With its best start to a year in three decades, gold’s long bear market is finally over. John Stepek asks if it can continue, and picks the best way to profit from it.
Back at the start of December, Ed Chancellor wrote a cover story for MoneyWeek magazine suggesting that gold miners had finally hit absolute rock bottom, and that they were ripe for a fresh bull market. We listed a number of gold stocks including Randgold Resources, one of the best-known gold miners to London investors at least which looked like good opportunities.
But overall, Chancellor's argument was that gold miners had been through such a tough time of it that the surviving ones were now leaner, meaner and keener much more profitable even at lower gold prices and that the market hadn't yet recognised this. Even if the gold price fell further, gold miners were worth buying.
Now just to get this into perspective, on 4 December, the publication day, the London-listed VanEck Vectors Gold Miners UCITS exchange-traded fund (ETF) which tracks the price of the biggest US-listed gold mining stocks was trading at $15.09 per share.
Now, to be fair, that wasn't the exact bottom of the market. In late January, the gold miners ETF bottomed out at just below $13. But I think it's fair to say that you wouldn't be weeping now if you'd bought it when we recommended it it's now trading up at around $25 a share.
As for Randgold Resources, it was trading at just below £43 a share when we tipped it. It's now at almost £60 a share. Yesterday, it reported that profits in the first quarter of 2016 had risen by 19% compared to last year, and 25% compared to last quarter. This comes after the company had already described 2015 as "one of the best in its history".
Chief executive Mark Bristow said: "We're quite bullish about gold's medium to long-term prospects", even as he reassured investors that "we are able to continue delivering value at current and even lower gold price levels".
Now, we're still bullish on gold miners, and we'd carry on holding them. But they have come a long way in a very short time. They might be able to keep making decent profits even at a lower gold price but they'd certainly make a lot more profit if the gold price keeps going up as it has so far this year.
So what are the prospects on that front?
Charlie Morris, Dr No, and demand for gold
The Fleet Street Letter
Why does that matter? Because it's a 20% rise from gold's December 2015 low of $1,050. In short, if we were going by the technical rules of thumb used by analysts, gold is back in a bull market.
Charlie, of course, wants to see the gold price remain above this level before he's keen to declare a full-blown bull market. That's what I like about Charlie. He is one of the smartest gold market watchers I know. He likes gold (and bitcoin, incidentally), but he's not at all blinded by ideology he's not crossing his fingers and praying for the price to go up so that the false world of fiat money and grasping governments collapses in under its own contradictions. His analysis is deep, clear-headed, and free of bias.
He's looking at all sorts of indicators everything from ETF inflows to the mentality of short-term traders to give his readers a better idea of where gold could go next.
You can get an idea of how Charlie's thinking works (and the secret of his intriguingly-named "Dr No" indicator)in this video.
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John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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