The Oxford Club Guide to Gold: The Owner’s Manual

Deep underlying forces are forming like a tsunami behind gold… 

In fact, gold is positioned to go higher – potentially much, much higher. And that’s why we think the next huge bull market in gold and gold stocks could be just around the corner. 

One of the freaky things about a tsunami is that it’s barely noticeable out at sea. 

It’s when one finally hits land that it starts to rear up and tower overhead, astonishing and terrifying all who see it. We’re about to see something like this in the gold market. 

Here are some of the underlying fundamentals…

• Gold’s role as a safe haven was ignored because of more attractive opportunities for years. But now, as the market is buffeted by geopolitics, inflation, staggering debt levels, a pandemic, the first major war in Europe since World War II and more, the world needs a safe haven more than ever. As a result, precious metals are looking like an attractive alternative. 
• Previously, China’s currency was pegged to the dollar. Now that peg is loosening. And China’s government seems to want to loosen it more, a necessary step on the road to economic growth. China’s central bank is buying gold as a means of backing up its currency. 
• For years, central banks held open the floodgates to easy money. Japan, Switzerland, Germany and the U.S., to name a few, pushed long-term interest rates near zero. Lower interest rates allow gold to better compete with other interest-paying assets. Even as interest rates go up, it will be a long time before gold is truly outperformed by interest-paying assets again. 

Another important development is China’s ambition to make the yuan THE world reserve currency – replacing the U.S. dollar in all sorts of international transactions. Russia has already made things easier for China on that front by demanding payment in rubles for oil and natural gas. 

And this tidal wave of change is going to send gold prices surging… 

China has many good reasons for doing this. It would lower borrowing costs for Chinese companies, especially those abroad… push more central banks to hold yuan, boosting demand… speed up financial reforms… and allow China to set prices for natural resources, from oil to iron ore… 

And it would especially pave the way for a more multipolar world, boosting China’s prestige as the U.S. goes into decline. 

As it stands, the U.S. dollar makes up just 58% of world central bank holdings. And that number has shrunk steadily from 63% since early 2021. China would love to snag a big piece of that action. 

And there is every indication that China is continually adding to its gold reserves. The speculation is that China is possibly holding DOUBLE its reported gold reserves. China has been an active buyer during the past decade, even as prices plunged. 

If the global investment community learns that China is adding to its gold reserves in a big way, that would make gold one of the most undervalued assets on the planet right now. 

Go for the Gold

There are many reasons gold has remained dormant and under the radar for the past few years. 

For one thing, like most investments, gold is cyclical and had run up quite a bit during its extended rally from 2001 to 2012. So some cooling off was to be expected. 

At the same time, the U.S. dollar rallied, mainly because of loose monetary policies around the globe. Since gold is priced in dollars – at least for those of us in the U.S. – as the dollar goes higher, gold tends to go lower. 

Meanwhile, the major U.S. stock indexes surged to record levels. It’s a well-established trend by now that when other investments, particularly stocks, are performing well, investors (in the short term) rotate money out of gold. 

Today, the yield on the 10-year U.S. Treasury stands at about 4.22% and is rising. Higher returns on Treasurys make gold look less attractive, so lower is better for gold bugs. 

These are all important factors. But they’re shorter term than the massive forces lining up to push gold higher. Not to mention, with a stock market showing signs of recovery and Treasury rates slowly rising, those short-term forces are changing.

And regardless of what the short-term forces do, we think the prices of gold and miners are simply resting before they shoot higher in the years ahead. Here’s why… 

For starters, resources are cyclical in nature. Cycles can be shortened or extended. But the cycles remain a core foundation of price movement. 

As an investor, you need to understand that it appears gold and miners hit bottom at the end of 2015 after a long, multiyear down cycle. Since then, gold has slowly been trending back up. 

Now, there’s no magical length to any cycle. They do vary. But gold is definitely near the bottom, not the top. The same goes for miners.  

Invesco PowerShares studied data from 1973 to 2016 to show how commodities typically go through a boom-and-bust cycle every seven years or so. 

The latest “boom” started early in 2016, but the price of gold is only just above its previous highs in 2011 and 2012. And at the time of writing, inflation is at 2.4%. Even though it’s down from 2022’s rampant rates, it is still far worse now than it has been in the last few decades, so the incentive to preserve one’s wealth with precious metals is still high. 

The commodities bull market should last at least seven years. And thanks to the preceding bear market, which strongly discouraged investments into new gold mines, it could significantly exceed seven years. 

The unintended benefit of lower gold prices is that it forced the better producers to become much leaner in terms of cost structures. Producers are making tough calls in terms of costs, projects and rationalizing their overall operations. 

In addition, governments across the globe are making it more difficult for mining companies to put deposits into production. This is due to greedy politicians and vocal environmentalists who put personal agendas before people and prosperity. 

More and more seeds are being planted for an incredible future move in well-managed gold producers that could make the tech boom look like a tea party. And all the fundamental drivers for a bull market in gold are still in place. 

Globally, interest rates are low – that won’t change for years to come, even with the rate increases from the Fed (which may be about to come back down). There’s strong demand from both emerging market central banks and investors around the world… and most telling of all… 

The market has largely recovered from a rough start to the 2020s. But many investors are still shaken by the collapse and looking for a safer alternative to stocks… 

The accumulated effect will have dramatic implications for all investors. It’s the consequences of governments around the globe printing more and more money on a massive scale.

The Case for Gold

Chinese demand:  As mentioned above, we think China’s current stockpile is much higher than reported and that the People’s Bank of China is still buying more… 

Emerging market demand: It’s not just China that has gold fever. Demand for physical gold is expected to rise in other countries, including the United Arab Emirates, India, Vietnam and Indonesia. China alone is the world’s second-largest gold consumer, behind only India. 

And these are countries where millions of people are joining the middle class. That means they’ll have more money to buy more gold. 

Potential for inflation: The monetary base has exploded worldwide in a way we’ve never seen before. History has shown us that when the money supply grows faster than the economy, it creates inflation. 

According to the World Bank, the U.S. has averaged less than 2% GDP growth since 2010. Compare that with the more than 128% growth in the money supply since 2010, and then decide whether you should be concerned about inflation. COVID-19 and the Fed’s response to it, flooding the economy with cash, caused the cash supply to jump by 18% in April 2020 alone, and it kept going up. 

Also, remember that the U.S. is not alone in its money-printing habits. The supplies of most currencies are expanding rapidly. And inflation was the worst it had been since the 1970s, between the abolition of the gold standard and the unending money printing that has gone on over the past 50 years. While inflation has cooled off, the consequences of 2021 and 2022’s inflation will be with us for the foreseeable future.  

Sure, gold has underperformed in the past few years. But we’ve seen this happen before, and every time, gold bounces back. We are already seeing the start of a new bull run this year…

Gold has gained close to $600 an ounce or 28% so far in 2024. This puts the asset on track for its biggest annual rise since 2010 when gold gained over 30%. We think better days are just getting started and that it’s a great time to look for value in gold. 

Put Some Gold in Your Portfolio

Gold should be considered a foundational asset within any long-term savings or investment portfolio. For centuries, investors have sought to protect their capital in assets that offer safety, and that age-old rule still applies today. Particularly during times of financial stress and the resulting “flight to quality,” gold’s stability remains extremely compelling. 

As one of the few financial assets that don’t rely on an issuer’s promise to pay, gold offers refuge from the kind of widespread default risk that concerns investors today. All in all, there are a number of good reasons to include it in your portfolio… 

• Portfolio diversification: Most investment portfolios hold primarily traditional financial assets, such as stocks and bonds. Diversifying your portfolio can offer added protection against fluctuations in the value of any single asset or group of assets. Risk factors that may affect the gold price are quite different in nature from those that affect other assets. Statistically, portfolios containing gold are generally more robust and less volatile than those that do not. 
• Inflation hedge: Market cycles come and go, but over the long term, gold retains its purchasing power. In terms of the real goods and services gold can buy, its value has remained remarkably stable for centuries. In contrast, the purchasing power of many currencies has declined, due mainly to the rising price of goods and services. Hence, investors often rely on gold to counter the effects of inflation and currency fluctuations. 
• Currency hedge: Gold is employed as a hedge against fluctuations in currencies, particularly the U.S. dollar. If the world’s main trading currency appreciates, gold prices generally fall. On the other hand, a fall in the dollar relative to the other main currencies produces a rise in gold prices. For this reason, gold has consistently proved to be one of the most effective assets in protecting against dollar weakness. 
• Risk management: Gold is significantly less volatile than most commodities and many equity indexes. Assets with low volatility will help reduce overall risk in your portfolio, adding a beneficial effect on expected returns. Gold also helps to manage risk more effectively by protecting against infrequent or unlikely negative events. 

Three Strategies for Investing in Gold

No. 1: Gold Coins

The best way for you to buy gold coins depends on several things, including where you live and how much money you want to invest. 

But one strategy always holds true when buying them: Buy the most gold for your money. 

This means buying gold with the lowest premium over the spot price (aka melt value, when pertaining to coins). Obviously, you’d want to try to pay as low a premium as possible. 

As a safety precaution, whenever you call a dealer, always have a calculator in your hands and check for yourself after you ask what percentage premium over spot, or actual metal value, you are being charged. 

For those of you who don’t want to spend a lot of money, consider the Austrian or Hungarian 100-corona coin or the large 1.2-ounce Mexican 50-peso coin. Depending on the sellers, these coins generally have low premiums and are good choices for purchasing gold at a low cost of entry.

No. 2: Bullion

Of course, the best way to buy gold – if you have the money – is to buy bullion bars, which have hardly any premium at all. For instance, the 1-kilo bar weighs a little more than 2.2 pounds and contains 32.15 ounces. You shouldn’t pay more than 1% above the gold content – and you usually want to aim for less. But remember that it will cost you tens of thousands of dollars for that kind of gold content. And, let’s face it, most people don’t have that kind of money lying around. 

If you are interested in buying gold coins or gold bars, we suggest contacting one of our Pillar One Advisors, such as Asset Strategies International. 

Asset Strategies International
Michael Checkan, Chairman and CEO
Rich Checkan, President and COO
1700 Rockville Pike, Suite 400
Rockville, MD 20852
Phone: 800.831.0007 or 301.881.8600
Web: www.assetstrategies.com
Email: infoasi@assetstrategies.com

No. 3: Gold Miners

For those of you who want to take a more conservative route (but a potentially very profitable one) to invest in gold, we suggest a gold-focused exchange-traded fund (ETF). 

Although we are certainly advocates of holding individual gold stocks, when we see a big positive trend unfolding, it’s a good strategy to “play the field.” This way, you can avoid investing in a company that ends up with operational problems – and therefore a declining price – even while a gold bull market rages on. 

That’s why we’re recommending purchasing the Sprott Junior Gold Miners ETF (NYSE: SGDJ). This ETF holds scores of mining companies and is a better choice than trying to pick one or even a few different mining stocks. 

Each stock’s weighting in the fund is adjusted based on two factors: revenue growth and price momentum. 

This ETF tracks the Sprott Zacks Junior Gold Miners Index. It enables you to capture the performance of the best of the junior mining sector with a single, well-diversified investment. 

Though we fully expect the price of gold to rise from current levels, the recent peaks and corrections in the gold market show that this won’t be a strictly vertical climb. So if you do buy gold miners or funds that hold baskets of miners, brace for ups and downs along the way. 

Action to Take: Buy the Sprott Junior Gold Miners ETF (NYSE: SGDJ) at market. We’re using a 35% trailing stop here due to the sector’s higher volatility. 

Whatever investing method you choose is up to you. But we highly suggest making sure you have some exposure to gold… and soon. 

It’s still early. Most people still own little or no gold. As it becomes clearer what’s happening, they will buy more. The fundamentals are there for some bullish years in gold. We suggest beating other investors to the punch while gold remains cheap relative to its future potential.