It’s time for a change of pace.
Gold is back in the picture.
And there’s good news for gold lovers. It’s back to behaving as it should behave. Since the start of the year, gold has climbed more than 13%.
So much for our claim that gold wouldn’t do much this year. Although, we won’t say we got it completely wrong. We said there would be better places to invest your money.
It turns out you could have made twice as big a return if you had bought another kind of gold…
Last year gold had its first losing year in 12 years.
This year it has a chance of ending the year in the black. The low point for gold over the past year coincided almost exactly with the end of 2013.
So providing that low point acts as a support for the gold price, there’s a good chance that gold investors will have a profitable year.
Of course, the reality is that most serious gold investors don’t care about the gold price. Most serious investors (those who own bullion rather than exchange traded gold) buy gold for the long term.
They don’t buy it as a one-week, six-month or one year trading bet. They buy gold because they know governments and central banks will devalue a nation’s paper money over the course of many years.
So when that happens (as it surely will), gold investors know that they have a safe asset that should be worth the same to them 40 years from now as it is today.
On the other hand, with this other kind of gold there’s no such certainty, but there is the potential to make a lot more money.
Stocks Beat Gold Again
As Bloomberg News reports:
‘Investors seeking a hedge against a waning U.S. economy recovery and escalating conflict in Ukraine made twice as much money buying gold-mining shares rather than the metal the companies produce.
‘The Market Vectors Gold Miners ETF climbed 35 percent this year, more than double the 12 percent advance for the SPDR Gold Trust…‘
This provides more proof for the idea that stocks are the best way to build long term wealth. Gold is great. You should own it. But if you want to make real money, the best place to do it is in stocks.
That’s why we often refer to the Bloomberg Billionaires Index. We point to the fact that there isn’t a single person in the top 100 who has amassed their billions by investing in gold.
The vast majority of the Bloomberg Billionaires made their fortunes by investing in businesses. They’re entrepreneurs or capitalists who have an eye for making money.
But that’s not the only message you can get from that report. It also lights a fire under the lie that the resource sector is dead.
Over the past three months the Market Vectors Gold Miners ETF is up 39%. The index that follows the supposedly dead Aussie resource sector, the S&P/ASX 300 Metal & Mining Index is up 2.3%.
Sure, that’s nothing to crow about. But it’s only just below the performance of the S&P/ASX 200 index, which is up 4.9% over the same timeframe.
The point we’ll make here is that despite all the talk about China’s economy collapsing and emerging market turmoil, the reality is that the market had already taken this into account over the previous two years, when resource stocks fell.
We’ve said it more than once so we’ll say it again: this isn’t the time to sell, it’s the time to buy. It turns out we’re now gaining some support from the mainstream on our position.
Don’t Repeat The Mistakes of The Past
Take this from another Bloomberg report, quoting Sam Vecht, fund manager at BlackRock Emerging Europe Trust Plc:
‘“For several years we had been relatively bearish on emerging markets in general and Turkey in particular, but in the last few months we have turned more bullish,” Vecht said. Investors getting out of emerging markets now risk repeating the mistakes of 2009 to 2011, when many were too late to share in the biggest gains, he said.‘
The important thing with any big picture approach is that it’s almost impossible to pick the exact bottom of the market. Vecht admits that when he said he turned bullish a few months ago…before emerging markets took a beating.
The same has happened to us. We started looking at emerging markets around the middle of last year as an investing opportunity. And as for the resource sector, we turned bullish on that market around this time last year.
So, did we get it wrong? Of course we did. Look at any resource or emerging market price chart and you’ll see that. But has it changed our view on both sectors? Not a bit.
Hunting for a Crisis That Doesn’t Exist
Markets move all the time. They move up and down second by second. The important thing is to take into account the big underlying trends.
And the big trends are that there will always be a demand for resources, and Asian economies (despite the bumps) are on an inevitable growth path. Remember, China’s economy is set to double within the next nine years.
Plus, there’s the other factor that we’ve also written about for some time – the urge among some to seek the glory of picking the next market crash.
From the same Bloomberg report, quoting Paul McNamara, fund manager at GAM UK Ltd:
‘“Everyone who missed the 2008 crash wants to call the next one, and emerging markets are the new-found object of expertise,” McNamara said in e-mailed comments yesterday. “Claims of a global crisis are overstated.”‘
We won’t agree with everything McNamara says, because it depends on which crisis he’s talking about. If he’s talking about the big one…the eventual collapse of the monetary system, then we’d say the claims are actually understated.
But if he’s talking about the global impact of Russia, Ukraine, Crimea, Argentina, or even China, then yes, we totally agree that these are the ‘crash catalysts’ some analysts claim.
In short, while we can’t claim that investing in stocks will get you a place on the Bloomberg Billionaires Index, we can say that if your goal is to grow your wealth over the next five or six years then checking out the beaten-down opportunities on the stock market is the best thing you can do.
Your first port of call should be to check out the latest on resource stocks here. Resource expert Jason Stevenson says the market in certain commodities is set to boom.
We agree.
Cheers,
Kris+
Special Report: Mining Boom Act II
