I think we are beginning or nearing a new bull market in gold. I made my first buy of physical gold this month in the mid $1000 area. If gold continues to fall I plan to average down; and if it rises I will average up. And I am ending 2015 with the largest percentage holdings of precious metal stocks of the year. I think it's time to begin accumulating gold and silver once again both as an insurance policy and as an investment.
I further wrote that I thought we would see a resolution of which scenario wins out in the first quarter -- a move toward a deflationary recession, or one toward an inflationary recovery. The resolution did occur -- to the upside. We reversed from moving toward deflation and recession toward slightly higher growth and inflation.
I tripled my position in gold and silver stocks early in the year and leveraged it to 75% of net worth. I sold most of that position in the spring for a huge profit. My holdings have since varied between 45% and 25% in gold and silver stocks with a 10% position in the physical metals.
So what now? There's a time to trade and there's a time to buy and hold. I've gone from active trading in the first part of the year, to essentially a buy and hold investor since. However, I've found that trading opportunities present themselves at least a couple of times a year. This year was no exception. I doubled my position after the unemployment report came out on June 3rd showing a 100k shortfall in employment from what was expected. As fears of higher interest rates waned and gold shot up, I added to my holdings. And as Brexit took over as the main catalyst, I added more.
... I made the case that the correction to $1200 gold was the low and bought what I believed was the beginning of a second leg up. And even though many feared a recession at the time, I made the case that it was stagflation that we were more likely entering. Let me say that I am not a roaring bull on gold. I see it trending moderately higher but with good trading opportunities. Gold, silver, and precious metal ETFs are the perfect vehicle to play volatility.
With the Brexit vote behind us, we are set up for uncertain times as markets adjust to the new unknowns. The fears of recession are back as estimates of world growth rates continue to be cut. I doubt that recession is in the cards yet. Stagflation is more likely and is in fact with us as anemic growth and slightly higher inflation rates are creating anxiety and caution of both producers and consumers all over the world. And central bankers will likely act aggressively to add liquidity to markets in the attempt to stimulate their economies. As usual they will fail and only retard the onslaught of recession and deflation at best.
So, looking into the rest of the year I think the odds are that we will see slow growth, but more growth than last year. The important thing is the direction. Last year, particularly the second half, the direction was down. This year it's up. But there is a big difference between last year and this -- it's the degree of uncertainty. Uncertainty about Britain's exit. Uncertainty about the future of the euro and the eurozone. Uncertainty about the elections here and abroad. Uncertainty about currency values, interest rates, central bank policy, international trade, and the world economy.
The collective weight of all this uncertainty will lead to more market volatility. Gold benefits from uncertainty. It's an insurance policy against the things that can go wrong. For that reason I expect gold to move higher. But given the nature of the uncertain world we live in I have placed defensive stops to protect the profits I have made in precious metal stocks.
The main beneficiaries will be the mining companies that have positioned themselves to take advantage of higher precious metal prices through the reduction of costs and new projects ready for expansion. Compared with most other companies that are in a earnings recession, profits should be substantially higher and more secure. That's why Newmont Mining (NYSE:NEM) is at the top of the list of the S&P 500 this year.
I've taken profits into this second leg of this bull market and am now invested to the tune of 30% of my net worth in mining stocks that I want to hold longer term. I have cash on the sidelines looking for the next trading opportunity. Cash on the sidelines is essential to take advantage of breaking news. And in times like this, breaking news is an ever more common event.