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Triple-Digit Gains Ahead in this Gold StockBy
Monday, July 11, 2011
That was my DailyWealth headline on June 15. I recommended buying shares of GDX – a basket of big gold-producing companies.
I hope you took my advice...
On the day that issue of DailyWealth was published, gold stocks hit their lowest level of 2011. Since then, gold stocks (as measured by GDX) are up 10%.
But you haven't missed it yet, at all...
Your upside potential is still huge. In today's DailyWealth, I'll show you a way that you could potentially make much more than 100% gains, relatively safely, in gold stocks...
Let me explain...
Last month, I wrote that the last two times gold stocks were this cheap, they doubled within eight months. Here's the chart from June 15:
 To measure whether gold stocks are cheap or expensive, I rely on John Doody's excellent gold-stock value indicator in his Gold Stock Analyst newsletter.
The latest issue of Doody's letter just came out, and gold stocks are cheaper today than they were in his last issue, according to his value indicator.
With such extraordinary value in gold stocks right now, I want to share an idea I wouldn't normally write about here...
Under normal circumstances, this investment idea would be too risky... it would be much more volatile than I'd usually recommend.
But this is not a normal circumstance. Gold stocks are cheap. It's time to step up and take some risk.
Here's what you need to know... historically, gold stocks are about twice as volatile as the price of gold... When gold goes up 10%, gold stocks go up 20%, and vice versa. Because of this, gold stocks typically give you some leverage with the price of gold in a gold bull market.
This relationship hasn't held up lately... but I expect it to return.
GDX is a safe way to buy a basket of the big gold companies. But there is a leveraged way to play GDX – its symbol is NUGT (like "nugget").
NUGT is a double-long fund. For every 1% gain in GDX, NUGT should go up 2%.
At this point, NUGT is still pretty small... But it's an exchange-traded fund (ETF), so it can create shares as needed. The fact that this ETF is small means that "gold fever" has not at all translated into "gold stock fever" – yet.
Gold stocks are super-cheap relative to the price of gold. Two things can correct this... Either gold stocks soar, or the price of gold falls dramatically. Your risk in this trade is a big fall in the price of gold.
The last two times gold stocks were as cheap as they were on June 15, they doubled in eight months. It looks like it's happening again, with gold stocks up 10% in just three weeks... and nobody paying attention.
Buy gold stocks today, if you don't already own them. The more conservative way to do it is through GDX. If you're willing to take on some risk and volatility, consider shares of NUGT.
Good investing,
Steve
Further Reading:
If you're not ready to take on the leverage of a double-long fund but still want the chance at big gains, be sure to read Steve's write-up on GDX here: History Says Gold Stocks Could Double in Eight Months.
Last week, Matt Badiali told DailyWealth readers about another long-term uptrend in commodities. "As I'll show you today, despite all the bad press [this commodity] gets, it's in a major uptrend," he writes, "and I expect it will be for at least the next decade... " Read more here: If You Like the Big Trend in Gold, You Need to See This One, Too.
Market NotesNEW HIGHS OF NOTE LAST WEEK
Carbo Ceramics (CRR)... frac ammo
Halliburton (HAL)... for-profit arm of the Republican party Amazon (AMZN)... online retail
Netflix (NFLX)... home movies
Tiffany & Co. (TIF)... jewelry
Chipotle Mexican Grill (CMG)... fast food
Nordstrom (JWN)... department store Wynn Resorts (WYNN)... casinos American Express (AXP)... credit cards
Visa (V)... credit cards MasterCard (MA)... credit cards
Darden Restaurants (DRI)... Red Lobster and Olive Garden
Boston Properties (BXP)... REIT
Avalonbay Communities (AVB)... REIT
Equity Residential (EQR)... REIT
Kraft Foods (KFT)... Big Food
Unilever (UL)... Big Food
GlaxoSmithKline (GSK)... Big Pharma
Domino's Pizza (DPZ)... Big Pizza
Johnson & Johnson (JNJ)... our system works again!
NEW LOWS OF NOTE LAST WEEK
Gafisa (GFA)... Brazilian homebuilder
Frontline (FRO)... shipping Media General (MEG)... newspapers
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