3 Gold Miners To Inflation-Proof Your Portfolio

It was another turbulent week for the major averages, with the S&P 500 (SPY) finding itself down 3%, extending its decline to the 20% mark. However, one sanctuary from the turbulence was the Gold Miners Index (GDX). Not only did the index not lose ground last week, but it gained 3%, and it is one of the few ETFs sporting a year-to-date gain. This continued relative strength combined with an undervalued industry group relative to historical levels suggests that this is a group worth keeping a close eye on for investors looking to inflation-proof their portfolios.

Gold Miners Index (GDX)

Source: TC2000.com

With inflation readings continuing to sit at multi-decade highs and the Federal Reserve maintaining its hawkish pivot, there are few places to hide in today's market. However, one asset that has historically done well in periods of negative real rates is gold (GLD), and one way to collect income with exposure to the gold price is through gold miners. The caveat, however, is that they must be trading at a deep discount to net asset value [NAV] and ideally out of favor. With more than 80% of miners trading at discounts to NAV and the industry group down nearly 40% from its Q3 2020 highs, it currently meets both requirements. Let's look at three names that make for solid buy-the-dip candidates: Continue reading "3 Gold Miners To Inflation-Proof Your Portfolio"

Three Gold Miners Trading At Deep Discounts

It’s been a rollercoaster ride for investors in the Gold Miners Index (GDX), with the index starting the year up 24% only to find itself back at a negative year-to-date return. While this has led to disappointment among many investors, I believe that this complete retracement is a gift, and it's worth noting that the GDX is still massively outperforming other sectors despite the sharp reversal. However, the key when investing in gold miners is to buy quality, and it rarely pays to bet on turnarounds from the lower-quality or lower-priced names in hopes that they will play catch-up. In this update, we'll look at three sector leaders worthy of a closer look.

Agnico Eagle Mines (AEM), Eldorado Gold (EGO), and Maverix Metals (MMX) all provide exposure to the gold price but have little in common from a cost, scale, and jurisdictional standpoint. All three operate in very different jurisdictions and have costs ranging from $400/oz to $1,300/oz. From a size standpoint, Maverix produces as little as ~40,000 gold-equivalent ounces [GEOs] per annum on an attributable basis. In contrast, Eldorado Gold produces over 400,000 GEOs per year, and Agnico produces over 3 million ounces of gold each year. However, all three companies share one key trait: enviable organic growth. In a sector that lacks growth stories, with most being inorganic, these companies do not need a higher gold price to significantly increase cash flow per share looking out to FY2025.

Beginning with Agnico Eagle Mines (AEM), the company is the 3rd largest gold producer globally and expects to produce 3.3 million ounces of gold in 2022 at all-in sustaining costs [AISC] between $1,000/oz to $1,050/oz. The company's 10+ mines are located in Canada, Australia, Finland, and Mexico, and the company has a large development that could add 700,000+ ounces per annum of production by 2030. Among the million-ounce producers, this jurisdictional safety is a rarity and is one reason that AEM is a favorite among funds, with 95% of production coming from Tier-1 ranked jurisdictions vs. Barrick Gold and Newmont at less than 60%, and Gold Fields at less than 50%. Continue reading "Three Gold Miners Trading At Deep Discounts"

Three Gold Miners To Buy On Dips

It’s been an ugly week for the major market averages, with the S&P 500 (SPY) continuing its violent decline from its Q1 highs. Prior to this week, the Gold Miners Index (GDX) was a sanctuary from the turbulence, but when the market heads past the 15% correction mark, few stocks are sheltered from the turbulence. While this has been painful for investors that chased miners in early Q2 near their highs, this is set up an excellent buying opportunity for patient investors. So let’s look at a few names in the GDX where the selling looks to be overdone:

GDX Gold Index

Source: TC2000.com

Over the past month, we’ve seen several gold miners slide more than 25% from their highs, and in many cases, these corrections are entirely justified. This is because several producers have weak balance sheets and high costs, making them very sensitive to weakness in the metal price and rising interest rates. However, when it comes to names like SSR Mining (SSRM), Yamana Gold (AUY), and Barrick (GOLD), which are sitting in net cash positions or expect to be net-cash positive by Q4, the recent pullback makes little sense, especially given that they’re some of the best operators sector-wide. Continue reading "Three Gold Miners To Buy On Dips"

3 Gold Miners Trading At Dirt-Cheap Valuations

It's been a volatile start to the year for the major market averages, but one sector that's managed to hold up well among the carnage is the Gold Miners Index (GDX). In fact, the index is up 10% year-to-date on the back of higher gold prices. While some investors might fear that they've already missed the move and it's too late to chase, it's important to note that gold has begun to outperform the S&P 500 (SPY) after a multi-year downtrend, which typically suggests we're in the early innings of the move for the GDX. In addition, while a few names are outside of low-risk buy zones, several are dirt-cheap, even after the sharp rally in Q1. Let's take a closer look below:

GLD/SPX Chart

Source: TC2000.com

When it comes to getting exposure to gold, the Gold Miners Index is typically the vehicle of choice for investors. However, the issue with the GDX is that it's made up of more than 50 names, with many having weaker balance sheets, a poor track record operationally, and razor-thin margins. Unfortunately, the latter has been exacerbated by inflationary pressures. Therefore, by owning the index, one is diluting their returns with the laggards. For this reason, I prefer playing the sector by owning the highest-quality names when they go on sale. Continue reading "3 Gold Miners Trading At Dirt-Cheap Valuations"

Update: Gold Mining Fundamental Macrocosm

Gold miners require a unique macroeconomic backdrop.

When gold-stock bulls complain about a “smackdown,” a “hit,” or a “smash” against the poor gold-stock sector, what they should be thinking about is what a relatively small market the gold stock universe is compared to the multitude of galaxies populated by cyclical and risk on stocks and commodities and the massive bond market. The gold stock sector’s noise to trading volume ratio must be far and away the biggest bull market on the planet (I know because I am part of it :-)).

And once in a while, the sector actually warrants all that noise. Like in 2001 when markets were beginning a bear phase, and economies were faltering, like in Q4, 2008 when gold stocks were crashing to unwind previous inflationary excesses, leading stocks and commodities into a terrible crash and rebounding first. Like in March of 2020, when the miners crashed and ‘V’ bottomed to lead what is to this day an ongoing economic recovery born of inflation, gold and gold stocks first sniffed out.

And that is the rub. Personally, I have been favoring the prospect of a strong bull market (target: 500) after initially projecting an A-B-C upside correction target of 375 in 2019, which we put in the books at 373.85 last August. But in order to continue favoring an ongoing bull market scenario, the macro fundamentals must play ball, and play ball they have not since last summer. Hence, the A-B-C upward correction and ongoing bear market scenario gains strength with each passing month of positive economic activity, regardless of the inflation it was created with.

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Enter once again the Macrocosm because it is time for a reminder to myself, if not you, that the macro must rotate negative in order for the gold-stock sector to be anything special. Speaking of rotation, it has been rotating alright, but with yields and inflation signals fading that rotation is not into a deflationary situation that would produce a big gold-stock buying opportunity but is instead something of an interim Goldilocks scenario (easing inflation expectations, firming USD, Tech and Growth bid up, etc. while the economy remains okay). Continue reading "Update: Gold Mining Fundamental Macrocosm"