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The State of Precious Metals
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The State of Precious Metals
Mining stocks appear to have stagnated in 2021, despite having their financial houses in order and being well-positioned for success. "A lot of it goes back to the story that you see in the market," Coyne (Sprott’s Ed Coyne) says. For the more significant part of the year, the Fed has been discussing tapering.
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The Federal Reserve has hinted at rising interest rates in the coming year or two. In traditional stocks, there's an ancient adage that you should buy the rumor and sell the news. Precious metals, on the other hand, are the polar opposite. You sell the rumor, the rumor being that they're going to hike rates and start tapering."
The market has moved away from precious metals as a result of the story surrounding them, but Coyne notes that risk-off assets have suffered lackluster conditions across the board. The requirement for risk-off assets has been considerably reduced since the market has soared by 20% this year and recovered from volatility.
"People say, why hasn't gold done better, or why hasn't silver done better?" Coyne says in response to these circumstances. I'd counter with, "Why haven't they done worse?" I say that because, with gold at $1,750 to $1,850 an ounce and silver around $22-$24 an ounce, I would expect precious metals to be doing much worse than they are if the S&P 500 was up more than 20%.
That, we believe, is a significant long-term bullish sign." Coyne goes on to say that, while the asset class has weakened in the short term, the medium- to long-term trend for gold is up-and-coming. Equities, according to Coyne, follow in the footsteps of tangible assets. The margins of equities companies would diminish if gold was selling off. With all-in sustaining costs for mining corporations ranging between $900 and $1100 per ounce, a gold price in this range is incredibly profitable right now, even if it is flying under the radar thanks to the rise of cryptocurrencies.
"These statistics are stunning to me when you think about the calibre of these firms today," Coyne says while discussing the current state of mining corporations. It's more appealing when you compare enterprise value (EV) to EBITDA. When it is the question of to free cash flow, the miners have twice as much as the S&P. Their return on capital is even higher.
The comparison of net debt to EBITDA is lower. The miners are often lower-leveraged businesses with higher profit margins. "Right now, mining equities are the ultimate value trade." Inflation, according to Coyne, will be with us for a long time, adding that the Fed has eliminated the term "transitory." He believes that some items will become astronomically more expensive over time, particularly as the shift to carbon-neutral footprints drives up the cost of hard assets.
Precious metals, according to Coyne, are long-term benefactors of continued inflation, which benefits alternative currencies like gold, which have historically outperformed inflation. "The historical 'set it and forget it' approach to 60/40 stock-
"PEOPLE SAY, WHY HASN'T GOLD DONE BETTER, OR WHY HASN'T SILVER DONE BETTER? WHY HAVEN'T THEY DONE WORSE?" I SAY THAT BECAUSE, WITH GOLD AT $1,750 TO $1,850 AN OUNCE AND SILVER AROUND $22-$24 AN OUNCE, I WOULD EXPECT PRECIOUS METALS TO BE DOING MUCH WORSE THAN THEY ARE IF THE S&P 500 WAS UP MORE THAN 20%. THAT, WE BELIEVE, IS A SIGNIFICANT LONG-TERM BULLISH SIGN."
Edward C. Coyne
Senior Managing Director, Global Sales, Sprott Inc.
bond portfolio just isn't getting it done," he says, noting that alternatives in general — not just precious metals, but also real estate and other assets — are becoming required aspects of any sound portfolio. He believes that combining bonds with gold can help to secure a portfolio.
Coyne also talks about the state of other precious metals like copper and Sprott's newest investment, uranium, which he sees as crucial to a carbon-free future. He also sees value in metals used in batteries, such as cobalt. "In New York City, you can't stroll down the street or travel on any major highway without seeing an electric car." As a result, we believe the market for battery metals is exciting." Sprott, he believes, will become more involved in that market in the future.
The Sprott Actual Gold Trust PHYS allows investors to invest in physical gold. PHYS is entirely devoted to gold, which is securely stored, convenient to buy and trade, and redeemable. The Sprott Physical Silver Trust (PSLV) provides silver exposure. Meanwhile, the Sprott Gold Miners ETF (SGDM) and the Sprott Junior Gold Miners ETF (SGDM) provide exposure to gold stocks (SGDJ ). The Sprott Physical Uranium Trust (UU) offers uranium exposure.
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