January 09, 2023
Believe it or not, we made it to the end of 2022 without officially dipping into a recession.
At least, this is what Fed is telling us.
Some can argue, referring to out-of-control inflation, negative real interest rates, and growing unemployment, that a recession is almost certainly going to happen soon. And the fact that we're not yet in a recession yet doesn't mean we are out of the woods.
Most analysts expect a recession in the next 12 months. According to Bloomberg, 70% of the 38 surveyed economists bet on a recession in 2023.
And we see the market getting ready with another wave of selling in stocks of all sizes and in all industries.
The good news, gold is finally doing its job and protecting investors' wealth. The gold price has been on the rise since late September. And while the gain is modest at about 9%, it's still much better than the performance recorded by major stock indices. The S&P 500 is up 7%, while the TSX Venture index is down 4%.
Moreover, some gold stocks outpaced the metal itself. Most investors overlook these because mainstream media doesn't cover these stories.
But here are some of the stunning facts that can help you survive and even potentially profit during the looming crisis.
For gold itself, a $200 price change is a big move. From the recent bottom of $1,623 to a high of $1,825, it gained 12%. It's a very good return for a commodity itself but not a life-changing gain for most investors.
At the same time, investing in gold companies can be much more rewarding.
During the same period, gold stocks rose much higher.
Like Lundin Gold, whose shares gained over 70% during the same period.
Or Torex Gold. Its share price gained 104% over two and a half months.
This is not a coincidence but rather a pattern that industry insiders use to book massive profits.
During the past recessions, gold held its value with a 14% gain during the 2008 financial crisis. And during the dot-com bubble, gold gained 15%. The S&P 500 index dropped 57% and 49% during these crises, respectively.
But some junior gold mining stocks were eclipsing these gains with triple-digit returns.
During the dot-com bubble, the share price of Seabridge Gold went from C$0.73 to C$3.00. That's a 311% gain during a major market crash.
Today, Seabridge is a well-known Canadian gold company. It's developing the KSM Gold project in British Columbia, Canada. It's one of the world's largest undeveloped gold assets, with 154 million ounces of gold in its mineral resources.
The company has a C$1.3 billion market capitalization and enjoys strong investor interest.
Yet, back in the early 2000s, it was a C$5 million company that had just staked KSM. It had no gold resourcesâ€¦ only geologic potential, eventually realized by Seabridge.
Another great example is the performance of ATAC Resources during the 2008 financial crisis.
Like most stocks, ATAC's share price crashed in late 2008. The company was trading as low as C$0.18 per share. Then the gold price started to take off, and ATAC's share price went vertical.
Its share price gained 711% by the end of 2009 and peaked in mid-2011 with a mind-blowing 5,500% gain.
The company had exploration success at the Rau (Rackla) gold project in Yukon, Canada. ATAC made a blind discovery at the project, and today it's a 2.3 million-ounce gold asset.
ATAC is another great example of how a junior gold mining company from Canada delivered strong gains during a crisis.
There are more examples of junior miners outperforming gold itself during tough times. Past performance doesn't guarantee future success, of course, but it's helpful to understand what drove those past successes and apply those lessons to the investing environment of 2022.
We're entering the new year with a grim outlook for the global economy. If economists are correct, the recession is inevitable. The main question right now is, how bad would it be?
Instead of waiting, we can act and place small bets on select junior gold miners. These are risky and volatile, but the potential reward might eclipse the risk involved. Especially now, when the gold price is in an uptrend due to the high risk of recession.
Don't bet more than you can afford to lose, and always do your own due diligence.
The best place to start your research will be a list of the companies in VanEck Junior Gold Miners ETF (GDXJ). This ETF holds almost 100 companies working in the gold space.
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