Early Innings of an Epic Rally

  • Gold tumbles… but look at the gold stocks!
  • Early innings for the seventh epic run of gold stocks since 1942
  • A word of caution before jumping into “Penny Gold” plays
  • A hint of an inkling of a suggestion that inflation is reviving
  • Look what’s outperforming stocks this year (aside from gold)
  • Medical marijuana, the taxpayer’s best friend
  • A “new taxes and weird fees” update… longtime readers continue their hazing of the new arrivals… a “Penny Gold” success story… and more!

Another day, another “risk on” rip upward for stocks… and another whack on the nose for bonds and gold.
The Dow industrials are reaching still higher into record territory, cresting the 18,500 mark. Ditto the S&P 500, now 2,165.
On the other side of the ledger, Treasury prices are dropping, sending yields up. The 10-year note now yields 1.52%, a three-week high.
And gold? At last check, the bid has tumbled to $1,327 — nearly a $40 drop from the recent highs. Golly, gold hasn’t been this low in… uhhh… two weeks.
The mainstream attributes the drop to a surprise decision by the Bank of England to stand pat on interest rates for the moment, “Brexit” jitters notwithstanding. Sounds plausible, but gold began slowly sinking a good 10 hours before the decision was announced. Nice try, no cigar.
In any event, to hear the technicians tell it, gold is still solid anywhere above $1,275. Whew!
Interestingly, the gold stocks are holding up better than the metal today.
As we write, the XAU index is down less than a quarter percent… and still near its recent highs. The XAU has rallied from epic lows around 40 six months ago to around 108 this morning.
Sounds like a healthy bull market to us.
Better yet, it’s in the early stages. Let’s check out another index of gold stocks, the Barron’s Gold Mining Index. There’s an eye-opening chart of this index in the new edition of In Gold We Trust — the much-watched annual report from European asset manager Incrementum AG.
“If one looks at all bull markets in the Barron’s Gold Mining Index,” analyst Ronald Stoeferle writes, “one can see that the recent uptrend is still relatively small and short in duration compared to previous bull markets.”

Only the Beginning

“Thus,” he continues, “if this is indeed the beginning of a significant uptrend in gold mining stocks — which we assume to be the case — there should still be a great deal of upside potential.”
Love the understatement. Then again, Mr. Stoeferle’s report is read in mahogany-paneled offices around the globe, by very proper people who sip 50-year-old Glenfiddich single malt. He surely had to resist the temptation to say, “Holy $#*%!”
And that’s gold miners as a group. Imagine the potential that lies within a few well-chosen “junior” plays that can outperform the gold stock indexes many times over — and outperform the bullion by as much as 192-to-1.
OK, if you’ve been reading us this week, you know what we’re winding up to, so we won’t dwell on it: Moments ago, Jim Rickards and Byron King released their latest “Penny Gold” recommendation to readers of Rickards’ Gold Speculator — a recommendation they’re making only after Byron, our resident geologist, insisted on an on-site trip to Canada’s far-flung Yukon territory.
It’s a high-conviction pick for both Jim and Byron — so much so that Jim’s doing something for readers he’s never done until this month. Click here for access.
There. We won’t beat a dead horse.
Except for this: If you choose to act on their recommendation, please heed the guidance on the buy-up-to price.
As we said on Tuesday, junior gold stocks are thinly traded. It doesn’t take many buyers to move the price. It’s entirely possible that if you sign up for Rickards’ Gold Speculator this afternoon, existing readers will have generated enough demand to move the share price higher than Byron thinks prudent.
That’s OK. It’s likely a temporary thing. Just sit tight. Put in a limit order. Wait for the price to come to you.
A quick revisit of the example we used last month: An editor might recommend buying below $1, but the price is $1.20. Sure, you can pile in at $1.20, and if the price zooms to $2, you’ll make a 67% gain. But if you wait for the price to pull back below $1, you end up with a 100% or better gain.
Again, we won’t belabor the point. Just remember two of the most powerful words you can use to maximize your returns: “Limit order.”
There. Now we’re done. If you didn’t click the link the first time, here it is once more.
Hmmm… There’s a whiff of inflation in the latest wholesale price numbers.
The Bureau of Labor Statistics is out with its monthly producer price index — up 0.5% in June, more than the “expert consensus” was counting on. And you can’t blame it on rising oil prices; if you take food and energy out of the mix — the “core” rate — the number still rose 0.4%. Year over year, the core rate is now 1.3%, up from 1.2% last month.
As we’re wont to say, one month’s numbers are noise. But this is two months in which the index has indicated an inflationary revival. Three months? That’ll be a trend.
Note: Contrary to mainstream perception, and the fervent wishes of Federal Reserve pooh-bahs, a revival of inflation does not necessarily mean a revival in the economy. Remember the “stagflationary” ’70s?
The “reach for yield” has put new wind in the sails of high-yield bonds… and the phenomenon is nowhere near over.
While the Dow industrials are up 6.8% year to date including dividends, the iShares high-yield bond ETF (HYG) is up 9.2%.
Which is not to say HYG is hitting all-time highs like the Dow. “These bonds are actually still recovering from what was a brutal two-year period,” says our income specialist Zach Scheidt. Falling oil prices put a hurt on high yield, and a few energy companies in fact defaulted on their bonds.
So why the revival? “The Fed’s ongoing zero (or near zero) interest rate policy, coupled with negative bond yields around the world, has made it hard for investors to generate income,” Zach tells us. “These investors are being pushed further out the ‘risk curve.’ That means they are willing to take more risk to get income.
“Considering the rebound in oil and the global demand for yield, high-yield bond returns could conceivably have much further to go.”
Zach advises steering clear of bond funds, however; too often, fund managers have to buy bonds at inflated prices when demand for their shares is high… and sell at depressed prices when investors bail. Better to buy individual bonds at a deep discount. “This way, you’ll book capital gains when the bond matures and the company repays its debt.” Watch this space in the weeks ahead to learn more about this lucrative strategy.
More evidence the federal government might be rethinking medical marijuana: There’s convincing evidence it’s already saving the federal government money.
Researchers at the University of Georgia have found that between 2010–2013, states with legalized medical marijuana had lower rates of prescription drug use… and lower Medicare Part D spending on drugs.
The study examined nine conditions in which weed can be used as medicine. It found a significant decrease in filled prescriptions for eight of those nine conditions.
In 2013, medical marijuana was legal in 17 states and the District of Columbia, saving Medicare $165 million by the researchers’ reckoning. Expand it to all 50 states and the savings “would have been around $468 million” — about half a percent of all Medicare Part D spending.
The study reinforces our conviction that the federal government is set to remove pot from its “Schedule I” blacklist only weeks from now — opening the door to a new $100 billion industry. You can explore the investment possibilities at this link.
“Nah, we’re not raising taxes,” a reader writes from what he calls “the People’s Socialist Thugocracy of Illinois.”
[Note for new readers: One of our long-standing themes, going back five years now, is this: When the “mother of all financial bubbles” finally bursts, you’ll feel it on the local level first. Services you take for granted like trash pickup won’t be around anymore. And you’ll be subjected to, in the words of our executive publisher Addison Wiggin, “new taxes and weird fees.”]
“If we raise taxes,” the reader goes on, “we’ll get voted out. We’re just raising costs on everything else.”
The reader points us to an Associated Press story that says, “Court fees and fines in Illinois have become bloated over the years with surcharges to pay for programs and services, resulting in steep increases to what people pay in civil and criminal cases… In a recent case in central Illinois’ McLean County, for example, a DUI offender paid $1,742 in fees distributed across 25 state and local funds, including a Children’s Advocacy Center and a Fire Prevention Fund. Only about 8% of what was paid went to actual court costs related to the case.”
Yes, that’s increasingly common in many states. And it’s the poor who get hit hardest.
That said, Illinois is a uniquely desperate and greedy basket case. We see the ACLU recently procured public documents revealing that under civil asset forfeiture, Illinois law enforcement agencies seized $72 million in private property in just the last two years. Gotta watch out for those highwaymen in uniform.
“Dave, you opened this can of worms, and the newbies be damned,” a reader writes after yesterday’s episode of The 5.
[We really didn’t expect our regulars would submit all the new arrivals this week to such a hazing. Tough crowd…]
“First, a picture of a not-pregnant Jennifer Aniston only to divert us on more good news for gold! Even mentioning this should give you a great segue for more of Byron’s adventures. Plus, a wrap-up mention from a longtime reader about tapirs and feral hogs.
“Ah… it is the doldrums of summer trading, isn’t it?
“But what you failed to mention were the cute smiley faces by one of your main ‘chart chimps.’ Cute…
“I’m still around and reading, for all that’s worth.”
“Here’s another addition to the learning curve for new readers of The 5,” writes a reader who’s been with us since at least 2010.
“One of the best features no one has mentioned recently is that over the course of an average week, you can usually get the highlights of any news that is worth reading about, albeit without the machine-gun, minute-by-minute diet of disaster usually spouted by the average news show.
“Rumor has it that the editors of The 5 have a specially built decontamination chamber they use daily after being subjected to the ‘news cycle’ that they screen for our benefit.
“I, for one, have been thinking about sending them a case of wine for the holidays as a gesture of thanks for sparing me that sleazy feeling that one gets after watching the news for more than 10 minutes.”
The 5: Well, your editor is both a recovering newsman and a glutton for punishment, heh.
Not that we’d turn down a case of wine, of course…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. “Keep up the great partnership, Jim and Byron,” writes a satisfied reader of Jim Rickards’ Gold Speculator With Byron King.
He joined up three weeks ago. “Since then, my portfolio allocated to this service is up 27% ($30,000), even with today’s hit on the spot price of gold. I’m looking forward to many more outstanding recommendations in the future.”
There’s a new one today. Current readers, check your inbox. If you’re not a current reader, follow this link to join up — Jim Rickards’ special “welcome gift” is still available.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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