Gold has been in a stealth bull market for years.
Now Gold is coiling, ready to break out again, across all major currencies after a strong 2024.
Gold rose 36% against the Euro in 2024…
31% in Chinese Yuan terms.
And 38% vs the Canadian Dollar.
Currencies have been freely floated against the dollar as the anchor since Bretton Woods in 1944, when the USD was tied to Gold at $35/oz.
But ever since Nixon took us off the Gold standard in 1971, all currencies are backed by nothing.
And now, the markets are telling us something is amiss, and Gold is the canary in the coal mine that signals change is coming.
The Fed just lowered rates again to 4.5%…
But our 20 year bond yield rose nearly 1%.
China’s 10-year rate has dropped to 1.6%, the lowest ever.
The global monetary system is under tremendous stress due to the $37 trillion in debt the US currently holds.
Much of the borrowing has been at the expensive short term end of the yield curve…
While Trump’s nominee for Treasury Secretary—Scott Bessent—seeks to move borrowing to the long end…
But, the long end yield is too high, and our trade partners are buying less and less of our debt. It’s just a matter of time before Yield Curve Control (YCC) is introduced.
The Fed will be enabled to weaponize its balance sheet to purchase enormous quantities of Treasury debt to manage bond prices higher and push yields lower. This is outright debt monetization, that will accelerate loss of the USD’s purchasing power.
If you think inflation has been bad, you haven’t seen anything yet, as we are in the late stages of our reserve currency regime. This is when debt goes parabolic and the loss of USD purchasing power accelerates.
Despite the ongoing stealth Gold bull market, few are positioned for it. In 2011, the last major Gold peak, the GLD ETF held as much investor capital as the popular S&P 500 broad equity market (SPY) ETF. Now the ratio sits at just 0.1194%. Investors need to shift their asset allocation 8.3X to gold over equities to match the peak in 20211. We surely have a long way to go in the Gold bull market.
But, if you think you can buy any Gold stock and protect yourself, you’re wrong.
Newmont Mining, one the largest Gold Producers in the world, declined 10% in 2024.
And industry bellwether Barrick Gold fell 14% in 2024.
Large cap miners are a waste of money. When inflation pushes Gold higher, mining costs follow. So many miner’s margins are no better now at $2,650/oz Gold then in 2020, when Gold was $1,800/oz.
A mine is worth the most on Day 1 of production then value declines every day until it closes. The value of any stock is the lifetime Free Cash Flow (FCF) over the life of the asset. Mines have a limited life, usually between 10 and 20 years. As ore is converted to Gold then sold for dollars, mine reserves are depleted. So, the lifetime value of the mine continuously falls as the asset moves ever closer to being mined out.
I’ve been a precious metals mining analyst for nearly 20 years, and I know where value is created in the Mining industry. My Golden Portfolio IV portfolio rose 136% in 2024 alone.
I find the explorers and developers in the troughs of the Lassonde curve. Not much value is awarded to explorers with a prospective property. Often time these claims represent a liability more than an asset. But once a high grade drill hole is reported the market begins to move the share price higher. It often takes years for an explorer to define the limits of the high grade mineralization, and prove out the deposit. Value is created every step of the way.
The second trough occurs after an economic study is published. The developer now has to finance building the project to bring the mine into production. Uncertainty is high. It’s possible equity holders could be diluted out of major gains from a poorly constructed capital raise.
When shareholder aligned management raises the funds needed correctly by protecting equity holders, the shares begin to rise anew. Some fully financed developers in the GPIV still trade for up to 80% discount to fair value. It’s a two to three year window during construction where market value rises to meet lifetime FCF. When a project is fully built, and ready to start production, Gold price uncertainty is eliminated, enabling the Developer to trade at full valuation.
I know how to find the miners that can rise in value regardless of whether the Gold price increases or declines. Explorers and Developers in the troughs of the Lassonde curve simply need to execute. Explorers need to drill and prove out their resource. Developers need to build out their projects enabling them to convert ore to Gold and profits. GPIV companies are so undervalued that even if the Gold price falls, they still have the opportunity to drive value through execution, de-risking the company which will push the share price higher.
Even after rising 136% in 2024 GPIV Companies are still trading at massive discounts to fair value ranging from 55% to 96% based on a $2,700/oz Gold price. GPIV holdings still need to rise another 2X to 25X to meet fair value. It looks like another strong year for Gold is upon us. GPIV members should rise, driven by execution and increased lifetime FCF project value based on a rising underlying Gold price.
Best,
Garrett Goggin, CFA