There’s a big misconception about gold stocks with regard to the price of gold…
I think investors look at gold prices as a bellwether for gold stocks, when it’s really kind of a clunky way to view individual companies.
And I get it: gold prices seem like really important information. They’re also always making headlines. It’s hard to look away.
For instance, the price of gold has been on a bit of a rollercoaster this week, moving from $4,370 down to below $4,300 and back up to $4,360.
It’s all thanks to the anticipation of the Fed’s rate decision Wednesday (they raised rates 0.25%), as well as inflation numbers from last week and the ongoing conflict with Iran that has oil prices similarly yo-yoing around the $100/barrel mark.
At the same time, two of the gold stocks in my Golden Portfolio service were up 20% at the open this morning.
If you look at a gold chart plotted against either of these two gold stocks, there’s no rhyme or reason to be found for why they shot up. These stocks rose independent of what’s going on with gold.
If you were waiting for some kind of pattern in the tea leaves of the price of gold, you’d never ever catch what’s going on with these individual companies that sent them soaring this morning.
And look, I want to be clear: for gold stocks in general, the price of gold clearly matters.
You can see the relationship between moves in gold and gold stocks as a sector, in this chart, comparing GDXJ to GLD:
Movements in the price of gold have a direct impact on movements in GDXJ. These moves tend to be amplified, because gold miners have leverage to the price of gold (up and down.)
No surprises there.
My long term view is that gold is headed much higher – but I’m not in control of the price of gold.
I’m also not interested in simply profiting from the currency debasement that sends gold higher.
If we’re going to come out ahead of currency debasement, we need to own gold stocks that drastically outpace that debasement. Gold (for the most part) just manages to keep pace.
In other words, the price of gold is not remotely my main consideration 99% of the time when I’m evaluating which gold stocks to buy, and when.
One exception occurred this year back in January when I told my paid readers to trim positions. The price of gold was rising too far, too fast. It was due for a pullback – and we got one. We put money to work again in April, July and August.
But notably: I didn’t add new positions due to the price of gold. I added them because I saw value.
Remember: we can’t control the price of gold. The other side of that coin is that we CAN control the companies we buy based on their fundamentals.
Which is why I’m adding a new position to my Golden Portfolio IV on September 30th. This addition is based on what I believe is a massive asymmetric mismatch between the value of the company, and its current price.
(This new addition is separate from the new Special Report I mentioned earlier this week.)
I’ll be sending out details about my new GPIV addition tomorrow, but for a little bit of a preview of why I’m adding it:
This company will generate incredible value under a wide swath of gold prices. We don’t have to worry about high prices. But even all the way down below $3,500, it will still be a home run.
That’s because this company is actively slow rolling an important part of how gold stocks get valued by the market. They’re holding off as long as they can in creating their resource estimate.
These estimates are official documents, audited and published to show the likely range of gold in a deposit. The company knows that once it publishes an estimate, it will become a takeover target.
They know they have the goods. They just don’t want to get taken out at a low price if they can help it.
We have a chance to scoop up shares before the gold majors take notice.
Keep an eye in your inbox tomorrow for the details about this new portfolio addition.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio
