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Understanding Opportunity Costs And Gold Investing – Mike Swanson (07/17/2019)

On Tuesday the GDX gold stock ETF did over 25 million shares in trading volume to be the 8th most actively traded ETF on the US exchanges in terms of volume.

And yet the masses aren’t playing it or trading it at all. As I pointed out yesterday not even 10,000 people who have Robinhood accounts are in GDX or the other main gold investing ETF’s.

What is happening is that managed money and computer robots from hedge funds are flocking to gold and mining stocks.

There is a simple reason why it attracts them and if you are small investor you may have to think outside the box a bit.

Most small players in the US only chase stocks so they only buy things because they see them go up.

That type of thinking though makes it impossible for them to get into a stock early in the game when a real investment buy point is at hand to get into something cheap and stand to make a massive return.

But managed money and hedge funds don’t do that.

They look at the opportunity costs between owning one thing and another thing.

And two things are now making them get involved in gold and mining stocks.

The first is falling interest rates are making it so one gets less interest from bonds. That means that there is less money to be made investing in bonds now than there was a few months ago.

So the “opportunity costs” that may come from someone buying gold instead of bonds and not getting the interest with that part of their asset allocation is diminishing almost every week.

And that also creates a need to be in something not bonds and not stocks in order to provide for diversification.

And that is where gold and mining stocks come in. Look at this chart of gold.

Take a look at the indicator I have on the bottom of the above chart that shows you the correlation between the 200-day average price of gold and the S&P 500.

It’s not close to 1.00 nor is it near -1.0. The current reading means that gold basically is not trading much with the stock market one way or the other.

This means that gold does not need the stock market to go up in order to go up and does not need the stock market to crash to go up either.

And so for one to put money into gold is to create real pure diversification against the US stock market.

This fact combined with falling yields on debt is making managed money and hedge funds begin to pile into gold.

This is why the volume is now so huge on ETF’s like GDX when the masses have not even begun to get involved.

That will change in time.

Once gold goes through $1500 you can expect to see some of the mass public start to get interested.

The higher things then go the more they will want to buy.

But now they don’t even to hear about gold much less silver.

That means that now is the time to get ahead of them.

If you want to do that with my get into my private Power Investor trading group.

To start just go here:

https://wallstreetwindow.com/join-power-investor/

-Mike

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