As Precious Metals Soar, Mining Stocks Could Become the Next Big Trade
If you are looking for the next big trade, it might be a good idea to pay close attention to mining stocks. More specifically, precious metals mining stocks. They could increase in value immensely as gold and silver prices increase.
Before going into any details, let’s get one thing straight; mining stocks only increase in value if the precious metals prices increase. As it stands, the fundamentals of the gold and silver markets suggest that we could be in for a surprise in the coming years. It’s possible that gold prices could soar above $2,000 an ounce and silver prices could soar over $50.00 an ounce in the next few years.
Now, why bother looking at mining stocks and not the precious metals themselves?
Mining companies provide leverage returns in times when gold and silver prices soar.
Here’s one example that could provide some idea…
Between 2002 and April 2011, gold prices increased by 460%. In this same time, gold miners like Goldcorp Inc. (NYSE:GG)—a well-known gold miner—increased 678% in value. Simple math: for every one-percent increase in gold prices, Goldcorp stock increased by 1.47%.
There were a few mining stocks that performed much better than GG stock. Randgold Resources Ltd. (ADR) (NASDAQ:GOLD), for example, soared over 3,100% in the same time. That’s about 6.7% for every one-percent increase in gold prices.
What’s Next for Mining Stocks?
As precious metal prices are setting up to increase, mining stocks are presenting a great opportunity. If gold prices do hit $2,000 and silver prices surge to $50.00, mining stocks could make investors very rich.
Why? Here’s the thing; gold and silver mining companies remain relatively ignored by investors to this day. Look at the chart below of the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX). It tracks the performance of gold mining stocks. At the bottom, GDX’s performance and gold prices’ performance is plotted.
Chart courtesy of StockCharts.com
In the time that gold prices have dropped 10%, mining stocks have tumbled over 61%.
Here’s something you won’t hear in the mainstream: As gold and silver prices were dropping, a lot of mining companies were focusing on becoming actual businesses.
Before, when gold prices were increasing, they were too comfortable. Now, if you look at their financial statements, miners actually have something to show. They have cash on hand, their operating costs are low, and they are spending a lot of money to do further exploration—this is essentially an investment in future production.
Don’t Overlook Mining Stocks
Dear reader, I will be honest here; if you held mining stocks between 2011 and now, it was definitely a rough time.
Going forward, mining is one of the only few sectors I am bullish on. Miners have actually started to act like they are businesses. Talk to any veteran in the industry, this is something they haven’t really seen before. All of a sudden, they are talking cash flow and managing their expenses. Between 2002 and 2011, those were the things very few talked about.
When I see miners selling at 60% below their peaks in 2011, I see it as a massive discount.
I will make a bold statement here; this time around, we won’t need a massive increase in gold and silver prices for mining stocks to double.