Markets are registering record amounts of fear.
The dizzying fall and sharp rally is leaving investors uncertain.
And that’s setting the stage for one trampled sector to soar to new highs.
A key signal is telling investors that right now is the time to get in. The last time we saw this setup was during the Great Recession.
In October 2008, two critical levels were hit: Investors’ fear spiked to alarming highs and gold miners bottomed out at extreme lows.
But it’s what happened next that has me so excited…
Fear subsided. And gold miners soared along with the price of gold.
Take a look at the chart from 2008 to 2013. In red is the VIX, a Volatility Index. We use it to measure the amount of fear in the market.
In gold is the VanEck Vectors Gold Miners ETF (NYSE: GDX). It’s an exchange-traded fund (ETF) that tracks a basket of major gold miners.
The peak of the fear index marks the turning point for gold miners:
See, gold does all right during a crash. But the precious metal still gets sold off during times of panic to cover investors’ bad calls.
The same goes for gold miners, only worse.
But after fear subsides, investors start looking for better places to park their surviving dollars.
Rising gold prices make gold miners look better and better.
That’s why gold rallied about 80% after the 2008 crash, while gold miners returned 260% from trough to peak!
We find ourselves looking at a similar setup today:
Fear peaked in March. And the gold miners fund bottomed out at $19 per share. It’s already rallied 25%, but that’s just the start of an epic bull run.
Play the Cycle
You don’t have to be a gold bug to buy into this rally. A small amount in gold and gold miners offers portfolio diversification.
Miners aren’t the kinds of companies I’d hold forever. The boom-bust cycle is vicious.
But with price of GDX back to its 2008 low, now is a great time to add the fund.
Look to hold it for at least a couple of years. And don’t be afraid to start taking profits once share prices double.
Gold is still trading at great prices, and it offers a more stable investment than gold miners. But investors should always carry a small position in gold.
Consider a fund like SPDR Gold Shares (NYSE: GLD) or the iShares Gold Trust (NYSE: IAU). These funds track the price of gold, and they are an easy way for investors to gain exposure.
Managing Editorial Analyst, Banyan Hill Publishing
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