Should You Buy Into this Uptrend in Gold Stocks?

After what seemed like an eternity, gold stocks have begun clawing their way back.

If you’re a gold investor, you’ve probably watched your gold stocks and physical bullion prices fall – and you’ve bought all the way down.

Now, you may be nearing a point of mental – if not financial – exhaustion.

Should you deploy more capital in this sector and hope to lower your cost-basis?

Or should you wait and see if there’s another shoe (or three) to drop before shooting more bullets?

For some perspective, right now we’re in a real, sustained uptrend for gold stocks:

The Amex Gold Bugs index – the broadest measure for gold stocks – includes 16 of the largest publicly traded gold stocks. And it’s definitely in an uptrend. That trend may end any time now, but gold stocks are no longer the falling knife they were just a few weeks ago.

So the question remains: Is it safe to deploy more capital?

I never advise trying to “time” these purchases – but if you’ve been waiting to deploy capital, it makes sense to do so when an asset is in the early stages of an apparent uptrend.

We could certainly be witnessing another false rally in the sector.

But if you believe, as I do, that we’re in the midst of a multi-decade bull market in gold that will only end after a huge rally in gold and gold stocks, then you should be looking for times of weakness to buy gold stocks – and you should especially seek out the early stages of rallies.

I believe that we’ll eventually see gold stocks trading for record-high earnings multiples. Right now, many gold majors sell for less than 10 times earnings.

So whether you’re buying today, or you’ve been nibbling at gold stocks all the way down over the past few years, I think you’re buying at the right price.

Because when the time comes to sell, prices are likely to be so significantly higher that you’ll probably be kicking yourself for not buying more gold stocks all the way down and up.

Remember – gold stocks aren’t like the simmering mud pots in Yosemite. They’re the Mt. Saint Helens volcanoes of the investment world. When they blow up, it’s an obvious and violent event.

Yes, it hurts to average down. But on the other hand, we get to buy world-class gold investments at huge discounts to what we’ve paid in the past – and at a huge discount to the value of their earnings and gold holdings.

If you’ve been a patient gold investor so far, I think you’d be best served to reward yourself by dipping another toe into the gold markets today.