YWR: The Epic buy opportunity for Gold and Gold Miners
Super Big Disclosure! These are personal views only. Seek professional guidance for any investing decisions!
Last week the most important monetary commodity in the world finished a 12 year Mega Cup and Handle when it broke $2,100\oz.
And…. what was the investor response to this big event?
Silence.
Complete absence of thought. One hand clapping.
And what were investors focused on instead? The daily noise around Nvidia and the Bitcoin halving.
It seems wrong, but actually it’s perfect.
Last week the 3rd Great Gold Cycle was born and the world wasn’t paying attention.
It’s like Jesus in the manger.
The Bull Case for Gold and Gold Miners
Today’s agenda:
6 reasons the 3rd Great Gold Cycle has started
Analyse the cash flow yields on spot prices for 4 US listed gold miners.
Cashflows for these miners in a bull case scenario where gold moves 30% ($2,600/oz).
Who is the mini-Barrick trading on a 10% free cash flow yield?
The Case for Gold. Why is this move the one?
#1 Investors keep selling the highs in gold (ETF Outflows).
It’s bullish (and rare) when an asset is making new highs and retail investors keep selling it, thinking it can’t go higher. It’s the opposite of what they usually do.
We have gold trading over $2,000/ounce, a key technical level, and instead of getting excited and buying more, retail is selling. They’ve sold $2.5bn in gold ETF’s year to date.
They’ve sold gold and poured $5bn into Bitcoin ETF’s, after Bitcoin has already moved +230% in the last 12 months.
#2 Nobody expects gold to do well. It’s the least favorite asset for 2024.
Despite record debt creation and a regime change in inflation nobody thinks gold can be a top performing asset. 12 years ago it would have been a top pick.
But in the 2024 BofA investor survey gold doesn’t even get a category. Like it doesn’t even exist. It gets lumped in with other commodities like oil and copper.
#3 Central banks are buying record amounts of gold and will buy even more in 2024.
In 2022 Central Banks doubled their annual gold purchases. It was a step change that continued in 2023.
And what significant event happened in 2022 that might make Central Banks change their view on gold so suddenly, and dramatically?
In 2022 the US confiscated $300 billion in Russian Treasury holdings in response to the Ukraine war. We’re taking your $300bn. It’s ours now. It was 50% of Russia’s central bank assets.
For global central banks this confiscation was a shocker. It was also a risky move for the US as the holder of the global reserve asset. You’ve just told the whole world your US assets are not actually safe.
So Central banks are switching to gold. You can see it in the step change in gold purchases and also in the surveys.
In the World Gold Council annual survey 71% of central banks indicate they will increase their gold purchases further in 2024. These official purchases are why gold keeps trading so well and doesn’t sell off for long.
#4 Hedge funds are missing it.
I’ve analysed the Top 20 holdings at 325 global hedge funds with AUM over $1 billion.
And how many of these hedge funds do you think own GLD as a Top 20 position?