As a precious metals investor, you recently lived through one of the most volatile periods in history.
If you weren’t around or weren’t paying attention during the run-up in the 1970s, you now have concrete (and ongoing) experience with what can happen when precious metals rise too far, too fast.
You saw the incredible march from $2,800 gold a year ago to $5,300 gold a little over a week ago.
You now have direct, undeniable experience about the possible in this market.
And if you (as I think you should) own some precious metals stocks, you also know that they don’t behave in the exact ways you might expect or hope.
Over the coming weeks and months, we’re going to see a kind of stalemate between people who disbelieve the trend we just saw play out, and people who know it’s just the beginning.
It’s likely that the unbelievers will have further confirmation.
Corrections don’t tend to end quite this quickly. We may have months left of retracements or sideways price action in the metals.
Anyone who says they know the correction is over or the bull market is done are mistaken. The market will find its bottom with or without our predictions.
What we can say:
Our best precious metals stocks were selling for a discount 10 days ago, a month ago and 6 months ago, even as gold and silver soared.
The miners never really caught up. Some of them have performed well, and handed us handsome returns. But largely, they have not overshot valuations based on their cash flows or net asset values.
This correction is bringing many of our positions into better buys than we’ve seen in months.
But the very fact that almost none of our world class mining and royalty stocks have hit “overvalued” status means we’re nowhere near a blow-off top for the sector.
We can’t know exactly where this bull market will end – but we know (from history) that it will end when metals stocks are all overvalued. When the worst low grade, high cost, moose pasture with a few gold flakes is selling for above any rational valuation – we’ll be the first to call the end.
The possible is already in the viewfinder. We know gold can double in a year. We know silver can quadruple.
We know that the miners and royalty firms will lag…
As for the probable, all we can do is to continue to focus on value. To buy dollars for dimes or quarters. Doing so gives us the best possible chance to profit, and everything else is a distraction.
High quality businesses that can mine or have leverage with high grades, low mining costs, and high margins will do well. We focus on those businesses. We don’t worry too much about the intra-week price movement of gold and silver.
The rest will work itself out, with time.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio