A Falling Stock Market, A Easing USD: That Brings Us Back to Gold
$GLD, $SLV, $ABX, $GG, $EXCFF, $WPM
As the USD falls from the Fed’s continuation of loose money policies, it will lift up Gold prices to unprecedented highs.
Plus, recessions are a great environment for Gold
During the last 2 recessions, Gold prices increased while the economy contracted. When the US entered a recession in March 2001, Gold was priced at cost 263 oz. Then by November 2001, when the recession ended, Gold was priced at 276.
The price gain was greater during the Great Recession.
In December 2007, Gold traded at 803, then by June 2009, when the recession ended, Gold prices had risen to 935.
When, not if we run into a new recession the price of Gold will like likely rise again.
The prices of Gold and Silver are not correlated with stocks or bonds, so owing precious metals can reduce one’s portfolio’s overall volatility or risk.
That is why many if not most savvy investors suggest holding 5 to 15% of a portfolio in Gold and Silver, with some professional money managers believing that number should be higher.
The optimal amount of Gold to hold has fluctuated between 27 and 30% since the late 1960’s, analysts estimate that total global Gold holdings today amount to around 0.7% of assets, meaning that investors are really very under invested in Gold. If all investors upped their allocation to Gold just a little bit, its price would rise significantly.
How to invest in Gold and Silver
The SPDR Gold Shares exchange-traded fund (NYSEArca:GLD), which holds bars of solid Gold bullion, is the largest and most liquid of all the Gold ETFs (exchange-traded funds). Its annual expenses are 0.4%, or $40 per $10,000 invested.
For Silver, the iShares Silver Trust (NYSEArca:SLV) has annual expenses of 0.5%, or $50 per $10,000 invested.
For other ETFs and mutual funds with exposure to Gold and Silver, see US News Best Funds rankings for equity precious metals.
Physical Gold and Silver (Bullion)
Investors can also buy physical Gold, such as coins. The trick is to buy coins that are priced based on their precious metals content rather than those that have value based on their condition. The latter are known as numismatic coins, the former bullion coins.
American Eagles, in both Gold and Silver, are usually considered bullion coins. They are made by the U.S. Mint and distributed through coin dealers. Buyers should expect to pay a premium of a few percentage points above the gold price.
Platinum and Palladium are also precious metals, their markets are small and influenced by the automobile industry, which uses the materials to make catalytic converters.
The Gold and Silver Miners
For precious metals investors looking to increase their exposure to the precious metal sector beyond owning Bullion or Gold and Silver ETFs, mining companies are the consideration. Their prices usually move much more dramatically in response to smaller price moves in the underlying metals they mine. In a Bull market, it is very possible for the share prices of these companies to increase by 100’ds of percents medium term.
I like these 3 Top Gold miners: Alamos Gold (NYSE:AGI), Barrick Gold (NYSE:ABX), and Goldcorp (NYSE:GG) for long term investments.
The Gold and Silver Royalty Streamers
Wheaton Precious Metals (NYSE:WPM), formerly Silver Wheaton is the largest pure precious metals streaming company in the world, it not not a miner.
Rather than spend billions on tools and labor, streaming or royalty companies offer upfront payments to miners for the right to purchase Silver and Gold at cheap prices in the future.
It has been in this industry for a long time. Its management knows how to take advantage of industry Bull and Bear markets.
Silver recently closed at around 17 oz, and Gold at 1,250 oz
Overall, Wheaton pays about 4 oz for Silver and 400 oz for Gold. The higher precious metals prices go, the more money streamers like Wheaton and Metalla make.
Earlier this month I reported that my friend Brett Heath’s Metalla Royalty & Streaming (CSE: MTA) (OTCQB:EXCFF) entered into an agreement to acquire a portfolio of 3 Royalties and 1 Streaming assets from Coeur Mining (NYSE:CDE). The purchase price was $13-M, consisting of common shares in Metalla that will be 19.9% of the capital structure. As per the agreement the remainder of the $13-M purchase price would be a $6.6-M unsecured convertible bond at 5.0% interest.
This transaction highlights CEO Brett Heath’s management acumen the sector.
When the transaction closes Metalla will be cash flow positive, a terrific accomplishment for this young company. In MY 2018-2019, cash flow of about $4.6-M is my expectation, that ahead of streams that will be coming online later. On a market cap at 0.425/share, the Company is trading at about 7X EV/CF ratio. The more mature streamers trade at 20-25X. Metalla has a promising future in this sector.
Have a terrific 4th of July weekend.