A potential bull market in gold has been ignited.
But most investors are missing out on the early (and most lucrative stages).
This isn’t an obvious bull run. You won’t be able to spot it on a chart. But it could be a set up for a major run and it’s set to really take off at any moment.
The Secret Gold Bull Market
Gold is emerging from a seemingly endless bear market that began in 2011. But most U.S. investors won’t see it until it’s too late. And they’ll miss the chance for big gains (as much as 162% - more on that later).
You see, there’s an anomaly right now.
If you look at the price of gold, you won’t see it because you are looking at the price of gold in U.S. dollars.
Lately, the dollar has been soaring. The U.S. Dollar Index (which tracks the value of the dollar against a basket of major currencies) is up 18% in the last year.
The rising dollar has made the price of gold look flat.
The chart below shows the dollar (black line) to the price of gold (gold line):
It looks like gold has taken a winding road to nowhere over the past year.
Of course, that’s the price of gold in U.S. dollars. A look at gold from the rest of the world’s perspective shows a much different story.
This chart from Kitco really shows what investors in the rest of the world see when they look at the price of gold:
With the exception of the dollar and the Swiss Franc gold prices rose between 15% and 25% in every other major currency in the last few months.
The situation is clear. U.S. dollar strength is masking what could be an emerging bull market in gold.
This creates a potentially lucrative opportunity. One which will turn some good gold opportunities into some great ones.
The Safe Way to Ride the Gold Bull
The key here is to understand the run in the dollar.
Simply put, it will not last forever.
Right now the U.S. dollar index is up 18% in a year. That kind of gain for a currency does not come without a correction at some point.
And after running so strong for so long, when the dollar does run out of momentum, it’s a safe bet the correction will be sharp and fast.
The big beneficiary of that downswing will be gold as priced in U.S. dollars and the ultra-cheap gold stocks that have been moving like gold has no hope turning around anytime soon.
It’s basic math. When the dollar correction comes, it could easily launch gold back to $1400 or higher.
That’s a big move for gold currently at $1250. It would be big enough to bring a lot of investors back into gold too. And with gold stocks still at relatively depressed levels, they’ll run up hard.
Of course, there’s no guarantees any of this will happen. The dollar could run up forever (not a bet I’d ever make...there are 18 trillion reasons it won’t). But it theoretically could.
That’s why I’d recommend a hybrid approach to gold at this time. Basically, buy gold The Cheap Investor way.
The best example of this strategy would be found back in November 2013.
At the time gold (in U.S. dollar terms) was about the same price it is today. Right between $1250 and $1300 an ounce. Down about a third from their 2011 highs.
Gold stocks, however, were absolutely crushed relative to gold.
The chart below compares gold (as tracked by SPDR Gold Shares - ticker symbol GLD - blue line), gold stocks (Market Vectors - ticker symbol GDX - gold line), and The Cheap Investor recommendation Richmont Mines (ticker symbol RIC - black line):
As you can see, there was a sharp difference in the returns of all three of the assets from the top of the last gold bull market to the bottom put in just over a year ago. The performance since then has been a sharp difference too.
Back in November of 2013 gold was down 30%, gold stocks were down an average of 60%, and Richmont Mines was an ultra-cheap cheap anomaly down just over 90%.
It was the rate Win/Win Big anomaly The Cheap Investor loves.
In the November 2013 issue we wrote:
We like the [Richmont Mines] because it has gold producing mines, including the recently started commercial production at its W Zone Gold Project, projecting 12,000 ounces of gold in 2014.
With only 39 million shares outstanding, the Company has obtained a CAN$50 million credit facility with a major financial institution.
We think the stock has the potential to move 25 to 50% from this low price.
We knew Richmont was cheap. Too cheap. It had the potential to rebound. We estimated between 25% to 50% on relative value alone.
But it was the scenario we liked more. If gold prices did recover a bit, shares of Richmont could explode higher after falling 90%.
It played out nearly perfectly.
Today Richmont was one of the best performing stocks in the market over the last year (not just a best gold stock...but best stock in the entire market) over the last year.
It’s up a total of 162% it was recommended 15 months ago.
That’s how you should invest in gold now. Buy the cheapest gold stocks you can find. If they’re cheap enough, they will hold up well and probably deliver a solid return.
But if and when the dollar corrects and the price of gold does run, the shares will absolutely fly.
It’s a Win/Win Big situation in a lot of gold stocks right now. Find them and you’ll been in a great spot whether the dollar run continues or, as we expect, makes a sharp correction sometime in the next few months.