"Global reserve allocations to gold have doubled over the past 10 years, and this is likely to be an ongoing trend given concerns around US fiscal sustainability and geopolitics (sanctions risk)."
This raises a good point: the Global South, particularly Russia and China, will likely become more wary of holding the USD as a reserve currency. Non-USD reserve assets like gold and bitcoin could be one way to hedge risk and bet on increasing de-dollarization.
maybe, I would say they have slightly different drivers and characteristics -- gold is more defensive, bitcoin more of a risk asset. Some argue too that bitcoin has "stolen" some of the speculative demand for gold...
Another (positive) consideration is that one of the primary costs for miners is oil. If we imagine oil staying range bound in its current neighborhood for a while, a low cost oil, yet nevertheless inflationary, environment would really be something for miners. Unprecedented in recent history?
hmm interesting point, chatter is Trump wants to get the oil price down too. You could get low oil inflation if you drop energy costs and stimulate the economy through that channel and it heats up demand enough to drive pricing pressure up
Yep there are plenty of options, I don't touch stock selection/product analysis, but I can point you to ETFdb (I find that website highly useful for finding and comparing ETFs)
Great piece, thanks Callum. What are the supply side dynamics? Last talking head I heard was speaking of limited new projects and gold production likely to be down in 2024 (can’t say is because not all earnings have been released for the last quarter). That left me curious about the supply side outlook as well supporting price
Thanks! Well interestingly, the price is running well above the average cost of production (which should be good for miners), but so far from what I am seeing the pace of capex has not really picked up that much -- this is echoed across commodity producers; the past 5-8 years saw a commodity capex depression, and I think they will only cautiously and slowly increase spending on production...
p.s. Please share/forward/tweet/email/repost/link/memo/fax this note to your friends, family, enemies, and colleagues if you found it interesting and useful :-)
Looks like gold miners fell out of favor after 2013 as fears of hyperinflation caused by the stimulus during and after the financial crisis caused by failure of Lehman disappeared. There was a short repeat during Covid but it seems that asset managers wanted exposure to tech and consumer sector stocks rather than gold miners.
That being said, the surge in Bitcoin (referred to as digital gold) from the beginning of 2024 has no doubt put a new shine in gold, and as a result, Gold mining stocks should start rising. Warning, if Bitcoin has a severe correction, then I would expect gold and gold miners to decline with it.
"Global reserve allocations to gold have doubled over the past 10 years, and this is likely to be an ongoing trend given concerns around US fiscal sustainability and geopolitics (sanctions risk)."
This raises a good point: the Global South, particularly Russia and China, will likely become more wary of holding the USD as a reserve currency. Non-USD reserve assets like gold and bitcoin could be one way to hedge risk and bet on increasing de-dollarization.
Indeed, I still think bonds have a role to play, but diversification of diversifiers probably makes sense for all of us...
The rise in Bitcoin has given gold a new shine and the gold mining stocks should follow suit. Bitcoin is often referred to as digital gold.
maybe, I would say they have slightly different drivers and characteristics -- gold is more defensive, bitcoin more of a risk asset. Some argue too that bitcoin has "stolen" some of the speculative demand for gold...
New subscriber here. Thanks for the post. I am looking forward to more like this.
Thanks Steven, welcome on board!
Another (positive) consideration is that one of the primary costs for miners is oil. If we imagine oil staying range bound in its current neighborhood for a while, a low cost oil, yet nevertheless inflationary, environment would really be something for miners. Unprecedented in recent history?
hmm interesting point, chatter is Trump wants to get the oil price down too. You could get low oil inflation if you drop energy costs and stimulate the economy through that channel and it heats up demand enough to drive pricing pressure up
Thanks for the post, really interesting. Any ETF on gold/silver Mainers to consider and check it out??
Yep there are plenty of options, I don't touch stock selection/product analysis, but I can point you to ETFdb (I find that website highly useful for finding and comparing ETFs)
Precmets: https://etfdb.com/etfdb-category/precious-metals/
Miners: https://etfdb.com/etfs/industry/gold-miners/
Fantastic write-up Callum.
cheers!
Really enjoyed reading through this! Packed full of very useful information and insights!
Would you like to do a podcast/video on Gold + Silver and various markets? You are more than welcome on The Contrarian Capitalist! :-)
Thanks Robert, I appreciate the kind words! I will DM you
Great piece, thanks Callum. What are the supply side dynamics? Last talking head I heard was speaking of limited new projects and gold production likely to be down in 2024 (can’t say is because not all earnings have been released for the last quarter). That left me curious about the supply side outlook as well supporting price
Thanks! Well interestingly, the price is running well above the average cost of production (which should be good for miners), but so far from what I am seeing the pace of capex has not really picked up that much -- this is echoed across commodity producers; the past 5-8 years saw a commodity capex depression, and I think they will only cautiously and slowly increase spending on production...
p.s. Please share/forward/tweet/email/repost/link/memo/fax this note to your friends, family, enemies, and colleagues if you found it interesting and useful :-)
Looks like gold miners fell out of favor after 2013 as fears of hyperinflation caused by the stimulus during and after the financial crisis caused by failure of Lehman disappeared. There was a short repeat during Covid but it seems that asset managers wanted exposure to tech and consumer sector stocks rather than gold miners.
That being said, the surge in Bitcoin (referred to as digital gold) from the beginning of 2024 has no doubt put a new shine in gold, and as a result, Gold mining stocks should start rising. Warning, if Bitcoin has a severe correction, then I would expect gold and gold miners to decline with it.