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Great Times Coming For Gold Mining Stocks

by John Rubino ◆ March 10, 2020 5 Comments

Gold mining can be a terrible business. The metal’s price is volatile. Environmental and political risks are ever-present. And operating costs (especially energy) tend to rise even when gold’s price is falling. The result is a combination of low margins and high risk that causes most miners to consume more wealth than they produce.

But every once in a while the stars line up in a favorable way, and this year looks like one of those times.

First and foremost, gold has been rising and is now at record highs in most non-dollar countries and not far from a record high in the US:

gold price gold stocks

And with the coronavirus gumming up the global economy, the price of oil has cratered, presumably taking diesel fuel down for the ride.

oil price gold stocks

This combination of a higher gold price and cheaper oil will, if sustained in the coming year, give the miners wider profit margins and rising earnings — in some cases spectacularly so.

Positive comparisons are a good thing pretty much anytime, but in 2020 they might make this industry unique. A few current headlines illustrate just how unique:

Apple suffers “doomsday” plunge in iPhone shipments across China

Delta makes deep flight cuts as coronavirus hurts demand, pulls 2020 outlook

The U.S. government just warned people not to travel on cruise ships because of coronavirus

These guys — and many others — are going to report miserable numbers for at least another year. In that kind of environment, headlines like “Gold miner XYZ reports record revenues and earnings, raises year-ahead guidance and boosts dividend” will be fireworks in a dark sky. They’ll attract the attention of momentum investors who don’t much care what a company does as long as whatever it is working keeps working.

In a hyper-leveraged fiat currency world, this kind of hot money dwarfs the trickle of capital that normally flows into gold mining, so expect the industry’s good news to be greeted as actual good news, and their share prices to behave accordingly.

 

Emigrate While You Still Can – To Finca Bayano

Comments

  1. tim zamp says

    March 10, 2020 at 11:15 pm

    it better hurry up

    Reply
    • Tom Tom says

      March 11, 2020 at 4:03 am

      the profit comes during the crash.

      Reply
  2. tim zamp says

    March 10, 2020 at 11:15 pm

    the miners

    Reply
  3. Bruce C. says

    March 14, 2020 at 1:14 pm

    The only exposure to stocks I have are gold miners and some in silver ETF so i hope it’s finally true that they’ll blossom soon. So far not so good. They’re down over 25% since mid February and considering they just fell 3.3% on Thursday and 4.4% on Friday there seems to be no end in sight. I don’t mind it right now because that’s money I don’t need now but I’m becoming concerned that gold and silver are not such “safe havens” after all. Whether or not that’s because their prices are extremely manipulated and suppressed by whoever or because people are choosing to go into cash instead of PMs, or the opposite – ironically – that a liquidity crunch is deflating the value of ALL financial assets (except government bonds, so far) including mining stocks and the physical metals. Basically, in the past month it seems like everything that could be sold for “money” was, and anything that wasn’t money wasn’t bought. It’s been true for all the commodities and even Bitcoin. We shall see if government bonds and real estate are next. Maybe this is just a transition because if there is a liquidity crunch then the central banks will be forced add more, which should devalue the currencies and thus create a new panic out of them into tangibles like gold and silver. That’s the narrative, around here at least, but it’s growing long in the tooth and everything but that seems to happen. In any case I’m not selling my mining shares yet, just in case. At least maybe I can get my money back. The irony is even if the currencies (e.g. the US dollar) lose value, the investment in equities is even worse. We shall see. At least it’s exciting.

    Reply
    • Irma says

      March 21, 2020 at 1:33 am

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      Reply

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