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I remember one of my first big wins with a Casey
Research stock, before I worked for the company. It was a junior gold stock Louis
had recommended, and in less than a year I sold it for a double. It was
exhilarating.
I proudly shared my success with someone at a
conference a month later who'd owned the same stock. I was beaming –
until he told me that he'd tripled his money.
How did he do that?! I wondered. I looked back at a chart and found the
stock had briefly sold off at one point, and sure enough a triple would've
been feasible if one had bought during that window. He did.
Last week's abrupt and unexpected sell-off in many
precious metals stocks was a smaller version of that same opportunity.
While in the big scheme of things last week's 8.2%
sell-off in GDX (Gold Miners ETF) was mild, and prices could certainly trend
lower before bottoming, buying during dips and corrections can mean the
difference between a double and a triple. Or a double and a ten-bagger. What
it requires on your part is a well-researched conclusion that the bull market
for precious metals and their stocks isn't over.
Here's a practical guideline. Buy gold anytime it drops
by 12% from an interim high. This is the average correction from any big
spike you'll find on an annual chart. For example, gold peaked at $1,781 on
February 28 this year (London PM Fix price). If you followed the 12%
correction rule, you would've bought at about $1,567. While gold fell as low
as $1,540, you'd be sitting on roughly a 9.3% gain today. And your entry
point would've been made with much less risk.
The 12% guideline doesn't always work because the metal
doesn't always fall that much, but there's usually at least one of these
opportunities every year. There have also been numerous corrections of
between 7% and 8%, so that's another level to look for.
Here's what buying after significant declines could
mean to you. If you need to sell some ounces when gold is at, say, $2,500,
your gain – if you bought at $1,800 while the metal was surging –
would be 38.8%. But buying at $1,567, during the sell-off, would yield a
profit of 59.5%. That difference more than makes up for the tax bill.
I know many readers of this publication already
practice buying the dips. I also know that some don't. For both groups, you
might find my conversations on this topic with bullion dealers last week very
interesting. We talked about the sell-off, the reactions of bullion investors
to Obama's re-election, and the so-called fiscal cliff. I want to share their
comments, which you'll see share some common themes…
- Border Gold told me that a lot of buyers had come
into the market over the past couple of weeks, and further that there's
"not much selling." They also "put together a few larger
deals for American customers… clients are looking for alternative
assets to equity markets, especially in light of Obama's plans to boost
capital gains and dividend taxes."
- A metals trader at EverBank
said that "volume definitely increased." He indicated that the
number of gold ounces purchased roughly doubled in the week after
Obama's re-election.
- The Coin Agent reported that sales are up about
30%, along with the size of orders. They noted that "a lot of sales
are from first-time metals buyers."
- Miles Franklin told me their call volume doubled
last week. They also received several seven-figure orders immediately
after the election.
- Asset Strategies International said that while
they saw a clear uptick in sales, they're also witnessing a new
trend… "We have clients selling their metals to pay a lower
tax rate now, and then re-purchasing them at a
new higher cost basis" [the 30-day "wash rule" for stocks
does not apply to physical commodities]. It isn't just a concern about
the fiscal cliff, either: "Clients are very concerned about the
future of the country. They know the debt will never be repaid and that
there will be consequences."
- GoldSilver.com says that "customers are more savvy these days – many know to buy the
dips." Purchases jumped when gold briefly dipped below $1,700
earlier this month.
- Our own Hard Assets Alliance reported that new deposits the
week after the election were the second highest since inception, and
purchases the third highest. Interest in HAA has been consistently
growing since its founding, surely one reason being the fact that a
client can buy, sell, and store physical metals as easily as any ETF,
but with the security of knowing he owns – down to every single
coin – all the metals stored in his name. Not only that –
the Alliance also offers a variety of international storage locations,
including London, Zurich, Melbourne, and now Singapore.
- And the response has also been very strong to our
offer on a discounted fractional gold coin in the current issue of BIG GOLD. If you're interested, they've still
got coins available – there's no minimum and it comes with free
shipping, making your total cost lower than buying a one-ounce coin.
It's a very attractive deal that you won't find elsewhere, and a
fractional coin will someday be very practical for smaller, day-to-day
purchases.
I think those who've been buying recently will be well
rewarded by the time this cycle is over... certainly more than those who tend
to buy when prices are rising.
No one knows with certainty what the future holds. But
our research, along with some clear lessons from history, tells us that
precious metals are not only a good place for profits, but a must-own asset
class.
Don't fear the sell-off. It's times like these when we
make our money.
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