Brodrick's Buys in Gold

09/05/2018 5:00 am EST

Focus: COMMODITIES

Sean Brodrick

Editor, Supercycle Investor and Wealth Supercycle

I think it's time for gold investors to be bold. I believe we are looking at a tradable bottom in gold and miners. And we want to own a stock that is leveraged to the bounce, explains Sean Brodrick, contributing editor to Weiss Ratings.

Why is gold bouncing? Because the U.S. and China have agreed to hold low-level trade talks aimed at defusing the escalating rounds of tariffs. Sentiment indicators show that anyone who wants to sell has done so. Investors who buy gold through ETFs have given up. Holdings in bullion-backed ETFs tracked by Bloomberg have fallen 13 weeks straight. That's the longest bearish run since August 2013.

And it’s not just retail investors. In the week leading to Aug. 14 — the latest data available — hedge funds and other large speculators increased their net short bets on gold. In fact, they raised those bearish bets to the most since at least 2006.

That helped drive gold to a 19-month low last week. But it also laid the groundwork for an incredibly bullish rally. Why? Because there’s no one left to sell. This is so bearish, you could put a ranger’s hat on it and call it Smokey. More importantly, this is so bearish, it’s much easier for the market to go up than down.

What might you buy? Well, there’s the VanEck Vectors Gold Miners ETF (GDX). The big gold miner ETF is a perfectly fine choice. But I’m not satisfied with fine. Rather, consider  gold miners that are trading near 52-week lows. Not explorer or developers, but gold miners. The miners priced like they suddenly ran out of gold.

I’m talking about Goldcorp (GG), Newmont Mining (NEM) and AngloGold Ashanti (AU). AngloGold Ashanti carries more risk because it’s a South African miner, sure. But it’s going to produce 3.3 million to 3.5 million ounces of gold this year. And its all-in sustaining cost (AISC) will be between $990 to $1,060 per ounce. What the heck is wrong with that?

Meanwhile, Newmont and Goldcorp are getting beaten like redheaded stepchildren, yet both are mining blue bloods. Goldcorp produces 2.5 million ounces of gold annually. The Canadian miner expects an AISC of $760 to $840 per ounce.

And Newmont, for Pete’s sake, is going to produce of 4.9 million to 5.4 million ounces of gold this year. And at an average AISC of $995 per ounce.

I’m not waiting. I’m recommending that investors move into gold miner picks. There is money sitting on the table. Sure, there’s risk, too. But oh, the potential rewards.

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