Gold futures are sneaking toward new all-time highs.
The holiday-shortened trading week was relatively quiet for stocks. But while equities are snoozing, precious metals are streaking higher - and serious investors need to wake up and pay close attention to this action...
Gold futures continue to build on this reignited rally, gaining as much as 12% off the March lows as the yellow metal finally vaults above the mythical $2,000 mark near its all-time highs. As I noted earlier this year, gold has never posted a monthly close above $2,000. Yes, April is still young! But if this momentum continues, we should watch for gold to finally get over the hump.
Evidence continues piling up in favor of a huge, sustained move in precious metals.
The US Dollar index remains stuck in a downtrend following its September 2022 blow-off top. The buck turned lower again following a February rally and is fading near 52-week lows. You know the drill: dollar down, gold (and risk assets) up.
The recent bank crisis is also helping to shift the market narrative to a pro-gold environment. Silicon Valley Bank headlines gained mainstream traction and we're beginning to see a narrative shift. Will more investors begin to view the economy as unstable and start to seriously consider safe haven investments?
It certainly feels as if the tide is turning. Last week, soft jobs numbers started to get some play in the mainstream media. CNBC is even playing into these bearish ideas, cranking out these amazing, bearish soundbites about the slow-moving recession unfolding in the U.S.
Many investors overlook the importance of these storylines as a new trend is developing. But I cannot stress enough the importance of Main Street investors and the media buying into the narrative. Every successful breakout needs a groundswell of sustained support from buyers in order to sustain the move. Grabbing the attention of a relatively small group of goldbugs won't get the job done...
With gold futures retesting $2,000 early this week, we'll soon get confirmation if this is indeed the first wave of a new secular bull run for precious metals.
Now, the question is: What will you do to profit from the move?
Physical gold is an obvious choice for the longest time frames, as well as an "insurance policy" against any impending macroeconomic doom. But if we do see an extended impulse move in the metals, you'll also want exposure to miners and other gold-related names through equities.
Parking your money in an index fund isn't going to get the job done. There is precisely one gold miner in the S&P 500: Newmont Corp. (NEM). If you want precious metals exposure, you have to go out and get it.
Here are three ways to get started...
The precious metals miners are the obvious choice when it comes to capitalizing on an extended gold run. In fact, I like to think of gold miners as an easy way to buy a call option on gold, as they tend to post faster gains during bull runs.
But it's important to understand what you're dealing with when you decide to buy miners. For starters, there are less than 50 pure-play, publicly traded gold miners trading on US exchanges.
All but seven of these have market capitalizations below $10 billion - so we're mostly dealing with very small companies.
It makes sense. After all, miners have been out of favor for more than a decade. Plus, these are mostly bad businesses, especially as we move down to the smaller players.
The best way to gain exposure to the group while limiting your risk to individual earnings blow-ups or other issues is through the VanEck Vectors Gold Miner ETF (NYSE: GDX).
GDX is currently consolidating above the critical $33 pivot after rallying 30% off its early March lows. If you're projected hold time is more than a few weeks, pauses like this above $33 offer excellent buying opportunities.
If you're a shorter-term minded trader, you can add some leverage to your gold trading.
Obviously, leveraging up adds additional risks to the mix. For starters, timing is even more critical when it comes to playing momentum moves. Buying too early in anticipation of a big move just won't cut it. You'll need to watch the market more closely and go into your trade with a concrete exit plan.
Even with the added element of timing, you can still pull off quick gains if you capture the meat of gold's next big move. We've already established that any meaningful extension above this $2,000 breakout will bring a ton of extra attention to gold. That means plenty of new traders piling on to capitalize on the next leg higher.
You might want to opt for call options on GDX - or even a breakout miner if you're feeling frisky.
There's also another option: the Direxion Gold Miners Index Bull 2x Shares (NYSE: NUGT). This is a leveraged fund that will move twice as far as the miners index - hence the 2x.
The main caveat with NUGT is that it's for trading purposes only. Do not attempt to buy-and-hold this (or any) leveraged fund! Wait for the next breakout and plan a holding time of a few days to a couple weeks to squeeze the most gains out of your trade.
I jokingly referred to Bitcoin as fake gold recently, and a few readers gave me some grief, insisting I should instead refer to the flagship crypto as digital gold.
Fine. I see how one can make the narrative connection. No, Bitcoin isn't gold. But I do think it could benefit from the broader "anti-dollar" narrative shift we're seeing in the market right now.
Although Bitcoin has traded like a tech stock since the bear market began in late 2021, it's not a stretch to imagine it breaking from this relationship and building its own rally independent of the beaten down tech-growth stocks.
The move might have already started. Bitcoin has consolidated at and above $28K for nearly a month following its own explosive breakout above $25K back in March.
Believe it or not, Bitcoin entered 2022 just below $50K before surrendering to the bear market and losing more than 60% of its value. Will the next move break $30K and produce another $10K-plus run?
It's possible.
Maybe add some digital gold to your pocket just in case...
Those are just three ways to play gold's rally, but there are plenty more opportunities you can capitalize off of in order to profit.
Let me know your thoughts on gold (or any other topics you want covered) by emailing me here.
The Daily Reckoning