Gold is a surprising distance from its all-time high. Here is how to play the rally

The time has come. Today, the gold price briefly rose above its all-time record closing price of $ 1,891.90 per ounce, set in August 2011. Once the precious metal surpasses the important resistance level of $ 1,900, I believe heaven is the limit.

Both gold and silver have been on a breakout this week, with the yellow metal hitting a nine-year high of $ 1,897 in Thursday’s intraday trading. Silver was trading above $ 22.70, 94 percent more than its 52-week low on March 18.

As I told Kitco News in February, this is a secular bull market we are in, backed by various factors, and there is no reason why gold may not reach $ 10,000 in the coming years. Do you remember rhodium Rare earth metal rose madly 22 times, from $ 625 in July 2016 to $ 13,850 in March.

Precious metal miners have also outperformed, with the Philadelphia Gold and Silver Index outperforming the S&P 500 so far this year, by a factor of 17. Among the best results of the year to date have been Gold Fields (up to 88.4 percent), Harmony Gold Mining (85.7 percent) and Alamos Gold (84.1 percent).

Our favorite way to play the rally remains precious metal royalty and transmission companies, including Franco-Nevada leaders (54.4 percent for the year), Wheaton Precious Metals (76.3 percent), and Royal Gold (13.5 percent). The group reported a solid first quarter on higher metal prices, and I am eagerly awaiting the second quarter results when they start reporting early next month.

In the past two years, Franco-Nevada, Wheaton Precious, and Royal Gold have seen their combined market cap more than double in value, from $ 29.5 billion to about $ 61.5 billion.

Current Gold Drivers

Some investors may wonder if the gold recovery is sustainable. We believe this is the case, especially in the short term.

The action of the price of gold is being driven in large part by the constant constancy that the coronavirus will not disappear so easily, except for a vaccine. During his televised briefing on Tuesday, President Donald Trump commented that the situation “is unfortunately likely to worsen before it improves,” highlighting concerns that closings and layoffs may continue in the fall and winter.

LinkedIn became the last company this year to announce a downsizing. The Microsoft-owned technology company will stop working around 960 jobs worldwide, as the pandemic has affected demand for its recruiting products. That includes Talent Solutions, which “continues to be impacted as fewer companies, including ours, need to hire at the same volume as before,” LinkedIn CEO Ryan Roslansky wrote in a blog post.

Gold also received an offer this week thanks to the unprecedented $ 2.1 trillion stimulus package from the European Union (EU), announced Tuesday morning after four days of negotiations. The deal has a number of firsts: European countries will raise money by selling government bonds collectively rather than individually, and much of the aid will go to Member States not as loans, but as grants, which do not need to be repaid.

The EU agreement joins the already historic stimulus measures enacted by world central banks and finance ministries in an effort to soften the coronavirus economic blow.

Here in the US, lawmakers are currently working out the details of another stimulus bill, one that could possibly cost more than $ 1 trillion and include a second round of direct payments. If passed and enacted, not only would the $ 2.3 trillion CARES Act follow, but it would also increase the national debt of the United States, currently $ 26.5 trillion, or 132 percent of gross domestic product (GDP).

I also keep my eyes on Judy Shelton, Trump’s election to join the Federal Reserve Board of Governors. Shelton has been a longtime advocate of gold and has, in fact, publicly endorsed the idea of ​​returning to a gold standard. As unlikely as it is, I see your potential move to the Federal Reserve as constructive for gold and metal mining stocks. Shelton, characterized as “controversial” and “unorthodox” in the media, received the green light from the Senate Banking Committee earlier this week. His confirmation now requires a simple majority vote in the Senate.

Technology stocks that seem extremely overrated

All of that stimulus money has benefited not just gold and other precious metals and commodities. Much of this has appeared on the stock market, particularly in tech stocks. As I already shared with you, technology stocks are among the best performers of the year.

Many see a beer bubble. According to a Bank of America survey, most fund managers believe the group is the “busiest trade” in history. You may know that the combined market capitalization of Apple, Amazon, Microsoft, Google, and Facebook now represents about a quarter of the total market capitalization of the S&P 1500. But did you know that only four companies combined (Apple, Amazon, Microsoft and Google) are bigger than the entire Japan stock market? That’s according to a recent quote from Bloomberg’s David Ingles.

Take a look at the table below. You can see that tech stocks, as measured by the NASDAQ 100, are now more overvalued relative to the S&P 500 than during the dot-com bubble, after which the market fell nearly 50 percent.

Need more proof of “irrational exuberance”? Google searches for “tech stocks” hit a record high this month, using Google Trends data dating back to 2004.

My reason for pointing this out is to say that investors should proceed with caution. Make sure you are exposed to gold and precious metals. I always recommend a 10 percent weighting, with 5 percent in bullion and the other 5 percent in good quality mining stocks and ETFs.

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