Editor's note: Gold expert John Doody runs the Gold Stock Analyst newsletter – one of the most widely followed gold-stock research services on the planet. Today, he picks up our story from yesterday on why the Federal Reserve is about to pivot – with huge ramifications for investors. In this piece, adapted from his May issue, he continues with why this shift will spark the next major bull market in gold stocks...
The current millennium has enjoyed five gold bull markets that drove triple-digit gains in the portfolio of top gold stocks we track.
All those booms had something in common... the Federal Reserve.
The Fed's decisions, whether actual or expected, drove big gains in gold. And the best gold stocks outperformed drastically.
We can see this in the Gold Stock Analyst (GSA) Top 10 portfolio – the stock recommendations we cover for our subscribers. Each bull run drove the portfolio to gains ranging from 124% to 633%.
We are now at the start of the sixth gold bull market.
As we shared yesterday, we believe the Fed is about to put its interest-rate hikes on pause. It might even start cutting rates.
Today, we'll cover what this means for gold – and specifically, for the best gold stocks in the market...
Again, the five gold bull markets all happened for a reason. They were driven by rate cuts or financial stimulus from the central bank... Or, just as important, they began when the markets expected those actions from the Fed.
To explain this further, we'll take a quick tour of each boom in gold stocks – starting with the collapse of the dot-com bubble...
January 3, 2001 – April 1, 2004: The Dot-Com Bust and Its Aftereffects
The U.S. economy was headed into a recession. On January 3, Fed Chairman Alan Greenspan, a well-known Republican, welcomed President George W. Bush into office with a 0.50% cut in interest rates from the high of 6.50%.
The Fed cut rates 12 more times until they reached 1% on June 25, 2003. The central bank kept them there for the next year. Finally, the cutting cycle ended with a rate hike on June 30, 2004.
The gold market, and the GSA Top 10 specifically, anticipated the hike. Both had peaked several months earlier on April 1, 2004. By then, gold had rallied 59% from January 2001. The Top 10 portfolio did much better, reflecting stocks' leverage to gold... It soared from $72,000 to $367,000, up 410%.
November 1, 2005 – November 6, 2007: A Slowing U.S. Economy
U.S. growth had fallen to just 1.1% at the end of 2005, the slowest pace in three years. Investors hoped that the Fed would cut interest rates in 2006 to stimulate the economy. Gold prices rode those expectations higher. But instead, the Fed kept raising rates until they hit 5.25% on June 29, 2006.
That level held steady until September 18, 2007, when the Fed finally cut the rate to 4.75%. By then, it was too late for optimism. The Great Recession began in December 2007. But hope alone had driven big gains in gold...
The metal had started off trading for $459 per ounce on November 1, 2005, and the Top 10 was valued at $211,000 at the time. Two years later, gold hit $823 per ounce, up 79%... And the Top 10 had gained 241% to reach a $719,000 value.
November 25, 2008 – September 20, 2011: The Great Recession
The financial crisis was brutal. Stocks as a whole – including gold stocks – suffered a major crash. The S&P 500 collapsed 57% from its October 2007 high to its March 2009 bottom.
On that date, the Fed announced quantitative easing ("QE"). It would buy assets, bad and good, from financial institutions and flood the markets with liquidity. This initial phase, "QE1," was followed by QE2 and then QE3. The plan ultimately worked...
From QE1's unveiling, gold more than doubled. It soared 120% to more than $1,800 per ounce. Over roughly the same three years, the GSA Top 10 rocketed to a $1.3 million value, up from $180,000. That was a gain of 633% – more than quadruple gold's gain.
January 19, 2016 – August 18, 2016: Presidential Election Year
The presidency switched from Democratic to Republican again after the November 2016 election. But the major price action happened in the first eight months of the year.
Economic growth had slumped in 2016 to a rate of 1.6%, down from 2015's 2.9% increase. The markets expected the Fed to intervene. Instead, the Fed held interest rates steady at 0.5% until after the election. Then, on December 14, 2016, the central bank bumped up the rate to 0.75%.
That ended expectations of a cut. It was a short-lived bull market for gold, but optimism did its job in the early months of the year. The Top 10 more than doubled in the first eight months of 2016... gaining 124% and far outpacing gold and the S&P 500.
March 13, 2020 – September 15, 2020: The COVID-19 Pandemic
The Top 10's fifth bull market of the millennium – which delivered gains of more than 100% in the portfolio – began in February 2020. COVID-19 was spreading across the world, and the U.S. economy was going into a recession. Those who could do so stayed at home to escape illness, and unemployment soared.
The Fed had already cut rates from 1.75% to 1.25% on March 3, 2020... But it slashed them again to 0.25% on March 15. Rates stayed there for two years.
That sparked a quick six-month bull market for the Top 10. The portfolio rose 135%, driven by gold's 28% gain during that period.
These gains speak for themselves. And now, we're at the start of the sixth bull market in gold stocks...
The central bank is about to shift to a "wait and see" posture, as we covered yesterday. That's what we expect from the Fed's next two-day meeting, which will end on June 14.
It takes about two years for changes in Fed policy to show up in the economy. So if the Fed stops raising rates, it's likely to hold them steady and watch for the economy to catch up to its actions. We could even see rate cuts from here.
If that happens, the gains in high-quality gold stocks will be extraordinary. You don't want to miss it...
John Doody with Garrett Goggin
Editor's note: The last time John saw a similar setup in gold, his strategy returned gains of 1,161%. That's why this moment in time is so critical. Investors who get in on this boom early – by buying the right gold stocks now – could have a shot at life-changing gains. But to make big profits in gold stocks, you need to avoid the duds... Learn more about John's proven approach in this recent interview.
The conditions are lining up for the Fed to start cutting rates. This might seem far-fetched at first. But the central bank began hiking interest rates with one goal in mind – to cool the economy. That goal is likely changing now, for two specific reasons... Get the full story here.
The Fed isn't the only bullish trigger we're seeing for gold. The metal just staged a major rally, hovering near all-time highs. And for traders who obsess over chart patterns, this kind of price action is a classic signal of more gains to come... Read more here.