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Time to Speculate on Gold

Written by Luke Burgess
Posted January 14, 2019

The tides have turned, dear investor.

The great wave of optimism that drove global markets over the past few years has all but receded. Now, pessimism and fear have begun to flow in. And that changes everything, particularly for safe haven assets like gold.

Most of the time, gold is a good place to park extra money. That's because prices are generally stable over the long term.

Back in 2011, gold prices saw a heck of a rally. But many investors forget that prior to that bull market, the price of gold sat dormant for more than three decades between early 1980 and the early 2000s.

Most of the time, gold isn't going to make you rich. But the bottom isn't going to fall out of gold, either. You might read the headline “gold prices crash” only once or twice in your lifetime.

Compared to every other commodity, equity market, and currency, gold is relatively stable.

Every once in a while, though, outside factors break in and put pressure on gold, usually leading to higher prices for a while.

This is what happened in 2011. The demand for gold as a safe haven asset increased amid global financial concerns of the 2008 era, causing a bull market for the yellow metal.

Right now, it's happening all over.

Gold has gotten a significant boost from mounting economic, political, and social concerns: tensions between U.S. and China over trade, concerns of mismanaged Fed policy, the U.S./Mexico border wall dispute, Brexit withdrawal, the U.S. government shutdown... the list goes on.

The price of gold has increased over 4% in a month. But we believe gold will continue to respond by marching higher as these issues continue to develop in 2019. There's also quite a good chance that 2019 will create its own brand-new problems, which will only put more pressure on gold to the upside.

In short, 2019 is likely to see good demand for gold as a safe haven asset, thereby increasing prices. So right now we think it's a great time to put up some risk money toward gold. It's time to speculate a little on gold.

I think the best way to do that right now is through well-known gold stocks: Barrick (NYSE: GOLD), Kinross (NYSE: KGC), Newmont Mining (NYSE: NEM) — the big boys. In a bull market, these will be among the first to run.

These types of gold mining firms are ultimately limited in their growth. But their large, well-established finances make them risk tolerable for large financial institutions to buy.

Of course, each of these companies has its own story. Barrick Gold is still paying off a large debt. And Newmont has just begun a $10 billion acquisition of Goldcorp (NYSE: GG). I do think you should do at least a little due diligence on stocks you choose to speculate on here. But remember, that's what we're doing: speculating.

We're generally betting that mounting economic, political, and social concerns will drive the demand for gold as a safe haven asset and drive investors into gold stocks. If we were investing for a long-term gain, we'd want to look much closer at individual company finances. But we're betting on the market shifting gears here.

Of course, this is not something you want to go all in on. Choose an amount of money you could lose without seriously disrupting your life, and buy a few big-name gold stocks.

Here's a crude way to figure out that number for yourself: How much could you loan a trustworthy cousin without seriously disrupting your life?

The price of gold is creeping up. But gold stocks have been generally slow to respond. So, in general, there's really not a lot of risk in gold equities right now anyway.

I think a little position in big-name gold stocks could go a long way for 2019.

Until next time,

Luke Burgess Signature

Luke Burgess

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As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bubble and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.

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