Gold was at about 2,048 dollars per ounce, US, at the start of January 2024. It is presently about $2,578 at the close on Friday. It has risen about $530 per ounce during 2024 thru 9/13. This is a rise of about 26% during 2024.
How does this compare to some ETF assemblages of precious metal firms?
GDX was up 29.28% over the same time period. GDXJ was up a similar 29.20%. Sprott's Gold Equity Fund which combines the firms with the highest market capitalizations (the blue chips) with selected explorers was up 33.46% over the same period.
There has been only 3 to 7 percent premium for mining firms versus the rising value of gold. I would hazard a guess that this modest premium will increase in future, but only time will tell and by how much.
By the charts that John has thoughtfully created and provided, it appears the stocks of large precious metal firms have increased several percentage points more than the price of gold itself, during 2024. I expect this margin for the mining firms will widen and increase in future.
Large mining firms can own a great number of ounces still in the ground and these too are increasing in value, just like those that are extracted. Firms publish periodic reports on their resource reserves.
This is public information available to investors.
When Mr. Rule suggests 75% of junior miners are worthless, what does he mean by this?
The term "juniors" is broad and imprecise, though in common use. The classification of junior includes firms that are productive and operate one or more mines. These are certainly not valueless.
The 75 percent that are indeed valueless are those who are unproductive (have no operational mines). These "explorers" are lumped together as juniors with economically viable companies that do have value.
There are a great number of explorer firms and most will not define a deposit that merits the capital investment of a mine. This being so, I agree with Rick's point that they do not have promise of value.
One of the inferences of Rick's viewpoint is that the quality of a mining firm matters. He has said: "If you buy the sector, you go broke. If you buy good individual firms, you get rich." Put another way, there are lots of exploratory mining firms that will fail and become worthless. Rule has instead been rewarded by investing in strong, reliable firms, including explorers that define strong deposits.
The junior miners may be 75% crap, but the mid-tiers and the other 25% of juniors can give better returns than the mining behemoths. The secret is to trust an advisor with decades of experience and proven returns to tell you WHICH miners to buy, based on fundamentals. I don’t have time or expertise to read assays and drilling reports, or follow the political climate at specific mines. I don’t know how to interpret the Commitment of Traders reports on mining stocks. But I do have time to read my advisor’s newsletter each week and follow his trades. At this point, based on his advice, I’m up about 30% on the last 12 months. Adam Hamilton is “my guy” in mining stocks. Disclaimer: I have no financial interest in recommending his newsletter, Zeal Speculator. https://www.zealllc.com/speculator.htm
After all, GDX has risen about 42% since 9/14/23 (1 year ago) while gold bullion rose about 33%. The rule of thumb is gold stocks should rise 2-3 times the change in gold price (which would be about 66%-99%).
It's an interesting irony that a PM mining company's margin is theoretically independent of the selling price of gold/silver, gold especially. In theory, since gold is roughly a proxy for currency devaluation then all of the company's costs increase by the percentage as the rise in the gold's price. But that's only generally true. The exceptions are when the fiat price of gold are substantially higher (or lower) then the devaluation of the fiat. For example, using the classic equivalence of 1 ounce of gold and a tailored suit then we are still within that range. I'm pretty sure a custom suit is about $2,500 these days, so there's no "dislocation" yet.
Given that, it agrees with JR's explanation of why mining stock prices haven't risen. But this analysis leaves out the sentiment factor. There still seems to be roughly zero positive sentiment about gold and mining stocks, even though gold's price rise has been pretty fast and significant. However, when US investors do take notice I expect the 2-3X risk premium for stocks vs bullion will resume.
“There still seems to be roughly zero positive sentiment about gold and mining stocks” Exactly right. Everybody is chasing the “bright, shiny object” du jour, which is currently AI stocks. The previous BSO du jour, EVs and lithium for their batteries, has faded. But as soon as the first nuke falls, anywhere in the world, all bets are off. AI and other tech stocks won’t mean sh!t when millions are being killed with each push of a button. Nor will paper currencies. “Sentiment” will quickly move to metals — gold, silver, and lead.
My senior miners and royalty companies are doing well. I was buying heavily at the lows but am waiting for now. I am putting new money into oil companies. I like what Africa Oil is doing with the Prime acquisition and am buying more.
Gold was at about 2,048 dollars per ounce, US, at the start of January 2024. It is presently about $2,578 at the close on Friday. It has risen about $530 per ounce during 2024 thru 9/13. This is a rise of about 26% during 2024.
How does this compare to some ETF assemblages of precious metal firms?
GDX was up 29.28% over the same time period. GDXJ was up a similar 29.20%. Sprott's Gold Equity Fund which combines the firms with the highest market capitalizations (the blue chips) with selected explorers was up 33.46% over the same period.
There has been only 3 to 7 percent premium for mining firms versus the rising value of gold. I would hazard a guess that this modest premium will increase in future, but only time will tell and by how much.
By the charts that John has thoughtfully created and provided, it appears the stocks of large precious metal firms have increased several percentage points more than the price of gold itself, during 2024. I expect this margin for the mining firms will widen and increase in future.
Large mining firms can own a great number of ounces still in the ground and these too are increasing in value, just like those that are extracted. Firms publish periodic reports on their resource reserves.
This is public information available to investors.
When Mr. Rule suggests 75% of junior miners are worthless, what does he mean by this?
The term "juniors" is broad and imprecise, though in common use. The classification of junior includes firms that are productive and operate one or more mines. These are certainly not valueless.
The 75 percent that are indeed valueless are those who are unproductive (have no operational mines). These "explorers" are lumped together as juniors with economically viable companies that do have value.
There are a great number of explorer firms and most will not define a deposit that merits the capital investment of a mine. This being so, I agree with Rick's point that they do not have promise of value.
One of the inferences of Rick's viewpoint is that the quality of a mining firm matters. He has said: "If you buy the sector, you go broke. If you buy good individual firms, you get rich." Put another way, there are lots of exploratory mining firms that will fail and become worthless. Rule has instead been rewarded by investing in strong, reliable firms, including explorers that define strong deposits.
The junior miners may be 75% crap, but the mid-tiers and the other 25% of juniors can give better returns than the mining behemoths. The secret is to trust an advisor with decades of experience and proven returns to tell you WHICH miners to buy, based on fundamentals. I don’t have time or expertise to read assays and drilling reports, or follow the political climate at specific mines. I don’t know how to interpret the Commitment of Traders reports on mining stocks. But I do have time to read my advisor’s newsletter each week and follow his trades. At this point, based on his advice, I’m up about 30% on the last 12 months. Adam Hamilton is “my guy” in mining stocks. Disclaimer: I have no financial interest in recommending his newsletter, Zeal Speculator. https://www.zealllc.com/speculator.htm
I think the lag is mostly because of sentiment.
After all, GDX has risen about 42% since 9/14/23 (1 year ago) while gold bullion rose about 33%. The rule of thumb is gold stocks should rise 2-3 times the change in gold price (which would be about 66%-99%).
It's an interesting irony that a PM mining company's margin is theoretically independent of the selling price of gold/silver, gold especially. In theory, since gold is roughly a proxy for currency devaluation then all of the company's costs increase by the percentage as the rise in the gold's price. But that's only generally true. The exceptions are when the fiat price of gold are substantially higher (or lower) then the devaluation of the fiat. For example, using the classic equivalence of 1 ounce of gold and a tailored suit then we are still within that range. I'm pretty sure a custom suit is about $2,500 these days, so there's no "dislocation" yet.
Given that, it agrees with JR's explanation of why mining stock prices haven't risen. But this analysis leaves out the sentiment factor. There still seems to be roughly zero positive sentiment about gold and mining stocks, even though gold's price rise has been pretty fast and significant. However, when US investors do take notice I expect the 2-3X risk premium for stocks vs bullion will resume.
“There still seems to be roughly zero positive sentiment about gold and mining stocks” Exactly right. Everybody is chasing the “bright, shiny object” du jour, which is currently AI stocks. The previous BSO du jour, EVs and lithium for their batteries, has faded. But as soon as the first nuke falls, anywhere in the world, all bets are off. AI and other tech stocks won’t mean sh!t when millions are being killed with each push of a button. Nor will paper currencies. “Sentiment” will quickly move to metals — gold, silver, and lead.
My senior miners and royalty companies are doing well. I was buying heavily at the lows but am waiting for now. I am putting new money into oil companies. I like what Africa Oil is doing with the Prime acquisition and am buying more.