Gold, gold miners, and parabolic fiat money printing is the topic of Real Vision Finance’s latest interview. The stage of today’s gold mining bull market is revealed along with reasons why institutional money may soon seek out gold miners for safety. Gold ETFs are continuing to perform exceptionally well under our new reality post-COVID-19.
Eric Muschinski from the Gold Investment Letter believes the macro tailwinds for gold are incredible.
“I believe gold is in a secular bull market.”
Many investors had to tap unknown patience reserves to be enjoying today’s resurgence in gold stocks.
“We’re coming out of the longest and most severe gold mining correction in 77 years, which happened in April 2011 through January of 2016.”
Eric talks about the breakout we saw in gold stocks in 2016 but points to relatively low valuations since then. He also talks about just how under-owned the sector is.
On the value side, Eric explains that gold miners are down 25% in the past ten years. He compares a chart of a popular gold ETF vs. S&P 500 rebased to 100. It is a stunning chart that highlights the terrible performance of gold stocks over the past decade.
Gold Miners Poised for Record Profits
While the price of gold is already at an all-time high in most currencies outside the U.S. Dollar, gold miners are uniquely positioned. On the economics for gold producers,
“These are companies that have tightened their belts and had to keep them tight for a very long time.”
“Now, we’ve got energy costs that are falling and plummeting, which is their largest cost.”
He believes large investors can only ignore this for so long. With limited top-tier gold miners to invest in, a flood of cash could propel many gold stocks to record highs.
The power of leverage as it relates to gold stocks is discussed using the example of Newmont Mining and its Q1 earnings release. The company explained that every $100 increase in the gold price, gives them an additional $400 million annually in cash flow. We outlined the power of leverage to gold, specifically in-ground gold in Leverage to a Gold Bull Market published on May 7th.
Average Gold Mining Bull Market Return and Longevity
The average gold bull market returns about 440%, according to Muschinski’s data. The CEO and Founder of the Gold Investment Letter reminds investors that gold stocks are only up about 90% as of May 27th, 2020. What’s more, looking at data going back to the 1940s, the average gold mining bull market lasts 400 weeks or seven years. We are currently only 220 weeks into the current cycle.
Furthermore, he lets the audience know that he subscribes to the Pareto Principle as it relates to gains in gold. Typically reserved for effort vs. result in that 20% of one’s activities account for 80% of the result. Using history as a guide, Muschinski documents that 80% of the gains will come in the last 20% of the current bull market’s duration. He believes this will ring true again as the big money comes in late, driving valuations into the sky.
Eric provides a wealth of insight and articulates his points in an easy to understand format. Many are achieving clarity when it comes to the opportunity of gold and gold stocks in 2020. As the war on purchasing power continues, and governments spend recklessly to keep their respective economies out of debt, investors will continue to seek safety in gold and gold miners. The low cost of fuel, combined with a mining class that is accustomed to cutting costs and tightening their belt, could produce record profit margins in the quarters ahead. These potential numbers could shock institutional money and lead to a rush on gold stocks. The secular gold mining bull market is intact and quite possibly just past its half-way point, with the most significant gains still ahead.