21 April 2017
by Justin Spittler, Casey Research:
Make the trend your friend.
Every investor has heard this advice. It means that you should swim with the tide, not against it.
In other words, don’t buy stocks that are in free fall. And don’t bet against stocks that are soaring. After all, a trend in motion tends to stay in motion.
With that said, bull markets don’t last forever. The same goes for bear markets.
This is important because you can make an absolute fortune by buying an asset as it exits a bear market and enters a new bull market.
One of the safest and most proven ways to do this is to buy an asset right after it “breaks out” of a downtrend.
Just look at what uranium stocks did when they broke out of a multi-year downtrend in December.
The Global X Uranium ETF (URA), which holds 22 uranium stocks, jumped 45% over the next couple months.
Here’s another example.
This chart shows the performance of the VanEck Vectors Coal ETF (KOL) since the start of 2011. KOL invests in 27 coal stocks.
Like uranium stocks, coal stocks were in a downtrend for years. But they broke out of that last September. Since then, the average coal stock is up 35%.
• These are big gains for such short periods…
Unfortunately, most investors never take advantage of these situations.
That’s because they don’t realize that an asset’s broken out until it’s already up 30%…40%…or even 50%.
By then, it’s too late. The big money has already been made.
Fortunately, these kinds of huge moneymaking opportunities come along every once in a while. And right now, a huge one is staring us in the face.
Just look at the chart below.
It shows the performance of gold since 2011. You can see that gold’s been in a downtrend for the last six years. That’s the bad news.
The good news is that gold’s been rallying lately. It’s up 15% since mid-December. It’s now back to where it was just before Election Day.
More importantly, gold is now bumping up against its long-term downtrend line for the first time since last summer. It’s trying to break out.
• If gold does break out, that would be a huge psychological win for the bulls…
It could even trigger the biggest gold move in years.
You’ll obviously want to be ready if that happens.
In a minute, I’ll show you how to position yourself for huge gains. But let’s first look at three reasons why I think gold will keep rallying and eventually break out.
• The “Trump Honeymoon” is over…
If you’ve been reading the Dispatch, you know Donald Trump gave U.S. stocks a huge boost.
The Dow Jones Industrial Average set a new all-time high just two days after Election Day. Two weeks later, the S&P 500 and NASDAQ did the same.
Heading into the election, no one thought this would happen. But it’s easy to see why stocks rallied in hindsight.
You see, Trump’s made billions of dollars as a businessman. Because of this, a lot of investors assumed that he would do good things for the economy. So they loaded up on stocks.
There’s just one problem.
Since taking office, Trump hasn’t done half of what he said he would do. It looks like it could be a long time before he “makes America great again.”
A lot of investors are now dialing back their expectations. They’re pulling out of stocks. They’re buying gold instead.
That’s a big reason why gold is up twice as much as U.S. stocks this year. But it’s certainly not the only thing fueling gold’s recent rally.
• Geopolitical tensions are rising…
As you probably know, Trump launched 59 Tomahawk missiles at Syria two weeks ago. A few days later, he dropped the “mother of all bombs” on Afghanistan. He’s also parked an “armada” of U.S. warships off the coast of North Korea.
In short, the world is a much scarier place than it was a few months ago. No one knows how any of this will play out.
And investors don’t like owning stocks when there’s a lot of uncertainty in the air. They’d much rather own gold, the ultimate safe-haven asset.
But there’s more…
• The U.S. dollar is weakening…
The U.S. Dollar Index is down 1.8% since the start of the year.
That might not sound like much. But that’s a big move for the world’s most important currency.
There’s good reason to think the U.S. dollar will keep falling.
After all, Trump has been talking down the dollar a lot recently. Just last week, he said the dollar was “getting too strong.”
This is a big deal.
When Trump won the election back in November, investors bet big that the dollar would strengthen under Trump. The U.S. dollar jumped to the highest level since 2003.
• Now that Trump’s in office, investors are rethinking this trade…
In fact, the U.S. dollar is trading close to where it was just after the election.
This is bad news for everyday Americans. It means the money in their wallet doesn’t buy as much as it did a few months ago.
But a weak dollar is good news for gold. After all, gold trades in U.S. dollars. This means it gets stronger when the dollar weakens.
• In short, there are plenty of reasons to think gold will keep rallying…
It could even break out of its long-term downtrend in the coming days.
If that happens, gold could be off to the races. Obviously, you’ll want to be ready for that.
I recommend you keep a very close eye on gold.
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