Gold feels like it’s not performing very well. And it’s true: we’ve seen a substantial correction from January highs.
Simultaneously, gold is still selling for more than it did a year ago, and much more than it did 18+ months ago.
Many gold miners are still seeing fantastic profits, with all in sustaining costs below $2k. If you were running a widget factory and widgets cost $4,100 while your costs were below $2k, you’d be pumping them out as fast as possible.
But you’d also be desperately trying to backfill your widget-making capacity.
That’s where most gold majors are right now: they’re mining as quickly as they can and also desperately scanning the horizon to make sure they don’t run out of gold to mine.
While you and I might look at what’s going on with the price of gold and be concerned, these companies have different priorities.
These differing priorities mean we can position our portfolios to benefit even if gold drags lower. The differential between gold miner’s costs and the price of gold is still very attractive even at $3,000/oz gold.
I don’t think we’re likely to see gold hit $3k anytime soon – if ever – but the truth is: gold majors are like sharks. They can’t just stop mining. It’s their only source of revenue. They have to mine at $5k. They have to mine at $4,100k – and they will still have to mine at $3k.
In order to mine at $3k, they have to continually find new gold projects with consistently all in sustaining costs below $2k.
That’s the whole game. And already, I’ve seen about 25% of my portfolio acquired by gold majors over the past year or so.
The gains have been pretty stellar:
We were able to capture these gains because gold majors are now flush from cash thanks to higher gold prices – and because they have no choice but to acquire small developers to make sure they have gold to mine for years to come.
To be clear, while most gold investors are worried about this sustained correction, no one in the gold major business is seriously worried about the price of gold.
They’re looking for promising projects that will keep their revenues up for the coming decades.
Which means, we have something of an advantage over these gold majors.
If they want to own a gold project, they have to bid over the market value to acquire it – and they typically have to buy most or all of it in a short period of time.
We have no such limitation. We can buy world class gold projects that are likely takeovers now. We can put $1,000, $10,000, even $100,000 or more into these projects and just wait for the takeover.
That’s where we are in this gold market. It’s acquisition time for gold majors. If anything, lower gold prices have made some of their takeover targets dip in price, making them more appealing for the long term.
That’s why I’ve put together an investment brief about what’s coming next for takeover targets in the market.
You can read my full write-up here, for free.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio
