Year to date, the S&P 500 is up 3.5%.
The dollar is down 3%.
But gold is actually up 24%.
And the gold miners index (GDX) is up 35%.
In my humble opinion, the gold miner bull market is just heating up. Let me explain…
Gold’s rally past $2,000 per ounce in August was historic for a couple reasons.
First, it was an all-time high above a key level the precious metal has never seen before.
And second, it means people all over the world are starting to see gold as a superior store of value to their local fiat (government) currencies.
I think it’s only a matter of months before we get to $2,500 per ounce of gold.
That’s because the United States and other central banks around the world are certainly going to have to print and spend trillions of their native fiat currencies to combat coronavirus and the hundreds of millions unemployed.
All the while, gold is limited in supply. Central bankers can’t arbitrarily decide to create more gold out of thin air. Gold is a precious metal that can’t be recreated by combining any number of elements from the periodic table…
In fact, it would take about 60 years to double the supply of gold at its current mining production rate.
Meanwhile, at its current creation rate, the United States is on pace to double the amount of dollars in the system (M2 money supply) in about 5 years.
Put another way, the supply of dollars is growing 12x faster than the supply of gold.
And I suspect many other countries are increasing their fiat money supplies at even faster rates.
All that to say, gold’s value increases as it becomes more scare relative to fiat currencies, which are being printed to infinity with no plans of stopping in sight.
Adding to the money printing mess is the problem of low interest rates around the world.
In many countries, interest rates are already below zero. That means, by loaning out your money, you’d literally be signing up for a contract that’s guaranteed to lose money.
For example, a $1,000 bond with a -1% interest rate will pay the buyer of that bond $990 at the end of the loan term.
One of the biggest drawbacks of gold over the years has been the fact that it doesn’t pay any interest.
But 0% interest is certainly better than earning a negative rate of return…
In the United States, I don’t think it’s out of the realm of possibility for central bankers to push interest rates below zero.
The discount rate is currently at 0-0.25% after the Fed immediately dropped it to zero earlier this year in the wake of COVID-19. And there has been considerable talk around whether it should go negative like its counterparts in Europe and Japan…
If more money printing doesn’t continue to have the same positive effect on financial markets as it has over the last five months, the U.S. Fed would more or less be forced to drop rates into negative territory.
I estimate the probability of this happening around 50%.
But if it does happen, that would definitely put gold on a path to $3,000 per ounce.
The bottom line is… If you believe there is a reasonable probability of continued money printing around the world combined with the lowering of interest rates by central bankers, there are two ways to play the move in gold.
First, you could buy physical gold. But that presents storage problems, counterfeit problems, and a whole host of others.
Second, you could buy this $3 gold mining stock ready to 10x…
A massive gold deposit has been discovered and two well-known gold billionaires recently invested millions in a small junior gold miner with rights to the land.
This stock is still priced around $3, but it likely won't stay secret for long.