Tags: gold | mining | stocks | ETF

Gold Stocks Are Now the Place to Be

By    |   Monday, 29 July 2013 07:38 AM

Gold stocks ... they're not for the faint at heart. It seems that huge volatility is almost a given with these types of stocks.

However, when bought at the right times, they can produce results that are on steroids!

For instance, from mid-1986 through the latter part of 2007, the PHLX Gold/Silver Sector index ($XAU) gained over 150 percent! From mid-1989 through the end of the year, the index returned just over 70 percent.

Another huge year was 1993, when the index gained 123 percent. In looking over a larger time horizon, from 2001 to 2011, the index returned a whopping 435 percent over those 10 years.

But, there's also huge downside if gold stocks are bought at the top end of their valuations near their peaks.

Just to name a few examples, there's the period from 1996 to 2001 where gold stocks lost over 71 percent of their value. Another was in the 2008-09 period, where there was a 68 percent drop within that relatively short period of time. From 2011 to present, there's been a 63 percent drop in the index.

So why in the world would I be suggesting owning such volatile assets, particularly after such a steep decline? Gold stocks are almost as oversold now as they were back in 2008. But it was after that huge drop that there was a rally of around 250 percent over the next two years.

So if you can buy these gold stocks after they've been slaughtered and everyone is scared of them and no one wants them, then you've set yourself up for a huge rally to come.

That's where I believe we are right now. So if you are willing to take on some huge, volatile swings and you're willing to hold positions for the next 12 to 18 months, then I believe gold stocks may be something you'll want to consider.

Will they return 250 percent again over the next two years? There's no way one can say for sure. But I do firmly believe that a 50-percent-plus move is in the cards over the next two years.

Does this mean gold stocks have bottomed? It's too early to tell and they could go lower before they head higher. But I believe that if someone buys some of the largest gold mining stocks or a gold miner's exchange-traded fund (ETF) here, then they'll likely be very glad they did just 12 to 18 months from now.

But if you buy a gold mining stock, only buy the biggest ones — the ones with multi-billion dollar market caps and a billion to billions of dollars in cash on their books. Don't mess with anything shy of this. For the more risk adverse, check into a gold mining ETF. That will spread your money around more gold mining companies.

But if you're able to stomach high volatility along the way, your position going against you in the near term and you can hold onto these stocks for at least 12-18 months, then I say that "this is the place to be."

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust.
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Gold stocks ... they're not for the faint at heart. It seems that huge volatility is almost a given with these types of stocks.
Monday, 29 July 2013 07:38 AM
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