Are you feeling bullish on gold and silver for 2020? Most people aren’t. Most people sat on their hands in 2019 and ignored the rally in metals … and the red-hot rally in great mining stocks.
So, let me give you five fascinating facts about gold and silver for 2020. We’ll look back. We’ll look forward. And we’ll look at how you can ride what’s coming.
You’ll want to. Because this is going to be big!
Fascinating Fact No. 1: One Gold Rally Leads to Another
Gold rose 18.9% in 2019. That’s its biggest annual surge since a 29.7% jump in 2010. So, what happened in 2011? Gold rallied another 10.08%!
We’re not even a week into the new year and already we’re seeing prices spike. Friday morning saw U.S. airstrikes in Iraq — targeting and killing an Iranian general — which shattered the recent geopolitical respite. Global stock markets fell on the news. But gold rose, hitting a four-month high.
The fact is, we’re in a big gold bull market. I’m not predicting EXACTLY how much gold will rally this year. But the big trend should be higher.
Fascinating Fact No. 2: Silver is Ready to Rocket, Too!
Meanwhile, silver rose 15.5% in 2019. That’s its biggest calendar-year percentage gain since 2016. So how did silver do in 2017? It zigged and zagged. After racking up big, BIG gains early in the year, it gave most of those back. But you know what? Silver still managed to rack up a 7.2% gain in 2017.
Again, we don’t know exactly what silver will do this year. But the big trend should be up. And if history is a guide, silver outperforms any rally in gold.
Fascinating Fact No. 3: Central Banks Have Gold Fever
Central banks got a fever. And, with apologies to Christopher Walken, the only prescription is NOT more cowbell.
No, it looks like the world’s central banks have a fever for gold. A fever that is only heating up.
The World Gold Council says 2019 marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971, and the second-highest annual total on record.
Last year, central bank gold purchases hit a 50-year high!
Central banks hoovered up 684 metric tons of gold last year. They are now consuming a fifth of the world’s gold supply.
Why? As insurance against a global financial system that has cracks around the edges. The fact that gold is safe, liquid, and clocking excellent annual returns probably doesn’t hurt.
And central banks around the world keep embracing looser and looser monetary policy. Historically, loose monetary policy tends to boost gold prices. So, of course central banks are buying gold. They know their actions will drive the gold price higher.
Fascinating Fact No. 4: The U.S. Dollar is Weakening
Late last year, the Fed signaled it was done with rate cuts. The U.S. dollar is acting like no one believes Fed Chair Jerome Powell and his crew.
Looking at this WEEKLY chart of the U.S. Dollar Index, you can see that King Dollar is breaking its weekly uptrend.
Why doesn’t anyone believe Powell? Maybe that’s because, as President Trump pounds the table relentlessly for a weaker dollar — to help boost U.S. exports by making our goods cheaper overseas — the Fed has shown as much backbone as a school of squid.
FYI, colossal squid are the world’s largest invertebrates. See, you’re learning something new for 2020 already.
So, how low will the U.S. dollar go? More and more Wall Street experts are calling for MORE Fed rate cuts in 2020, not less. That could whack the once-mighty dollar all the way down to its 2019 lows.
Why does this matter for gold? Because gold and the dollar usually (not always) move opposite each other. It’s what I call the “seesaw of pain.” And it looks like there is plenty of pain ahead for the dollar, which should mean gains for gold.
Fascinating Fact No. 5: Gold Miners Are Historically Cheap
Speaking of great charts, let’s look at a chart of the NYSE Arca Gold BUGS Index (NYSE: HUI), dividend by the price of the S&P 500. Why the Gold Bugs? Because it’s a basket of gold mining companies, and it’s been around the longest. Longer than even the VanEck Vectors Gold Miners ETF (NYSE: GDX).
So, if you want historical perspective, you use HUI.
Here’s a weekly chart of the HUI divided by the price of the SPX. I’ve included a “zoom thumbnail” on the right side so you can see the most recent action …
You can see that gold miners underperformed the broad market starting in 2011. Every last ounce of optimism was beaten out of these metal-leveraged stocks. Despite a rally in 2016, that underperformance dragged on … and on. It wore out the patience of the most long-suffering investors.
But that changed in late 2018. A rally continued into 2019. It strengthened! And now we stand on the cusp of 2020. Gold miners are cheap compared to the S&P 500. But I wonder for how much longer.
Let’s run over the facts again:
- We know that one big rally year in gold is usually followed by another. Ditto for silver.
- We know that the world’s central banks are buying gold hand over fist.
- We know the dollar is weakening, which usually strengthens gold.
- And we know that gold miners are historically cheap.
I’d say now is a good time to buy those miners.
How You Can Play It
The VanEck Vectors Gold Miners ETF (NYSE: GDX) is approaching overhead resistance at $31.07. Cautious investors will wait to see if the big gold miners index breaks out before buying. That’s fine. More adventurous investors will want to own it — or other gold miners — now.
Because miners are leveraged to the metal. As gold powers up, select mining stocks will rocket.
You don’t have to chase anything. Wait and buy those pullbacks. But “buy” is the order of the day. Because when gold and miners blast off, you don’t want to be left behind.
All the best,