Once dismissed by notorious investors like Warren Buffet as a “valueless” investment, gold has quickly moved to the forefront of conversation as it has become one of the best performing assets this year.

As of the time of writing, gold prices have skyrocketed, climbing up to the price targets we set earlier this year and then exceeding them. Gold has now soared past its prior all-time highs around $1930/oz., originally set in 2011, to trade above $1990/oz. In fact, gold futures contracts have completed an amazing 14-day winning streak, and have surpassed $2050/oz. in intraday trading.

Even the high-flying NASDAQ, which staged a historic rally and has surged to all-time highs of its own, hasn’t come close to beating gold on a year-to-date basis:

With all the attention gold is seeing now, it’s no wonder someone not invested in gold might feel like they’ve been missing out. Is there any time left for investors who missed out to participate?

It’s times like these, when bullishness is at its peak and the case for gold seems like it could only get stronger, when due diligence and careful analysis will pay off.

Gold’s True Value in a Portfolio

As we explain in our new free report, “Why Gold Could Rise for the Next 10 Years,” the first thing investors should understand about the gold markets, which are the trickiest ones we know, is that they operate in a fundamentally different way from the stock market. Gold, unlike stocks, is a store of wealth, much like any other currency.

While it is of utmost importance that investors understand gold’s fundamental role as a hedge against inflation, gold markets are not immune to human emotion and psychology, which can have just as strong an effect, if not more, than the fundamentals.

A hedge against inflation is not a hedge against crises, however, as many gold traders unfortunately learned earlier this year:

While gold significantly outperformed stocks during the historic February to March crash, it nonetheless saw a drawdown of 14.8% in only a few days while stocks plunged by more than 35% (S&P 500). The buying opportunity that emerged afterwards, however, highlights gold’s true value in a portfolio as gold has surged to a gain of more than 30% thus far in 2020 alone.

Gold, Central Banks, and Liquidity...

The gold price just rocketed through $1,900, marking the highest level since the record high peak in late 2011. This move should not come as a surprise to anyone paying attention to the current financial landscape. The FED has injected an unprecedented amount of new money/debt into the economy since March in efforts to avoid a collapse from the impact of the Covid-19 virus and subsequent restrictions of business activity globally. Over $6 trillion in stimulus so far is roughly double the entire amount injected during the financial crisis of 2008/09. And they are just getting started.

The Federal Reserve has stated that stimulus efforts will last for years and they have committed to do “whatever it takes” to keep the economy afloat. The Federal Reserve balance sheet has shot from $4 trillion pre-crisis to $7 trillion today. This is the highest level on record by a wide margin and the fastest it has ever increased. And this is before the 2nd round of stimulus, which is currently being negotiated. While there are plenty of dollar bulls amidst a global dollar shortage, they have been incorrect in their bullish outlook thus far. The dollar index has dropped from a high of 103 on March 20th to just 94, a significant drop in just a few months to the lowest level since September of 2018. 

It turns out that when the money printer goes brrrrrr, it is indeed bearish for the dollar and bullish for gold, which is now up 25% year-to-date. This compares to a loss of 0.5% for the S&P 500 and even outpaces the gains of the red-hot NASDAQ, which is up 15% in the same time period. While we advocate holding some physical gold, it has been mining stocks that have generated the best gains in 2020. The VanEck Vectors Gold Miners ETF (GDX) is up 42% year-to-date and many of the junior miners that we hold in the Gold Stock Bull portfolio are up 100%. Miners see their profit margins increase at a faster pace than the gold price, which often results in leveraged gains.

The recent breakout above resistance at $1,800 (red circle in the chart) was very significant for gold and was followed by a quick rally of an additional $100 to $1,900 per ounce. And there is plenty of upside left in this rally in our view, with the price still below the mid-point of the trend channel. If we use the last major bull cycle in gold as a guide, we forecast the price to climb toward $6,000 by the start of 2026. This would represent another 10-year cycle and 6x move from the December 2015 bottom around $1,050.

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