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Hope you are having a good Saturday! |
I've been enjoying my son's baseball games— 4 alone this weekend! So you know where I'll be. I wanted to pass this along from our friends at Katusa Research about the recent surge in gold… for your weekend reading pleasure! |
Cheers to you! |
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Why Aren't Gold Stocks Kicking Ass With Gold's Rise? |
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Do you know the business golden rule? |
The man with the gold, makes the rules. |
And right now, there's a significant group of new rule makers in 2024…. |
Gold reserves reported to the IMF by Central Banks and governments around the world reached a record high of 1.16 billion ounces this year. |
This is an increase of 190 million ounces since the Global Financial Crisis in 2009. |
The chart below shows the massive increase in government and controlled reserves since the GFC. |
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These ounces today are worth a staggering $450 billion. |
And that figure balloons when converted into local currencies that have depreciated against the US dollar over time. |
Those Central Bankers who have been buying gold have demonstrated that investing in gold over the last 15 years isn't just smart—it's strategic. |
Gold fortifies Central Bank's reserves, anchoring local currency stability and shielding against devaluation. |
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Such policies typically erode currency value, making gold an increasingly critical asset for preserving wealth. |
Gold's value has not just held but soared across major global currencies. |
Whether you invested in gold in USD, Euros, Canadian Dollars, Yen, Yuan, Aussie Dollars, or Mexican Pesos, you've seen significant returns. |
Below, a chart vividly illustrates the robust gains of gold across different currencies over the past 20 years. |
This trend is a clear signal. |
The time to act is happening in real time. |
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According to the latest data from the World Gold Council, by the end of 2023, institutional portfolios had earmarked a mere 4% of their total assets under management (AUM) for gold. |
This allocation is primarily in gold-backed ETFs (about half) and mining stocks (one-third). |
With the balance in physical bullion, derivatives, and multi-asset funds—totaling around 81 million ounces in ETFs. |
Traditionally, savvy investors have suggested allocating 5-10% of a portfolio to gold. |
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While Western investors may hesitate…New Wealth across the world is not hesitating to move into gold. |
The Global Stage Is Set for a Dramatic Shift in Demand… |
This stark visualization is not just numbers—it's a wake-up call. |
The potential for gold is vast and underutilized, presenting a golden opportunity for those ready to seize the moment and capitalize on the market's slow response. |
The chart below starkly contrasts AUM in gold-backed and gold miner ETFs with those of major US ETFs tracking indices like the S&P 500, Nasdaq, and bond markets. |
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History doesn't always repeat but it does rhyme. |
As you can see, when AUM percentages get into the 2-3% range, there is a tendency to bounce strongly. |
Gold at record highs seems to be a reasonable argument for an increase in allocation to gold away from overvalued equities. |
It might surprise you, but to put it in perspective, since 2021 gold stocks are down nearly 30% as measured by the Gold Bugs Index… |
Whereas gold bullion has generated a positive return over the same timeframe. |
Gold developers have also suffered tough times, with some trading at steep discounts to intrinsic value. |
The Deal Market is HOT |
And that spells opportunity. |
In 2023, merger and acquisition in the gold sector totaled $21 billion marking one of the largest years in M&A in a decade. |
In 2023, the $21 billion in M&A consolidated 223 million ounces of gold, according to S&P Platts. |
This implies a deal value of roughly $94 per ounce. |
If you take out the mega merger between Newmont and Newcrest, total sector M&A activity was $4.6 billion for 89 million ounces. This implies a deal value of roughly $51 per ounce. |
Currently, the gold developer sector is trading at roughly $30 per ounce… |
And this leaves the door open for potential additional upside… |
When Does The Mother of all Rallies Start? |
Gold prices have ripped the past 2 years, rising over $550 per ounce, setting new all-time highs. |
Yet we are just beginning to see the miners take part in the rally. Year to date, most miners are up less than gold. |
Which seems odd given the leveraged upside exposure that gold miners carry. |
The key overhang lies in a rarely discussed indicator - The cost of capital. |
Mining is a high risk business and high risk means debt and equity providers need higher rates of return in order to incentivize investment. |
Even though the Federal Reserve has telegraphed lower rates in the future, this doesn't hold up for mining stocks. |
Raising money is going to get harder and will become more dilutive for miners |
The weak and feeble juniors simply have no chance in this new high stakes world. |
In my opinion, it has never been more important to be aligned with companies: |
With only the top tier management teams That have big assets, strong balance sheets and That operate in politically stable jurisdictions.
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All 3 of these points are critical. Such a key filter to de-risk your portfolio and expose your portfolio to upside potential. |
Take these 3 criteria and check all your positions. |
There's a good chance one or all of these are missing. |
Monday June 3rd, before market open… |
The KR Special Situations Team will be releasing the name of one particular gold stock. |
It ticks all 3 boxes, and many more for me. |
You can access it HERE on Monday. |
(Make sure to refresh that link right at 9AM EST). |
When I tell you about the names behind this, you'll know why. |
Regards, |
Marin Katusa and the KR Special Situations Team |
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