Could Goldcorp Inc and Barrick Gold Corp Double in 2015?

Are Goldcorp Inc (TSX:G)(NYSE:GG), Barrick Gold Corp (TSX:ABX)(NYSE:ABX), and the Market Vectors Gold Miners ETF (NYSEARCA:GDX) nearing a bottom?

| More on:
The Motley Fool

Over the next couple of years, you could make triple-digit gains in one of the world’s most hated industries: gold mining.

This opportunity is just too good to pass up. The last time these conditions came together, this sector rallied over 490%.

In fact, this might be the biggest ‘no-brainer’ investment I’ve seen in a while. And before the run is over, we could see prices triple or more.

Gold stocks rallied 490% the last time this happened

Investing in mining companies usually isn’t rocket science. If gold prices go up, gold stocks move even higher. And if gold prices go down, gold stocks fall even more.

At least, that was the theory. In recent years that relationship has broken down. To see what I’m talking about, take a look at the chart below.

goldminers

Source: Yahoo! Finance

Between 2009 and 2010, gold mining stocks (measured by the NYSE Arca Gold BUGS Index, or HUI, in blue) performed as expected. It tracked the price of gold (in black), but with more ups and downs.

But in 2011, the HUI started to badly underperform. Over the past four years, gold has been roughly flat. Gold stocks, in contrast, actually fell by more than 70% during the same period.

Part of the reason is that investors have lost confidence in the industry. Costs have been rising faster than revenues, not to mention the challenge of finding new high-grade mines in safe places.

These are valid concerns, but we’ve seen this type of pessimism before. An easy way to size up this group is to divide the value of the Gold Bugs Index by the price of gold. When the HUI/gold ratio is low, miners are cheap.

Today, this ratio is near all-time lows. The only other time miners have been this cheap relative to gold was back in 2001. Back then, this group as a whole rallied 490% over the next three years.

So if gold miners are cheap, what is the best way to invest? A broad-based index like the Market Vectors Gold Miners ETF is a good bet. This exchange traded fund allows you to buy a piece of every gold miner in one shot.

But my preferred strategy is to dig into individual names. My two favourites are Goldcorp Inc (TSX:G)(NYSE:GG) and Barrick Gold Corp (TSX:ABX)(NYSE:ABX). These firms have the scale to survive the industry’s current doldrums, but also the leverage needed for explosive gains.

If you don’t buy gold stocks now, you’ll kick yourself later

But a word of warning: gold miners are carving out a bottom. Some of the world’s smartest money mavens are pouring millions of dollars into this sector. And over the past two months, the industry is up 20%, handily beating the 5% rise in gold prices during the same period.

And this could just be the beginning.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no position in any stocks mentioned.

More on Metals and Mining Stocks

Growth from coins
Stocks for Beginners

Prediction: These Could Be the Best-Performing Value Stocks Through 2030

These stocks should absolutely surge through 2030 and beyond, with demand rising and supply only decreasing.

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

1 Canadian Mining Stock to Buy and Hold Forever

Here’s one of the best Canadian mining stocks you can hold for years to come to benefit from its surging…

Read more »

Businessman holding AI cloud
Metals and Mining Stocks

How Materials Stocks Are Reaping the Benefits of the Artificial Intelligence (AI) Explosion

Barrick Gold (TSX:ABX), Lundin Mining (TSX:LUN), and another TSX materials sector stock could unlock long-term gains on artificial intelligence (AI)…

Read more »

A miner down a mine shaft
Metals and Mining Stocks

Should Investors Buy the Correction in Lundin Mining Stock?

Lundin (TSX:LUN) stock has fallen by 10% in the last few weeks, but so has the price of copper. Coincidence?…

Read more »

Metals and Mining Stocks

Best Stocks to Buy in May 2024: TSX Materials Sector

A TSX materials sector ETF could help investors gain cheap diversified exposure to the hot sector's stocks – so will…

Read more »

Hands protect a sprout in fertile soil.
Metals and Mining Stocks

What’s Going on With Nutrien Stock?

Nutrien (TSX:NTR) stock has seen shares rise higher as the company sees more demand for fertilizer starting up once more.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Metals and Mining Stocks

2 TSX Commodity Stocks With Massive Upside Thanks to Gold Bugs and the Battery Boom

Investing in mining stocks such as Barrick Gold and Lithium Americas can help you benefit from rising commodity prices.

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Why Shares in This Leading Mining Stock Soared 21% in May

This gold stock has risen higher on the back of gold prices, sure, but there's even more driving shares this…

Read more »