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The following consists of edited excerpts from an article* by Jeff Clark (caseyresearch.com) originally entitled The Greatest Opportunity in 30 Years.
[The following article is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Paradoxically, such opportunities aren’t that hard to find—the truth is, they sprout up all the time. What is hard to find is the type of investor who has the guts to take advantage of those opportunities.
Fact is, most people run from assets that are at an all-time low… and happily buy into stocks that are reaching their peak. As legendary resource investor Rick Rule likes to say, “You’re either a contrarian or you’re a victim.”
When you think about it, the strategy for getting rich…is deceptively simple:
- Find an asset at an extreme (low or high) and determine if it’s headed in the other direction anytime soon;
- Take a significant position and hold the fort while market forces play out.
That’s all. The difficult part is to muster the courage to hold on when all your senses are screaming that it’s a huge mistake, that your investment will never pan out, that today’s fool (you) is tomorrow’s loser.
If, on the other hand, you don’t mind going where others fear to tread, opportunities practically jump into your outstretched hands [and] here’s the best one I know of right now: gold stocks…[Frankly,] to say they’re a “good opportunity” is a laughable understatement: Gold stocks are at an extreme low we haven’t seen in over 30 years in this industry. Let me prove it to you.
An effective way to measure the true value of gold stocks is to compare them to the gold price. Other thing being equal, a gold producer selling for $20 per share at a $1,500 gold price is a heck of a lot cheaper than when gold’s at $1,000. (When the price of a product is higher, the stock is more valuable, and vice versa.)
The XAU (Philadelphia Gold and Silver Index) consists of 30 gold and silver stocks and began trading in December 1983. Here are the first 23 years of the Index’s ratio to gold.
Any time the ratio reached 0.20 or below, gold stocks were undervalued in relation to gold, and investors who bought at those inflection points made a profit. Conversely, once the ratio reached 0.34 or above, stocks were overvalued and due for a pullback.
For 23 years, from its inception through 2007, the XAU/gold ratio provided fairly reliable feedback for investors.
Now let’s add the rest of the data.
Today, the XAU/gold ratio is at a historic low of 0.07.
To fully appreciate what this means, look at these former lows for comparison:
- It’s lower than the 2008 gold stock selloff;
- It’s lower than the “nuclear winter” of the mid-’90s;
- It’s lower than the very beginning of the gold bull market in 2001.
Right now, gold stocks are like a rubber band that’s being stretched to an extreme. As all rubber bands do, it will snap back and, based on how extreme the undervaluation has become, they’re bound to be among the most profitable investments of this generation.
…Your chances of…making breathtaking returns have never been higher. Upside is at its greatest when even the cab driver laughs at the thought of buying a gold stock. As conditions return to normal, huge profits will be made… by those who didn’t listen to the investing herd and its mouthpieces in the mainstream financial media.
Conclusion
There is no guarantee gold stocks will rebound and deliver life-changing profits…[as] there are some scenarios that could conceivably prevent gold and silver from rebounding—possibly killing off the miners for a generation, [such as]:
IF
- billions of Chinese, Indians, and other Asians finally realize that unbacked paper currencies are much more desirable to hold than physical gold and silver
- Ben Bernanke vows never to print another bloody greenback again, and neither does his successor
- Congress unanimously agrees to lower, instead of raise, the debt ceiling and drastically cut all but core spending, for the health of the country and its citizens (I know, don’t make me laugh)
- solar panel manufacturers and dozens of other industries find a valid replacement for silver in their products
- the insane amount of $700 trillion in derivatives circling the world like a cloud of toxic particles suddenly evaporates
- Beijing calls a press conference and proclaims they were mistaken and now feel no need to diversify out of the US dollar, that it’s the one and only reserve currency the world will ever need
Then we might see that happen but I’m not holding my breath on any of these. (A phrase about snowballs and hot places comes to mind.)”
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.caseyresearch.com/cdd/the-greatest-opportunity-in-30-years (Copyright © 2013 Casey Research, LLC.)
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