“We believe gold will continue to rise… We expect gold stocks to do even better.”

That was famed hedge-fund manager David Einhorn on a conference call last week. Einhorn isn’t a lifelong gold bug… But he likes gold now. And lately, he’s been switching out of the metal itself and into gold mining stocks…

Einhorn believes a “substantial disconnect has developed between the price of gold and the mining companies.”

A month ago in my True Wealth Systems letter, I wrote the same thing… “Gold stocks are 19% undervalued,” I said. “Whenever gold stocks have gotten this cheap by this measure, triple-digit returns have followed soon after.”

[ad#Google Adsense 336×280-IA]It’s happened three times in the last eight years. The longest it took to double your money was 13 months.

I reiterated buying shares of GDX – the gold stocks fund – in last month’s True Wealth Systems letter. Shares of GDX are up 16% since I wrote that. So we’re buying GDX… and David Einhorn is, too.

I had a new recommendation in last month’s True Wealth Systems as well… buying shares of junior gold mining companies (through GDXJ – the junior miners fund).

Here’s what I wrote:

Junior gold mining companies have been hit even harder than the major mining companies…

Junior miners tend to deliver roughly twice the performance of gold – in both directions. Right now, junior miners have horribly underperformed… and could rally dramatically if gold’s bull market returns.

Since I wrote that, junior gold mining stocks have soared… But the dramatic discount is still there. Take a look…

We have three possible outcomes:

1.    Junior gold stocks soar to catch up with gold.

2.    Gold falls dramatically, narrowing the discrepancy.

3.    The discrepancy is “real,” like late 2008… when all assets fell, regardless of value.

I believe choice No. 1 is what will happen. But even if gold does nothing or falls, we could still do just fine… Einhorn explained why this week:

With gold at today’s price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk-adjusted returns even if gold does not advance further.

Gold stocks are cheap. Historically, they’ve brought home triple-digit returns within 13 months when they’ve been this cheap. Our systems say buy them. And one of the best hedge-fund managers is buying them, as well.

Consider buying shares of GDX or the junior miners with GDXJ today.

Good investing,

— Steve Sjuggerud

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Source:  Daily Wealth