Gold mining stocks are on the brink of a run that could bring gains of up to 1,500%.
That may seem preposterous to those who followed the more than three-year pounding gold mining stocks took from late 2011 through 2015 - including the biggest names in the industry. Newmont Mining Corp. (NYSE: NEM) fell as much as 77%. Yamana Gold Inc. (NYSE:AUY) plunged more than 90%.
But as gold prices rose through the first half of 2016, gold mining stocks started to recover. Newmont rose as much as 150%, while Yamana soared more than 200%. Both are still higher than where they started 2016, but remain far below their 2011 peaks.
And that's exactly the point...
Why Now Is the Time to Buy Gold Mining Stocks
Gold mining stocks not only tend to follow the price of gold, they amplify the peaks and valleys. In the chart below, we've compared the price of gold since 1999 to the NYSE Arca Gold BUGS Index (NYSE Arca: HUI), which tracks gold mining stocks.
Now look at what happened in the preceding gold bull market. The price of gold rose an impressive 650%.In the most recent gold bear market, gold prices fell about 44.1%, compared to the 73% drop in the Gold BUGS index.
But the gold miners index jumped 1,300% in the first leg and eventually 1,500% at the ultimate peak in September 2011. Gold mining stocks more than doubled gold's gains over the course of that bull market phase.
Right now we're in a period between the last gold bear market and the next gold bull market - obviously great news for gold mining stocks.
Since 1970, the yellow metal has gone through five bull market phases and five bear market phases.
The average bear market has lasted 50 months and dropped gold prices by 44%. The current gold bear market is already 63 months old. And gold prices have declined as much as 44.1%.
Historically speaking, the turnaround in gold is very near.
What to Expect from the Next Gold Bull Market
"As some of the excesses in other asset classes get unwound, gold will perform very strongly," Diego Parrilla, a precious metals analyst with Old Mutual Global Investors, told Bloomberg in September. He has more than 20 years of experience in the precious metals markets.
Parrilla believes that we're very close to the next big gold bull market and sees "a few thousand dollars of upside."
The average gold bull market has lasted 63 months and produced a 385% gain. That means investing in gold mining stocks today could generate huge profits over the next few years as gold prices rise.
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Anything close an average gold bull market will send gold mining stocks soaring 600%, and a particularly strong gold bull market - like the last one - could deliver gains as high as to 1,000% to 1,500%.
While almost all gold miners will rise in the gold bull market, the best gold mining stocks will deliver exceptional profits to their shareholders.
These gold mining stocks are your best bets...
The Best Gold Mining Stocks to Buy for the Coming Bull Market
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In deciding how to take advantage of the forthcoming gold bull market, investors have several options.
For the most risk-averse, there's an exchange-traded fund - the Market Vectors Gold Miners ETF (NYSEARCA: GDX). This ETF is focused exclusively on the gold mining industry; all of its holdings are gold mining stocks.
Like the gold miners themselves, GDX rose last year but is still down nearly 65% from its peak in 2011. Because of its diversity -- the Gold Miners ETF holds about 50 different gold mining stocks - the GDX protects investors from problems that might beset an individual company, even in a gold bull market.
But for bigger gains, investors will need to step up to an individual stock. The best prospect among the major gold miners is Barrick Gold Corp. (NYSE: ABX). It's the biggest gold miner in the world, producing 6 million ounces of gold a year. Barrick has operations on five continents.
Barrick has one of the lowest all-in sustaining cost (ASIC) levels in the industry, about $760. The ASIC is what is costs a miner to extract an ounce of gold from the ground. It needs to be below the current price of gold for the miner to be profitable. The lower the ASIC, the more profit the miner makes.
Barrick also has reduced its annual capital expenditures by more than 75% while paying off $5 billion of its $13 billion debt. The stronger financial position gives Barrick the flexibility it needs to exploit lucrative opportunities as they arise.
Money Morning Executive Editor William Patalon, III, likes Goldcorp Inc. (NYSE: GG) for many of the same reasons. He first recommended Goldcorp about a year ago.
Patalon was impressed by the company's willingness in 2000 to open up one of its geological databases to the public, inviting anyone to suggest potential drilling sites. Eventually the digital prospectors identified 110 targets - 80% of which yielded significant amounts of gold.
That's made Goldcorp an anomaly - a gold miner dedicated to innovation in a conservative-minded industry.
"The gamble paid off, and allowed Goldcorp to leapfrog many other miners," Patalon said.
Goldcorp lagged other miners last year, but has a plan in place to increase production 20% over the next five years. It's lowered its ASIC to a healthy $812, but expects that number to fall all the way to $700.
"Goldcorp is one of the better-run major miners. If there's any kind of prolonged rally in gold, as I expect there will be, Goldcorp will be a big beneficiary," Patalon said.
But as much as Patalon likes Goldcorp, he's found another, even better way to play the coming gold rally.
He believes this stock has the potential to deliver returns of up to 10,000% over the next few years... you can find out more about this opportunity here.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.