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A Low-Risk Speculation in the Gold Market

By Matt Badiali, editor, S&A Resource Report
Wednesday, March 28, 2012

We have a big opportunity in gold miners right now...  
As I told a colleague, I think investors who miss the opportunity now will look back on March 2012 and wonder, "Why didn't I load up on those stocks when I had the chance?..." 
You see, despite the selloff of the past month or so, there are a lot of things to like about gold stocks right now...
According to my colleague Jeff Clark, editor of the S&A Short Report, gold's chart suggests we could see "sharply higher" gold prices this summer. That should boost gold stocks. Yesterday morning, Jeff told his subscribers that the gold stock sector is technically oversold.
Also, they're undervalued according to industry guru John Doody, editor of Gold Stock Analyst. And they're fundamentally cheap, selling at an average six times next year's earnings.
But I think this chart makes one of the most compelling arguments for owning gold stocks today. It shows the past two years of price action in GDX, the big gold-stock fund (the blue line), and the gold price (the gray line). Take a look...  
Right now, GDX is trading for around $50 per share. It hasn't been that low in price since mid-2010... when gold was just over $1,200 per ounce. Gold is going for just under $1,700 an ounce right now. In other words, gold miners are priced like gold is going to fall nearly 30% from here.
I'm not saying that can't happen. Gold is a historically volatile asset, so anything can happen.
But in the long term, the engines behind gold's decade-long bull market aren't going away. Growing Asian nations are still buying gold. And Western governments in the U.S. and Europe have taken on debts and obligations that cannot possibly be paid with sound, honest money. They will be paid with devalued, debased paper money. Gold and silver, being "real money," will rise as a result.  
At these levels, gold-stock investors don't even need gold to rise. Gold at today's prices means historically fat profit margins for gold miners... which will drive higher earnings. That makes buying shares a low-risk speculation right here.
Good investing, 
Matt Badiali

Further Reading:

Matt recently showed readers how cheap gold stocks are at today's prices. You'll find the details – and the three cheapest big gold miners – here: Three Arguments for Buying Gold Stocks Here.
"When investors hate gold this much," Steve Sjuggerud writes, "the metal tends to rise by a couple hundred dollars in the next few months." Find out why he believes history could repeat itself here: Gold Is More Hated Now Than at Any Time in 2009 or 2010.

In The Daily Crux
Market Notes
Long-term Treasury bonds are the worst-performing major asset class so far in 2012... big treasury fund TLT is down 6%.  
Natural gas sinks to a fresh 10-year low... down 50% over the past nine months.  
Home improvement uptrend continues... fresh 52-week highs for Home Depot, Lowe's, Sherwin-Williams, and Bed Bath & Beyond.  
Trucking companies are quietly booming... Celadon Group, Old Dominion, and Swift Transportation are all up 60%-plus in six months.
Market Watch
Symbol Price
S&P 500 1412.52 -0.3% +7.5%
Oil (USO) 40.71 -0.2% -3.5%
Gold (GLD) 163.24 -0.7% +17.2%
Silver (SLV) 31.59 -1.1% -13.2%
U.S. Dollar 79.14 +0.3% +4.6%
Euro 1.33 -0.3% -5.5%
Volatility (^VIX) 15.57 +9.2% -13.1%
Gold Stocks (^HUI) 475.34 -1.4% -16.0%
10-Year Yield 2.19 -2.2% -36.3%

World ETFs
Symbol Price
USA (SPY) 141.17 -0.3% +9.8%
S. Africa (EZA) 69.55 -0.1% +2.2%
Japan (EWJ) 10.14 +0.8% +0.2%
Singapore (EWS) 12.88 +0.2% -0.3%
S. Korea (EWY) 59.87 -0.5% -2.4%
Lat.America (ILF) 48.41 -0.6% -4.5%
Taiwan (EWT) 13.45 -0.4% -4.7%
Israel (ISL) 13.91 +0.9% -10.8%
Canada (EWC) 28.63 -0.8% -11.8%
China (FXI) 37.25 -0.2% -13.1%
India (IFN) 21.94 +0.0% -28.7%
Russia (TRF) 16.96 -0.7% -29.5%

Sector ETFs
Symbol Price
Retail (PMR) 25.99 -0.1% +30.8%
Big Tech (QQQQ) 68.21 +0.2% +21.2%
Consumer Svcs (IYC) 81.57 -0.2% +17.7%
Health Care (IYH) 77.60 +0.2% +16.0%
Utilities (XLU) 35.01 +0.5% +15.1%
Big Pharma (PPH) 73.61 +0.6% +14.1%
Real Estate (IYR) 61.86 -0.1% +10.9%
Biotech (PBE) 22.98 -0.2% +9.2%
Industrials (IYJ) 71.77 -0.2% +4.2%
Media (PBS) 15.25 -0.5% +2.3%
Construction (PKB) 14.44 +0.6% +2.1%
Defense (PPA) 20.26 -0.3% +1.8%
Financials (IYF) 58.65 -0.8% +1.7%
Transportation (IYT) 94.08 -0.2% +1.4%
Software (PSJ) 27.18 -0.6% +1.0%
Insurance (PIC) 16.44 -0.4% +0.8%
Telecom (IYZ) 22.37 -1.2% -0.6%
Water (PHO) 19.20 +0.2% -3.1%
Internet (HHH) 70.21 +0.1% -3.8%
Semis (PSI) 16.26 +0.1% -5.3%
Basic Mat (IYM) 71.07 -0.3% -9.6%
Oil Service (OIH) 121.00 +2.4% -11.4%
Nanotech (PXN) 6.76 -0.2% -29.2%
Alt. Energy (PBW) 5.70 -0.5% -44.0%

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