I’ve been getting a lot of flack the last few days regarding
my gold and silver price targets, but especially my targets on the miners, so I
wanted to take a min and explain why.
Sentiment in Gold and Silver is terrible right now. Price action in gold reminds me of lows we
saw in 2016 and 2018. Sentiment and
bearish talk like “Gold has failed” articles that have floated around recently remind
me of 2006 and 2008, where we saw similar articles talking about "gold is on its way out as an investment asset". Gold had broken
higher in 2006, highest level in decades.
There was no financial crisis… yet.
Nobody knew why it was going higher.
Bob Pisani, in all his wisdom and certainty, proudly proclaimed, “Believe
me folks, gold is going nowhere” (after almost tripling from its low a few years
earlier and would go on to nearly triple again a few years after. So far, we have doubled from the 2015 lows amist similar sentiment).
No one saw the housing market bubble around the corner, the
same as they never saw the tech bubble a decade earlier. By 2008, it became apparent there was a
problem, and gold broke to new highs at 1000/oz. The market crashed, and margin calls took
everything down with it, including gold which dropped 30% from 1000 back to 700,
near the highs in 2006. As the world as
we knew it was literally melting down, Maria Bartiromo said on CNBC, “Why is
gold going higher, jewelry sales are plummeting?”
80 years after the Great Depression and 30 years after the Great
Inflation and gold buying frenzy of the 1970s, we had a generation of people
who had no idea what gold’s purpose was.
Interestingly, investors still did, which is why it rose rapidly as panic
ensued. We find ourselves in a similar
situation today. The world began to melt
down due to Covid and gold broke to new highs in Aug 2020 on the back of stimulus,
0% interest rates, fed balance sheet expansion, and general fear. It has since had a long correction, which has
frustrated gold bulls as bullish news throughout this correction about
inflation expectations, deficits, stimulus, and continued Fed balance sheet
expansion have had zero effect on price.
This is again, similar to 2008-2009. Bailout packages, TARP, Cash for clunkers, trillion-dollar
deficits, and Fed balance sheet expansion all had zero effect on gold as it
struggled to climb back to 1000/oz.
Since March of 2020, the market has rebounded from a 30% loss in 4
weeks, to incredible new all-time highs.
This has only solidified the idea that all you need to do is buy the
dips in stocks and you will be fine.
Gold serves no purpose. In the early
2000s, my father was a broker advising his clients to begin buying gold miners,
much to his boss’s dismay, who said to him, “Who needs gold when you can just
buy puts on the S&P?” The simple fact of the matter is, Gold moves when it wants to. All the news you are seeing now that is frustrating people expecting gold to move higher on it, was already factored in. If you are an investor in gold, are you surprised by inflation expectations? Are you surprised that Powell is going to leave rates at 0 for the rest of the year no matter what? Are you shocked at deficit levels or additional stimulus from the government? Was ANYONE actually surprised that the Fed said they will likely never sell off their nearly $8 trillion balance sheet? Neither was the gold market.
I realize I am deviating from the point of my targets on
gold and miners, but I’m trying to set the background for what we are dealing
with: A world where nobody cares about gold or mining companies despite making
greater profits now at today’s prices than ever before in history. We have seen this before prior to, and even
during the financial crisis, and we are seeing it again today. The PE ratio for NEM and ABX are 19 right
now. The PE on KGC, AU, and GFI are 9. If I said there is an S&P 500 company in
an industry that’s currently in a bull market, selling for a 19 PE ratio, with
a 3.5% dividend, you would expect some interest from investors. Tell them that company is Newmont mining, and
they go back to looking at TSLA and Bitcoin.
Value investors do not care about gold miners, and momentum investors do
not care that, or believe that we are in a bull market. You would expect in a bull market a typical
expansion of multiples, as investors begin a buying frenzy and get more and
more greedy. We are not seeing that. While I believe it will occur in the future,
we have to analyze things as they are today with those future expectations in
mind.
Many have questioned, if I expect gold to increase to highs
roughly 10% higher than Aug, and silver to double from here, why my targets on
many gold miners are only back to Aug highs or slightly higher, and my targets
on silver miners are up 100-150% from here.
It is simply that we do not see the bull market greed and enthusiasm to
buy that many are expecting... YET. If this
begins to change, so will my expectations and my targets will be adjusted
accordingly. I expect it to change at some point, and I believe there is a good chance this next bull run will be
that very catalyst. If so, we will begin to see miner’s prices begin to run
ahead of their fundamental metrics as metals prices move higher. In that situation, we can begin to look at my
higher price targets for some miners which could be much higher, but this
analysis will have to be done “on the fly” as and if we see it occur.
I believe my targets are conservative and realistic given
this environment. I am confident most
will be achieved, even if my timing expectations are a little bit off. It is easy to call for higher prices and even
give a target of a specific price. Adding in a timing target for these prices compounds
the difficulty of your analysis exponentially.
Give a price target, and on a long enough timeline, you may be right,
but that doesn’t make it a great investment opportunity. In 1999, when the Dow was 10,000 there was a
book written calling for the Dow to go to 36,000, right before it fell to 7,200. In a few more months, the writer of the book will
be able to proudly proclaim, “See, I was right!”, 22 years later.
I just want to make a note here. I have no subscribers on my website, all my
content is free to all. I write what I believe,
and I write when I feel it is relevant to do so. I am not beholden to newsletter subscribers
to post content weekly simply because they have paid me to do so, even if I don’t
believe there is anything for me to say to give value to them. There are no advertisers sponsoring my
website. I am not being paid by any
company to sponsor content and promote their stock. I am not out here saying “Gold
is going to 50k/oz tomorrow!” for clicks or to excite people so you will
subscribe to something and pay me to tell you why. I spent my 12 year career as a gold and
silver equity analyst and portfolio manager for a private equity firm. I also spent about 5 years during that time as
an investor relations consultant for gold and silver companies, where I worked
closely with Jim Sinclair for years.
Today, I manage a half a century old 501c3 nonprofit investment fund
that donates its proceeds after expenses to various charities, mostly focused
on helping sick children. Additionally,
I manage my own investments and advise and manage the investment accounts for
some friends and family. I make money one
way, by being right on my analysis and investment choices.
So, this is the reason for my targets, because they are realistic
and attainable. I am not trying to sell
the illusion of grand riches to people claiming 10 bagger returns in 6 months. I want people to be able to make some money. On a portfolio of gold and silver miners, I
fully believe you can double your money.
I think by most metrics, that’s a fantastic expectation and an amazing
return in the time period I expect. There
are 10 baggers out there, and I believe we can see that when sentiment changes. Investors will enter a buying frenzy and major
producers will frantically begin buying junior companies to replace quickly
diminishing reserves. As I mentioned, I
fully expect and believe these targets can be reached and ideally begin to be raised
on this next move higher, but for now here is where we start because everybody HATES
gold.
This is the BEGINNING of the bull market. We haven’t even begun to see what’s coming,
in terms of inflation, government spending, deficits and debt, and gold and
silver prices. Nobody knows why anyone would want gold and silver, after all,
the stock market is soaring and so is Bitcoin.
They will find out, the same as they did from 2009-2011, and from
1978-1980. Old money will panic into gold, as they always do. Momentum chasers will buy into the frenzy at the exact top. We will be there to sell it to them. Hold on and be patient.
