Jekyll Island Series – Adrian Day: Gold Stocks – Biggest Opportunity In Thirty Years
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Adrian talks about the difficulties facing gold mining companies and their stocks. A lot of people do not understand the inherent complexities in this industry such as high capital costs, low odds of success in exploration, and fixed assets that can be taxed or confiscated. When you look at the gold market not only is gold cheap but gold stocks are cheap even in comparison to gold. This is the most significant opportunity in thirty years to buy gold stocks.
The boom in China prompted the bull market of the early 2000’s. He doesn’t think that will be the story going forward even though China will likely recover. The story going forward will be the shortage of new deposits.
Mines are depleting assets for every ounce they recover they have to locate new ounces. When you look at all of the production, you realize we are not finding enough to replace what we are mining. This story is likely to persist for the next five to ten years regardless of the gold price. If the price goes up, there will be a bit of production that can be increased, but there aren’t enough new mines that can come online in any reasonable time frame. There are a lot of major mines that are reaching the end of their deposits. All of these things are positive for the price of gold.
When the broad market falls, gold stocks will often decline at least briefly. There was a good recovery from 2009-2012 in gold stocks. The question you need to ask is how cheap are the gold stocks and did they participate in the previous rally. In 1987 when the market crashed gold stocks were over-valued you can’t say that today by any objective standard. Gold stocks today are quite cheap. If we have a decline in the next year or two gold stocks should recover very quickly.