1-      Gold as a percentage of total assets held by large institutions and by various investment funds is still quite low. As you may be aware, purchasing gold bullion is sometimes difficult and cumbersome. Factors such as delivery, storage and insurance must be taken into account. The Germans know a lot about this subject! We firmly expect to see more investment institutions investing in the gold mining stocks so that they can participate in a bull market in gold. That method will be their proxy for gold investments.

2-      In order to have a strong bull market in gold and gold mining stocks we expect to see a simultaneous bear market in the large industrial stock market such as the Dow Jones Industrials and the S&P 500. Note well that Bull Markets in Gold and Gold Stocks historically occur during Bear Markets in the large industrial stocks; keep that in mind!

3-      Large buyers of gold bullion are not emotional but rather well informed and attempt to time the market using fundamental supply and demand analysis as well as technical and cyclical analysis. Too often, the investing public and some hedge funds can be far too emotional and engage in chasing and pushing the gold stocks up. Patient accumulation is a key ingredient to successful investing in mining stocks.

4-      Technical Analysis is very important! We like to see the gold price move up in a slow solid pattern, we do not want “spike” type moves which indicates emotional buying. Slow prudent buying is the key. The angle of ascent of the chart is so important.

5-      Is the price of gold manipulated? Yes, you bet it is. It is difficult for bonds to sustain interest rates at 3% if the gold market is in a bull phase. And keep in mind that the large brokerage houses DO NOT want to see a bull market in gold as it brings with it a bear market or at best a very lethargic market in industrial stocks. A bear market in large industrial stocks has a severely negative impact on brokerage house profitability. Hey, they may need another bailout!

6-      In the summer of 2013, KC Grainger was calling a bottom on  gold bullion. It was selling under the cost of production for many gold mining companies. This has an enormous impact on the supply of gold. We are in a pure supply and demand business! That “cost of production” is a very important ingredient in a bottom.

7-      In keeping with their tradition of usually offering pitifully poor investment advice, the major American brokerage houses will continue to impart the worst advice possible for the gold and gold mining stocks. They have a superb track record for doing just that. That will never change.

8-      Are Gold stocks cheap? In our opinion, many are right now. You must do your due diligence to find the truly undervalued and the ones that will weather this storm. True to form, the  gold stock “buy” recommendations of the brokerage houses will most likely occur after their recommendations have already had moves up on average of over 40%.

Written by K.C. Grainger & Bob Pellerin.