Fred Hickey begins buying gold stocks

I bought a slug of Newmont Mining shares at $23.60 that I still happily hold today.  The antithesis of a tech stock, this giant gold mining company is a bet on the end of the 20-year bear market in gold.  It is a bet on an anticipated plunge in the dollar.  It is a bet against Greenspan and the Fed, who I fear will flood the system with money as the stock market and economy continues to contract.  It is a bet against undisciplined fiscal spending and budget deficits.

~ Fred Hickey, The High-Tech Strategist, August 3, 2002

Rick Rule on the disconnect between gold price and equities

Q: Gold is now at an all-time high, but the majority of gold stocks are around 5-year lows.  Can you explain the disconnect?

Rick Rule: Absolutely.  And first of all, gold is only in all-time highs in nominal terms.  In real terms, against the U.S. dollar at least, gold is not at all-time highs.  And people need to understand that when they think about where gold might go.  The second thing is, with regards to the underperformance of the gold price, it's worth noting that the buying of gold is not widespread.  You are not seeing retail buying of gold except in China and India.  The gold purchases that you're seeing are central bank purchases.  And those central bank purchases are really looking for an asset that could be a medium of exchange outside the U.S. dollar.  It's the weaponization of the dollar, rather than the fear of inflation, that is the driver of gold itself.  These gold buyers, central banks, are not buyers traditionally of gold equities, or equities at all, for that matter.  So it makes perfect sense... to say that the gold bull market and the market in gold stocks thus far is disconnected because while the buyer has a need for gold to circumvent the U.S. dollar, the buyer doesn't have a need for gold stocks.

But there's a second reason that I think is worth discovering and that is the chronic underperformance of gold mining companies as businesses for the last 50 or 60 years.  Lucijan, if you were as old as I, which I can tell you're not, you would remember the decade of the 1970s when the gold price went from $35 to $850, the best bull market for gold stocks probably in recorded history.  The hangover from that, if you will, is that the gold stocks the most in that bull market were the ones that exhibited the most leverage to gold.  And the most leveraged companies, ironically, are the most marginal.  If you're a high cost producer and the gold prices goes up, your margin increases faster, ironically, than a more efficient producer.  When the investor, which they have now for the last... 50, 60 years, looked at gold investments, they looked for the most leverage, which is to say the most marginal.  And the industry became very very marginal.

If you look back to the decade 2000 to 2010, the gold price in U.S. dollars was up more than seven-fold and yet free cash flow per share among the XAU [PHLX Gold and Silver Sector Index] in the U.S. declined!  It took real skill to screw up a market where the selling price of your product increased seven-fold and you reduced free cash flow per share.

So the expectations that the investment community has around gold mining companies are extraordinarily low.  From my point of view, that's good news.  It's good news because I don't have much competition on the bid for gold mining stocks.  And I would suggest to you that some investor expectations have become more rational.  I would suggest that most of the management teams that presided over the destruction of capital in the period 2000 to 2010 have been allowed to pursue other employment opportunities.

So I think that the gold industry is held in ill-repute, ironically, right at the beginning of its renaissance and I regard this as a particular opportunity.

~ Rick Rule, interview with Lucijan Valkovic, 7:20 mark, March 28, 2024

Kevin Duffy makes the case for gold and gold stocks

Q: What’s your case for gold? 

A: No one can predict the future with certainty.  That’s why I look at multiple paths, different scenarios with multiple twists and turns.  I think there's at least a 10% chance that we could ultimately have a hyperinflation over the next ten years.  So we have to be prepared for that possibility.  But what happens if we get a scenario with a global recession first? In this case, it’s highly likely that commodity and energy prices decline.  If gold stays flat or even down slightly, the miners should benefit as their cost structure falls more than the price of gold.  They already generate strong free cash flows, and the industry is much more conservative than it was ten or twenty years ago, much more focused on profitability.  So we have the best of both worlds: Not only do we have a cash flow generative business and a disciplined industry that’s not destroying capital, but we also have an option value if something were to go badly wrong with the great monetary experiment.

~ Kevin Duffy, "The Next Bear Market Has Already Started," The Market, July 1, 2021

Rick Rule on the bull market in precious metals

I suspect that the duration on this gold bull market is greater than people think. And I think the dimension is greater than people think, too, because gold and precious metals move when people are concerned about the debasement of the currency and the impact that that has on the purchasing power of their savings. And anybody who isn't concerned about quantitative easing, debt and deficits and negative real interest rates I believe needs to have their head examined. So I'm constructive to higher precious metals prices and hence higher prices around companies that produce them.

~ Rick Rule, "Where to Find Big Gains in Resource Stocks," Stansberry Investor Hour, 34:00 mark, May 13, 2021

Doug Casey on gold stocks

On the bright side, however, in the next few months, if you have cash, there are going to be fantastic bargains in the stock market in general. But by far the best place will be gold stocks, which are very, very cheap.

Unlike most companies today, they’re coining money because the average all-in sustaining costs of gold mines around the world are under $1,000 per ounce and dropping because about 20%–30% of the typical goldmine’s costs are fuel. The price of oil has also collapsed to $20, and gasoline is at $0.70 in the futures market.

This is the ideal time to buy gold miners. You don’t want to try to catch a falling safe; you want to wait until it conveniently smashes open on the sidewalk. Now is the time.

That’s what the average person should do. Other than that, prepare to enter the trailing edge of the gigantic hurricane we entered in 2008.

~ Doug Casey, "The Biggest Thing Since 1776 is Happening Now... How the Coronavirus Will Spark the Greater Depression," LewRockwell.com, March 19, 2020