Tomorrow we have an article coming that I found riveting. Hopefully it’ll help our Regular Joes think as well. You may have already read the account elsewhere, but it’s compelling enough to repeat here for our readers.
Yesterday’s entry shed some light on how to think through some of the challenges that face us today. Economic ideas are usually tied to erroneous suppositions and cultural norms. Which comes first is often a question that can be hard to grasp. Did the economic changes bring about social changes? Or did social reforms bring about economic changes? Or, did they both change as the aims of politicians become more constraining? Another Joe supposes the latter, though I’m really not sure.
Central to the challenge of the past two days was the realization that the gold standard is historically the best way to bomb proof a nation’s currency. However, even though this has been repeatedly proven to be true, it also restrains the government from being able to control the money supply. They can control nationally minted currency. But they cannot control the availability of gold and silver (though they might try, with some success). It is because of this that I’m convinced that central bankers eventually get their way. For he who controls the currency of the world has the most power. With fiscal control comes the ability to shape nations, which is what we see repeated throughout the world.
Obviously the average Joe can’t expect to influence these operations to a great degree. Generally speaking, we can take measures to ride the tides that ebb and flow according to the movers and shakers of the world, though. And this is why so many advise taking possession of gold and silver. It’s a means of taking control of your true money supply, which you can use to purchase investments according to your desires at a later date.
As Jeff Clark shows below, there may be some opportunity to invest your gold in ways that could actually increase your profit through the mining of gold. This is an area that we find intriguing, though we are far from being experts in the field. Casey research is offering a great discount, if this newsletter is something you’re interested in. But, whether you are or not, this article is a good read and helpful as we consider our financial growth and freedom.
By Jeff Clark, Casey Research
We’ve been saying since September that gold producers are undervalued, and here are some data that show just how extreme the undervaluation is.
The following chart measures the stock prices of major and intermediate gold producers against their Net Asset Value, based on the daily price of gold. In the simplest terms, a company should be worth more as the product it sells rises in price faster than the cost of those sales. In this case, gold has doubled in price over the past three years while costs have not kept up, dramatically increasing the intrinsic value of a reasonably well-run gold producer. Yet look what the stocks have done when measured against this higher value.
In spite of a rising gold price, stock prices have steadily fallen. In fact, as the right axis shows, the industry is currently selling at a 20% discount to its Net Asset Value (as of October 21) – and historically, gold stocks trade at a premium.
Notice that gold stocks hit 1.6 times their NAVs just before the crash of 2008. Gold producers often trade at this level. If I’m right, companies will revert to historical premiums, meaning much higher stock prices than today.
These data don’t tell us when prices will rise, nor do they signal that stocks can’t trade lower. They are simply telling us that at this point in time, gold stocks represent a true bargain. Someday this won’t be the case, and the opportunity to buy at current levels will be gone.
I’m convinced that in a year or two, we’ll look back and be very happy with our positions.
[Owning gold stocks is an excellent hedge against the wealth-robbing policies the US government is pursuing… but not just any gold stock has blockbuster profit potential. Learn how to protect yourself and invest wisely.]