We're not yet in the mania stage for gold. We could be as close as
a year, or as far as 5 years, but we're just not there yet. Take a
look at the chart below, which shows gold compared to two of the
last, biggest asset bubbles.
What kind of performance can we realistically expect for gold
companies to see when we do enter the mania phase?
It's tough to find historical data on gold companies during the
1970s. Most of them are gone. The rest have been gobbled up or
sliced apart into completely different companies.
We do have a frame of reference for the internet bubble. You might
remember that time as a period when everyone had a hot stock tip.
Everyone was up hundreds of percent, or more, on companies like
Cisco and Intel.
Shares of these companies entered the stratosphere of
price-to-earnings as everyone HAD to own them. This excitement and
mania put what I call a "scarcity premium" on shares -
sending Cisco shares to sell for more than 188 times
at the height of the dot-com bubble.
And remember, Cisco was one of the major companies in the Nasdaq
back then. There were plenty of companies with no earnings, or
negligible earnings. Some of them were decent businesses with some
promise, but many were glorified boiler rooms with a 4 digit ticker
So while a Nasdaq blue chip like Cisco traded at 188 times
earnings, the average pe ratio for the whole Nasdaq exchange was
off the charts - at over 250 shortly before the bubble burst.
That's the power of a mania stage.
Obviously, buying a company that sells for more than 100 times
earnings is suicidal. But today, you can still pick up shares of
some really great gold companies for less than 25 times earnings.
The biggest and most boring of these companies,
Barrick Gold (
sells for less than 15 times earnings. I'm not a big fan of Barrick
because it has somewhat limited growth potential even compared to
most other gold majors and nearly all gold mid-tier producers.
But when the mania stage takes a hold of Barrick gold, you'll have
every cab driver and hairdresser you meet telling you how they've
allocated 33% of their portfolio into safe majors like Barrick.
I don't know if Barrick will sell for more than 188 times earnings,
as Cisco did in 2000, but it gives you a frame of reference for
where we are in for before the end of this bull market for gold and