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Gold Stocks Are Incredibly Cheap NowBy
Thursday, September 8, 2011
I don't read many investment newsletters, but I do read John Doody's Gold Stock Analyst.
John's monthly "Top 10" list has performed fantastically. According to his website, a portfolio of his Top Ten picks gained 1,360% from 2001 through 2010.
So John's typical reader is probably just interested in that Top 10 list. But me? I'm more interested in another feature of his letter...
I'm most interested in an indicator John developed that shows whether gold stocks as a whole are undervalued or overvalued, relative to the price of gold.
When gold stocks in general get cheap according to John's indicator, triple-digit percentage gains have followed. It's like shooting fish in a barrel.
Specifically, since 2003, gold stocks have bottomed out at a double-digit discount to John's fair value four times. The first three times, gold stocks soared more than 100% in roughly a year.
The fourth time is right now...
For his indicator, John looks at both 1) gold production and 2) ounces in the ground, relative to the price of gold. I think this is the right approach... I size up any investment looking at 1) the income and 2) the value of the assets. It doesn't matter if it's real estate or gold stocks. And that's what John's doing here.
As of his latest issue, out September 1, John's indicator is in buy mode: "Gold stocks are now very undervalued, with their ounces selling for 17.1% less than where they should at $1,789 Gold..."
Why are gold stocks cheap now? John explains it...
John concludes by saying, "Be sure to be on board for maximum gains!"
I can't give away John's favorite gold stocks (those are for his subscribers). But I can tell you the underlying index of the Market Vectors Gold Miners Fund (GDX) rose over 100% each of the last three times John's indicator said "buy."
As I mentioned, most people probably read John's newsletter for his Top Ten list. But I'm interested in his valuation indicator.
When his valuation indicator says gold stocks are this cheap, I buy. You should, too... And shares of GDX are a good start.
Good investing,
Steve
Further Reading:
"People are watching gold go up, like spectators watching from the sidelines," Steve wrote last week. "They are not active participants... yet." And he explained what that tells us about exactly where we are in this gold bull market.
Steve recently called up gold expert Van Simmons to get the inside story on gold investments. "In the last three years, the price of gold has doubled," Steve writes. "But the price of [this gold investment] has stayed relatively flat." And when the gold mania takes off, this will soar "hundreds of percent." Read more here: What My Most Trusted Gold Insider Is Buying.
Market NotesTHE EURO PLUNGES TO A NEW LOW AGAINST REAL MONEY Today's chart is another update on the euro crisis…
In yesterday's edition, we looked at the gruesome downtrend in shares of Germany's largest bank, Deutsche Bank (DB). And we noted how the European debt disease has spread from troubled "outer" states like Greece and Ireland to the strong core of Germany. This is an ugly development in the European debt crisis.
Another development relates to the "myth busting" idea we introduced this summer. Back in June, conventional price quotes were saying the euro was holding steady. But as we showed you, it was actually plunging relative to "real money," gold.
As you can see from today's chart, the latest round of the European crisis has taken the euro down another notch in value. The currency just struck an all-time low against gold. It's yet more confirmation that our friend Chris Weber was dead on with his "Greatest Currency Trade of the Millennium" idea.
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