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I’d recently noted on these pages that gold’s near-term rally was looking tired and that I thought gold would top out near $1200 near-term:
“I think gold could top near $1200 near-term. Longer-term I think gold could be $5000/oz during my lifetime. The GDX call options were just a trade though. Most gold miner stocks also have too much debt and if gold doesn’t stay above $1200, there could be some bankruptcies in the next few years in gold miner stocks too.”
And it looks like gold did exactly that. Meanwhile, there’s a real lack of profitability at the gold miners with gold back near $1100 again. The long-term debt that most of these gold miners carry is problematic and investors in these stocks are basically betting that the price of gold will rise back to $1200 or higher in the next few months so these gold mining companies can at least survive. The set up for gold miners is akin to the same analysis I’ve found when I’ve analyzed energy and oil stocks as most of the companies in the sector have too much debt and investors in oil stocks are basically betting that oil itself will rise back towards $60 or higher in the next few months so those oil companies can at least survive. I’ve also highlighted Freeport McMoran over the last year or two as being in a similar set-up.
Noah Blackstein, an old friend of mine who runs the U.S. and global growth portfolios for Dynamic, as well as two hedge fund mandates used to say to me that ETFs are for those too lazy to dig in and find specific stocks in a sector. A few months ago I bought some calls on the GDX gold miner ETF and later trimmed most of those down and locked in some profits. In the months since then, I’ve been digging in on a lot of various gold miner stocks, and using my Revolution Investing analysis on these individual names has left me underwhelmed about their prospects and I can see why the $GDX itself is struggling.
So can you trust the next leg higher in gold or oil or any other commodity? Simply put, I don’t think it’s a good idea to worry about trusting the next move in oil or gold or any other commodity as I’ve been explaining all year. While most every other investor/pundit and trader has tried to nail a bottom in the energy sector and energy stocks, we’ve been riding our Revolution Investing strategy to new highs as a Trading With Cody subscriber reminded me yesterday.
So let’s stick with our playbook, which will include me making a few mistakes along the way as I focus on finding secular growth industries and own the best positioned names, buying them when they’re still cheap before the world realizes just how well they are revolutionizing things.