Normally, gold mining is a tough business...
First, you've got to find a deposit. Then you have to build a mine – something that's labor- and capital-intensive. Then you've got to run the whole project to get the metal out of the ground.
After all that work, you get to sell the gold. But you don't get to decide the price of your product. The market sets it, so you're a "price taker."
If gold prices fall, tough luck. You get what you get.
So the business involves lots of fixed costs, combined with a variable sales price. For investors, that means one thing: Gold miners give you massive amounts of leverage to the price of gold...
Yesterday, I explained why gold prices could soar dramatically from here. And given that backdrop, it means gold miners could easily soar triple digits.
Let me explain...
When gold prices fall, gold miners can become worthless fast. But when gold prices rise – and costs stay roughly fixed – profits can absolutely soar.
This creates a domino effect. As the value of gold in the ground goes up, it makes it easier for miners to make money. Investors start to take notice. And they send these companies' stock prices soaring.
Yesterday, I showed that gold soared 250% in the early 2000s boom. But a basket of gold miners, as seen in the NYSE Arca Gold Miners Index, crushed that return.
This index rallied more than 400% from the start of 2002 into March 2008. Take a look...
Thanks to their massive leverage to the price of gold, these miners were the clear winners in the mid-2000s.
We saw a similar example play out again from December 2008 through April 2011...
Gold rallied about 90% back then. But gold miners roughly doubled that return... This batch of stocks was up nearly 180% over that period. Check it out...
When gold soars, gold miners are the biggest winners. And once you understand that, you can formulate a game plan for the current gold boom...
The Fed's low interest rates and easy-money policies are in place for the coming years. Higher inflation is nearly certain. This should drive the gold boom. And that means betting on gold miners is the right call.
It's all happened several times throughout history. And I'm betting it'll happen again this time around.
If you want to make that bet too, you can easily do it with the VanEck Vectors Gold Miners Fund (GDX). It holds a basket of gold mining stocks. And with gold prices booming, it's easily positioned for a triple-digit boom.
You want to own gold right now... And gold miners could lead to even bigger gains. Don't miss this opportunity.
Good investing,
Steve
Further Reading
The last gold bull market happened in the late 1970s. Maybe that's why few investors are aware of the potential in gold today. But with the current state of the economy, it will soon be hard to ignore the precious metals space... Read more here: Get Ready for the Next Great Bull Market in Gold.
Gold has been used as a form of currency and a store of value for thousands of years. It's one of the only assets that governments can't devalue. And in times of crisis, you can't afford not to hold some gold in your portfolio... Get the full story here: The Biggest Worry for the World's Rich and Powerful.
Gold miners are likely to soar as gold prices take off. But an even better business model can generate hundreds-of-percent gains for investors as gold moves higher...
THE 'CLOUD' CONTINUES TO KEEP PEOPLE ONLINE
Today, we're checking in on a leader in the "cloud" industry...
Cloud-services companies provide the technologies that other businesses need to operate online... like hosting their applications on Amazon (AMZN) Web Services or sharing files via Dropbox (DBX). And as more people depend on the Internet in this work-from-home era, the cloud has played an important role in keeping the world running. Today, we're looking at a company that's riding high on this trend...
Arista Networks (ANET) sells equipment and software that help data centers process information faster and more securely... including to big-name customers like Microsoft (MSFT) and Facebook (FB). Sales in the most recent quarter hit $605 million, up 12% from the previous quarter – more than Wall Street had expected. This tells us there's strong demand for cloud-based services as people continue to work from home.
As you can see in today's chart, ANET shares have rebounded more than 70% from their March lows and recently hit a new 52-week high. As long as we depend on the cloud to keep us online, Arista's services should remain in demand...
