TORONTO—I’m interrupting my Rust Belt Tour because there’s something happening in the gold market that I need to share with you immediately.
It’s so important that I drove over four hours out of my way to Toronto. That’s the home base of Sprott Asset Management.
Eric Sprott is a self-made billionaire and a precious metals guru. (Forbes puts his net worth at $1.1 billion.) He founded Sprott Asset Management 36 years ago.
In 2000, Eric Sprott began investing almost exclusively in precious metals. That’s when he identified the tremendous upside in gold. At the time, gold was trading at $300. It’s since quadrupled to over $1,200.
When it comes to gold, few in the industry know more than Eric Sprott. That’s why I drove north of the border to his Toronto headquarters.
You see, a rare event is taking place tonight in the gold market that every investor should pay attention to. And the Sprott team says it will create an extraordinary opportunity to buy junior mining stocks.
If you’re interested in gold stocks, you can’t afford to ignore what they have to say.
But first, let me take you back to the trigger setting up today’s big event…
The Pre-Game Trade
I first alerted readers to this scenario back on April 21 (“You Can Make Double-Digit Gains by June 16 on This ‘Risk-Free’ Trade”).
At the time, I told you that the popular VanEck Vectors Junior Gold Miners ETF (GDXJ) would rebalance its portfolio on June 16, which is today.
For numerous reasons, exchange-traded funds (ETFs) routinely sell their old positions and add new ones.
In the case of GDXJ, it has become a victim of its own success. The ETF now has $3.8 billion under management. That means it’s outgrown its status as a junior miner fund.
(Due to its growing size, federal regulations require GDXJ to sell some of its junior mining shares and buy shares of larger miners.)
Generally, the stocks ETFs add during rebalancing go up in price. And stocks they remove drop in price.
If you know when an ETF is about to rebalance—and can identify which stocks it’s buying and selling—you can set up a unique type of trade.
In April, we set up a short-term arbitrage play to take advantage of the impending portfolio rebalance: Short the stocks GDXJ sells. And go long the stocks GDXJ is most likely to add. (You can see the list of stocks in the April 21 issue.)
The front-running of stocks is done. So now is the time to get out of that trade.
If you shorted the miners I told you to, buy them back now. And if you bought the five potential additions, you should sell them now.
Those who made the trade when I recommended it would be up 2% in just two months.
That’s not quite as much as we hoped for… But now that the GDXJ rebalancing is over, the Sprott guys say there’s a second opportunity to profit…
This 100-kilogram gold coin on display at Sprott’s office is worth about $4 million
The Rare Event
By market close tonight, GDXJ will have rebalanced half of its entire fund. That will be the biggest rebalancing in the history of ETFs.
And the uncertainty is scaring away investors. They’ve pulled out over $2.5 billion from the fund since April—a 40% drawdown.
Since the rebalancing was announced in mid-April, GDXJ has dropped 22% while the price of gold has remain essentially unchanged (see chart below).
The price difference we’re seeing today between gold and junior miners is rare. They almost always move in the same direction.
And that’s the opportunity the Sprott guys see.
While at their Toronto office, I talked to five members of their team. The first thing all five said was that gold miners will snap back.
Gold miners have lagged the price of gold for the past two months. But with the GDXJ rebalancing over, that’s about to change.
GDXJ will sell off lots of junior miners as part of its rebalancing. And that’s what the Sprott guys have been waiting for. They’re going to step in and scoop up the best at cheap prices.
These guys are the experts, and they have been doing this for a long time. They’ve seen rare market events like this before and know how to profit from them. If they say now is a good time to buy juniors, I’m going to follow their lead.
If you want to play this event, consider the Sprott Junior Gold Miners ETF (SGDJ). It’s well-positioned to gain from the rebalancing drama.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
P.S. If you really want to juice your returns from gold miners, buying individual high-quality companies is the best way to go. Right now, Sprott’s active fund managers are snapping up their favorite miners. But they wouldn’t share which ones… Traders often keep this proprietary research close to their vests.
If you want specific picks, I recommend checking out my colleague Louis James, editor of International Speculator. No one travels to mines or talks to mine management more than Louis and his team. He has a portfolio full of quality miners. With the massive GDXJ rebalancing almost completed, this is the perfect time to utilize Louis’ research to make money on this rare opportunity. Learn how to sign up here…
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