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The One Trick to Buying Gold Stocks Right

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mighty mouse   Saturday, 08/17/13 04:11:03 PM
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The One Trick to Buying Gold Stocks Right Now 8/15/13

Over the last few months we've recommended three precious metals stocks to The Cheap Investor readers because the potential for a sharp rebound was growing every day.

We featured quite a bit of the research here in the Profit Alert too (the stock picks are reserved for premium readers).

A little over a month ago in the Profit Alert I summed up the situation like this:

If gold and silver prices rebound just 10% or 20%, the potential value for mining stocks jump double and triple current levels. And if a bull market is beginning (which tends to happen when mines start shutting down) and precious metals rise 50% or more from here, the potential gains are exponential.

It's all starting to happen right now.

Since gold prices hit bottom in late June, gold and gold stocks are rebounding strongly. The price of gold has risen 11% since then and leading gold stocks like Barrick Gold (ABX), Kinross Gold (KGC), and Goldcorp (GG) are up between 24% and 28%.

But here's the trick to really capitalizing on gold prices.

Take a look at a small gold mine development company like International Tower Hill Mines (THM).

Don't let the name full you. THM doesn't actually mine anything. It discovered a gold resource of more than 16 million ounces of gold, which is an achievement in itself.

With a discovery like that, THM was one of the darlings of the gold bull run from 2008 to 2011 too. THM shares went from a low of around $1 per share in 2008 to a high of more than $10 per share. At its peak, the company had a market cap of around $1 billion.

A few weeks ago the company announced the latest study of the economics of its gold project. And they were awful.

Long story short, if the company built a mine it would need at least $1500 per ounce gold just to breakeven.

Basically, with gold under $1400 an ounce, the project and company were nearly worthless.

The market showed it too. THM shares fell to a low of 36 cents. That capped off a decline of 96% from its 2011 high as its market cap fell from almost $1 billion to $36 million.

But here's the thing. Since gold prices have started to rebound just a little bit. THM shares have been one of the biggest winners of all.

THM shares are now trading for 60 cents each. That's an increase of 67% from its lows less than a month ago.

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