic indicators.

You effectively kill two birds with one stone.

Dividing the price of gold by the price of oil gives you the ratio of gold to oil. This is the same as saying how many barrels of oil you can buy with an ounce of gold.

Find out how this indicator can help explain the movement of gold stocks. I compare it with the GDX and ASX Gold Index:

It turns out that the gold-to-oil ratio seems to do a good job of leading the gold inventory.

High gold-oil ratios often result in higher gold stock returns after a few months. Gold-to-oil ratio spikes and troughs cause subsequent movements in gold inventories.

Now the gold-oil ratio is starting to rise again. It can be seen from early June, despite the strange behavior of gold prices.

I support this indicator and many other indicators. Now is the time to plunge and get certain cheap gold stocks in preparation for the expected rise.

God bless,

Brian Chu signature

Brian Chu,
Editor, Daily Reckoning Australia

PS: Discover perhaps the easiest way to start investing in gold in Australia. In fact, it’s as easy as buying a book on Amazon. Click here to read the free report.

A secret clue telling me that gold should skyrocket — gold stocks A secret clue telling me that gold should skyrocket — gold stocks

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