By Frank Curzio (Growth Stock Wire)
One of the world's smartest gold analysts is making a big bet on gold.
If you're interested in making money from precious metals, you should consider doing the same…
On Wednesday, I spoke with John Doody on my S&A Investor Radio podcast. (You can listen to my entire conversation with John for free here.)
John has been studying and analyzing gold stocks for more than 40 years. Today, John writes the excellent Gold Stock Analyst newsletter. His opinion on gold stocks is so respected, he has been quoted in Barron's, The Financial Times, the Washington Post, and the Wall Street Journal.
And he told me that nearly his entire $12 million fortune is now invested in gold today.
This might sound crazy… The price of gold has gotten crushed over the past few years.
The metal is down more than 20% since the start of 2012. And gold stocks have fared even worse. The benchmark gold-stocks fund, the Market Vectors Gold Miners Fund (GDX), is down more than 55% since January 2012. For comparison, the S&P 500 is up more than 55%.
Most investors have given up on the sector. But John says this has created an enormous opportunity for investors to buy gold today. You see, there are several catalysts that should push gold and gold stocks higher in the months ahead.
For starters, Europe's economy is going through a sharp slowdown. The latest economic figures show many European nations could fall into a recession. Because of this, John says the European Central Bank (ECB) is likely to announce several more plans to stimulate the economy by printing money and keeping interest rates low – just like the U.S. has been doing.
The ECB has already cut interest rates twice since June. It also announced it would be buying covered bonds and bundled bank loans. But more aggressive measures are likely on the way.
This will create a huge amount of cheap money that will eventually result in higher inflation. And even the hint of higher inflation could push gold prices – and gold stocks – higher as investors, worried about the devaluation of their money, pour into these assets.
History also shows gold prices should jump higher soon.
Earlier this month, gold prices fell to around $1,200 per ounce. Since June 2013, gold prices have fallen to around $1,200 an ounce three times. The last two times gold prices tested these levels, they jumped higher in the months ahead.
You can see this in the chart below…
As you can see, gold tested the $1,200 level in June 2013. The metal then soared 17% in three months. The same thing happened in December 2013. After falling below $1,200 per ounce, gold rallied 15% in three months. We could see something similar happen this time around.
You see, gold prices HAVE to rise for gold companies to remain profitable. John says the average breakeven cost for gold companies is roughly $1,250 an ounce – higher than the current price of gold. That means gold producers are losing money right now. If gold prices remain below – or fall further below – the breakeven cost, some companies will go out of business or take supply off the market. Lower supply – while demand remains steady – will ultimately result in higher gold prices.
And John says there's another catalyst that means we could see lower supply soon…
On November 30, Switzerland will vote on whether the Swiss National Bank will be required to hold at least 20% of its assets in gold.
In 2000, Switzerland changed from a gold-backed currency to a euro- and U.S. dollar-backed one. The Swiss National Bank went from holding at least 30% of its assets in gold in 2000 to just 8% today.
If the referendum passes, the Swiss National Bank will be forced to bring its percentage of assets backed by gold up to 20%. John says this will amount to it purchasing 50 million ounces of gold (equal to roughly half the annual mine supply) over the next few years. This would result in a tremendous amount of gold coming off the world market – which would push gold prices and gold stocks higher.
Even if just one of these catalysts takes shape, it should be enough to push gold prices higher over the next few months from these depressed levels. So I suggest following John's lead and adding a few gold stocks to your portfolio today.
Source: Growth Stock Wire
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