The Barbarous Relic

[Eldad]

Gold! The favored investment of tinfoil hat nutjobs. 
 

Gold got close to its all time high today in USD. 
 

It is sort of interesting to think about persistent inflation, ever larger US deficits, and a Fed that may cut anyway very soon.
 

Also, with gold at an all time high, gold miners have never been more hated (for good reason). Most of them also have a pretty solid side copper business. 

I currently have all of 0.5% allocated to WPM and FNV.
 

The 1970s did happen.
 

Just wanted to see what you all thought about it. 

Edited March 1 by Eldad

[brobro777]

After watching that episode of Seinfeld where some comic tells Jerry, That's Gold!, me and my buddies have repeated Gold! for decades. 

 

My take is Gold is probably ok but BTC got more juice

[DooDiligence]

There's gold being sold on FeeBay!

and they do take their slice...

Edited March 1 by DooDiligence

[ValueArb]

How can Gold and BTC be near all time highs at the same time? Something is amiss in the matrix.

[Eldad]

13 minutes ago, brobro777 said:

After watching that episode of Seinfeld where some comic tells Jerry, That's Gold!, me and my buddies have repeated Gold! for decades. 

 

My take is Gold is probably ok but BTC got more juice

Ha Kenny Bania

[brobro777]

23 minutes ago, Eldad said:

Ha Kenny Bania

 

Haha yea Bania!

[FCharlie]

I thought this was an interesting interview on the subject of gold and gold miners

 

 

[JRM]

From a factor standpoint Bitcoin still trades like a high beta tech stock.  I think it is still to be determined if it de-couples with gold over time.

 

The interesting sector is the gold miners (and silver miners).  Gold is at all time highs, oil is around $80, and the mining stocks are severely depressed.  Maybe they finally work this time?

[TwoCitiesCapital]

2 hours ago, JRM said:

From a factor standpoint Bitcoin still trades like a high beta tech stock.  I think it is still to be determined if it de-couples with gold over time.

 

The interesting sector is the gold miners (and silver miners).  Gold is at all time highs, oil is around $80, and the mining stocks are severely depressed.  Maybe they finally work this time?

 

It's correlation to gold is pretty high at the moment. 

 

 

Edited March 2 by TwoCitiesCapital

[maplevalue]

Trump win -> uncertainty over US monetary policy. His previous nominee Shelton was supportive of gold standard.

 

Quote

Feb 2 2024 - Trump says he would replace ‘political’ Jay Powell as Fed chair

Donald Trump said he wanted to replace Jay Powell as chair of the Federal Reserve, accusing him of being “political” and predicting that he would cut interest rates to “help the Democrats” this year. Trump was fiercely critical of Powell while he was president from 2017 to 2021, and his latest comments point to serious friction between the Fed and the White House that could erupt next year if he defeats Joe Biden in November.

 

https://www.ft.com/content/ca3808a6-ab2d-4586-ad31-9107700f90cd

 

[gfp]

It's funny because Trump's main criticism of Powell (who he appointed of course) was essentially that he wasn't political enough.  Trump wanted low rates, Powell wanted to maintain Fed independence.

 

There is zero chance of the US going back to a gold-backed currency even if that is something that Donald Trump wanted, which I'm sure he doesn't.  Elasticity is a (necessary) feature not a problem.

[thowed]

Yep, I don't think Gold-backed currency would be good for property developers, who presumably prefer inflation to erode their debt away.

 

A bit like the Costco thread, with the takeaway that it may not be right to get too hung up on valuation for very high quality cos, I try to be quite agnostic on valuing gold.

 

I find the longevity of Gold reassuring, and while I can't 'explain' it, think it's a reasonable equity diversifier for uncertain times.  It doesn't feel quite as popular as in 2011, when the last big top happened, but maybe that will occur.  If the Houthis got paid off/resolved, then presumably gold would come down in the short-term.

 

Gold as a measure of faith in governments also seems reasonable, so that is very much a bull argument in many countries around the world.

[Parsad]

https://finance.yahoo.com/news/hotshot-wharton-professor-sees-34-110000414.html

 

Cheers!

[mattee2264]

Does seem to be a bit of a race against time. Can the supply side benefits of Artificial Intelligence and immigration get inflation down quickly enough to allow the Fed to cut interest rates to a level where debt servicing costs are more manageable? And will GDP be able to grow at a 4-5% rate over the next decade or two which would greatly help reduce debt to GDP and reduce reliance on fiscal stimulus to keep the economy firing on all cylinders?

 

 

[Eldad]

5 hours ago, mattee2264 said:

Does seem to be a bit of a race against time. Can the supply side benefits of Artificial Intelligence and immigration get inflation down quickly enough to allow the Fed to cut interest rates to a level where debt servicing costs are more manageable? And will GDP be able to grow at a 4-5% rate over the next decade or two which would greatly help reduce debt to GDP and reduce reliance on fiscal stimulus to keep the economy firing on all cylinders?

 

 

I certainly don’t know what will happen, but what you have listed there strikes me as a very tough ask for the US economy. 
 

Gold up to 2,128

[SafetyinNumbers]

On 3/2/2024 at 7:37 AM, FCharlie said:

I thought this was an interesting interview on the subject of gold and gold miners

 

 

I used to work with Ritchie when I was at UBS. I think I had just joined the prop desk when he joined the sales desk. I enjoyed the interview.

 

Valuations for gold stocks are significantly lower than they were back in 2002 when I first got in the business. For example, I’m on the board of Sailfish Royalty (FISH.V) which has a royalty on its sister company Mako’s (MKO.V). Mako turned its mine on in Q221 and after working through somewhat common start up issues, the mine is really humming. I see it trading at 2.4x 2024E OpCF.
 

In a recent webcast, the CEO, Akiba Leisman laid out that exploration spending yields a 10x return before discounting. Mako’s mine is in Nicaragua so for most people a 1% position is probably enough. They plan to diversify through acquisition and find high return places for FCF from the mine. It’s hard to find a good fit despite the low prices. I think a lot of promoter-led companies are weary of dealing with Wexford Capital which is the largest shareholder of FISH and MKO. Wexford shuts off the grift which is common in this industry.

 

For reference, Wexford Capital, is a multibillion dollar hedge fund and MKO is a way to sidecar invest with them with hopes they can work their magic in gold like they did in energy with Diamondback Energy (FANG.N) since they took it public back in 2012. It’s CAGRed 20%+ since then and has a $32b market cap which will go up significantly when they close their latest acquisition. 
 

If anyone wants to chat about either name with me or Akiba, please let me know. The last time MKO raised money was in 2020 and it was done at C$4 or ~66% above the current price. That raise was done assuming the stock would trade at 6x OpCF once in production and perhaps we’ll never get there again. But gold could triple in the next 5 years, in which case OpCF will be bigger than the entire market cap. 

 

 

[Jaygo]

3 hours ago, SafetyinNumbers said:

I used to work with Ritchie when I was at UBS. I think I had just joined the prop desk when he joined the sales desk. I enjoyed the interview.

 

Valuations for gold stocks are significantly lower than they were back in 2002 when I first got in the business. For example, I’m on the board of Sailfish Royalty (FISH.V) which has a royalty on its sister company Mako’s (MKO.V). Mako turned its mine on in Q221 and after working through somewhat common start up issues, the mine is really humming. I see it trading at 2.4x 2024E OpCF.
 

In a recent webcast, the CEO, Akiba Leisman laid out that exploration spending yields a 10x return before discounting. Mako’s mine is in Nicaragua so for most people a 1% position is probably enough. They plan to diversify through acquisition and find high return places for FCF from the mine. It’s hard to find a good fit despite the low prices. I think a lot of promoter-led companies are weary of dealing with Wexford Capital which is the largest shareholder of FISH and MKO. Wexford shuts off the grift which is common in this industry.

 

For reference, Wexford Capital, is a multibillion dollar hedge fund and MKO is a way to sidecar invest with them with hopes they can work their magic in gold like they did in energy with Diamondback Energy (FANG.N) since they took it public back in 2012. It’s CAGRed 20%+ since then and has a $32b market cap which will go up significantly when they close their latest acquisition. 
 

If anyone wants to chat about either name with me or Akiba, please let me know. The last time MKO raised money was in 2020 and it was done at C$4 or ~66% above the current price. That raise was done assuming the stock would trade at 6x OpCF once in production and perhaps we’ll never get there again. But gold could triple in the next 5 years, in which case OpCF will be bigger than the entire market cap. 

 

 

Thanks for posting this, really interesting guy.

 

I have a small investment in Mako as my only gold miner exposure. Rare to see a seemingly competent and good communicator running a mine. Akiba is pretty forward with the operations and that is what i like to see. Keep the investors in the know. 

 

I am a gold as money guy myself but see the benefit in gold bars and less so in mining as the two are not the same. A company that produces gold is like a company that makes anything else. Gold as a physical holding of value is more similar to real estate or scrap metal sitting in the back yard. In my mind it will simply inverse the fall in purchasing power in our currencies plus a bit for sunk energy. If real inflation is 5% over 100 years id expect gold to be a similar return plus what ever the energy is required to extract it from the ground.

 

I would love to see the webinar you mentioned as i guess i missed it.

[brobro777]

Oh man all this talk of Gold reminds me of Bre X

 

[Jaygo]

lol. I saw a boat last summer named Bre xtravagance
 

thought it was awesome. One guy made out good at least. 

[SafetyinNumbers]

1 hour ago, Jaygo said:

Thanks for posting this, really interesting guy.

 

I have a small investment in Mako as my only gold miner exposure. Rare to see a seemingly competent and good communicator running a mine. Akiba is pretty forward with the operations and that is what i like to see. Keep the investors in the know. 

 

I am a gold as money guy myself but see the benefit in gold bars and less so in mining as the two are not the same. A company that produces gold is like a company that makes anything else. Gold as a physical holding of value is more similar to real estate or scrap metal sitting in the back yard. In my mind it will simply inverse the fall in purchasing power in our currencies plus a bit for sunk energy. If real inflation is 5% over 100 years id expect gold to be a similar return plus what ever the energy is required to extract it from the ground.

 

I would love to see the webinar you mentioned as i guess i missed it.

 

Here is the link. There are webcasts going back years so one can go back and compare the plan to what obstacles that were run into and how they were handled. It’s pretty clear to me the decision making is rational but everyone should be their own judge. Mining is hard and doesn’t screen well which makes it the opposite of quality.
 

Most investors are quality investors and they use heuristics to screen. MKO gets excluded pretty quickly based on all kinds of factors that have nothing to do with FCF. Instead of using heuristics,  I use a probabilistic approach and on that basis, I think MKO is particularly compelling. The share float is pretty tight too with Wexford, Akiba and a few high net worth investors with probably close to 65% of the shares. I’m excited to see what kind of returns the FCF can earn and how big a producer Mako could be parlayed into over the next decade. 

 

 

 

 

[thowed]

@SafetyinNumbers Thanks for this - very interesting.

 

I favour Royalty Cos over extractors, and this has worked OK (subject also to stock selection) with Oil, but I've found Gold Royalties harder.

 

It looks like the Golden Age of FNV is over (on theory that it's now too big - a victim of its own success - and so finding it harder to grow (unless more copper?)

 

Silver Wheaton seems to be the only one with decent 5 year figures, but again it's quite big now, so not sure if that can continue.

 

I've struggled with the mid/small-caps.  Some of them seems to be simple bad management problems (I can't quite work out Osisko Royalties, which some people like, and whether management problems are fixed there, or even worse).  EMX seemed potentially interesting because of the FNV stake.  But ultimately, over 5 years, it's been much better to own Physical than the mid/small caps.

 

That's my current thinking, but I am no expert and always keen to learn more/have my views changed. 

[SafetyinNumbers]

2 hours ago, thowed said:

@SafetyinNumbers Thanks for this - very interesting.

 

I favour Royalty Cos over extractors, and this has worked OK (subject also to stock selection) with Oil, but I've found Gold Royalties harder.

 

It looks like the Golden Age of FNV is over (on theory that it's now too big - a victim of its own success - and so finding it harder to grow (unless more copper?)

 

Silver Wheaton seems to be the only one with decent 5 year figures, but again it's quite big now, so not sure if that can continue.

 

I've struggled with the mid/small-caps.  Some of them seems to be simple bad management problems (I can't quite work out Osisko Royalties, which some people like, and whether management problems are fixed there, or even worse).  EMX seemed potentially interesting because of the FNV stake.  But ultimately, over 5 years, it's been much better to own Physical than the mid/small caps.

 

That's my current thinking, but I am no expert and always keen to learn more/have my views changed. 

My pleasure @thowed. As usual, I’m talking my own book as I own both FISH and MKO and sit on the FISH BOD. I think most investors like the royalty companies for good reason but that also means their starting valuations are generally significantly higher and because of the business model, the operating leverage isn’t as significant. The contrarian move is smaller producers and royalty companies that aren’t yet included in major ETFs like GDXJ but then sizing the positions like options so no one individual name can hurt that much if bad things happen like they sometimes do in mining. FNV found out recently with their Panama royalty.

[brobro777]

Here are some interesting stats about Gold returns

 

https://awealthofcommonsense.com/2024/03/whats-the-investment-case-for-gold/

 

[thowed]

Thanks for this @brobro777.  Some stats & history stuff I didn't know.

 

The only things I think I would have added are:

 

a) Gold's use at times of lack of confidence in governments.

b) Gold's use as a store of value when governments are printing/devaluing their fiat currency.

[Eldad]

30 minutes ago, thowed said:

Thanks for this @brobro777.  Some stats & history stuff I didn't know.

 

The only things I think I would have added are:

 

a) Gold's use at times of lack of confidence in governments.

b) Gold's use as a store of value when governments are printing/devaluing their fiat currency.

I don’t get the constant comparisons between gold and Bitcoin. 
 

Have you ever seen a Holocaust movie? You are rushing to grab a few things and fleeing your home with your family. You grab a couple thousand bucks worth of gold coins to hopefully bribe your way to safety. That is what gold can offer when nothing else can. 
 

I know the tangible argument is a very tired one for the Bitcoin enthusiasts, but it feels like you are arguing with somebody about the existence of gravity sometimes.