Gold stocks take off as results jump

It’s been a frustrating few months for gold investment. Following the big COVID-19 spike, a falling USD and real interest rates have been unable to sustain the rally, even though these are prime conditions for doing so. DXY:

Gold versus TIPS:

Doubtless, gold got overvalued. But its recent underperformance is either a signal that the consensus falling USD and incipient inflation surge isn’t coming or the market is now arguably underpriced.

I don’t put much stock in the notion that it is being displaced by BTC. The two are like chalk and cheese.

Anyway, today, Newcrest has finally fired up the market with a good result:

As Moody’s notes:

“Newcrest’s strong first-half fiscal 2021 results are a credit positive, as elevated gold prices more than offset slightly lower gold production and higher costs. Newcrest’s low cost position and production profile supported record free cash flow in the half and will enable the company to continue generating solid earnings and cash flow levels, even at lower gold prices.

…Although Newcrest raised its target dividend payout ratios, this is manageable for the rating in light of strong cash flow generation and Newcrest’s conservative balance sheet. Maintaining a dividend payout based on free cash flow is credit supportive and allows for flexibility during periods of elevated capital spending.”

The gold price should react positively to its traditional drivers again soon. Given I do not subscribe (yet) to the thesis that we’re in for endless falls in both DXY and US real rates as inflation surges, I would probably take the opportunity to exit the trade when it comes.

Houses and Holes
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    • Thanks nyleta – it has been yonks since I’ve read one of these bold courageous articles that are certain that nirvana is just around the corner – I used to read the stuff by Bill Bonner and on kitco and the like but the hyperbole and always just being around the corner became wearing – but after a long break this article certainly sparkles. However a word of warning: 2 years ago Crescat Capital were proclaiming that just then was the “trade of the century” for precious metals – in hindsight, not really – but back then it only had $50m under management and now it has $290m under management so yeah, great couple of years for Crescat as it sextupled the amount of money it is managing.

  1. I sometimes need to read and re-read some of your wording DLS. Maybe it’s just me.

    Exit the trade when it comes? ……………… gold as DXY turns ?

  2. You think gold is frustrating, try holding several hundred ounces of silver.
    Physical and paper are disjointed. Physical is trading at a high premium relative to paper contracts and with the amount of money supply it should be higher. Still a believer that we have more upside including commodities in general.

      • peterbruceMEMBER

        I bought 10kg silver mid 80’s held it for many yrs. (15/20) and sold it for a small loss. It’s a mugs game, I chuckle to myself when I hear all the same old reasons to buy, still being peddled. Look at the long term charts, it peaks very rarely and drops away very quickly.

        • Here is a chart from around early 2000 onwards trying to make sense of it all:
          Its chaotic no doubt and silver is a tough one to hold onto but average price through the 80’s and 90 was around US$6.00oz.
          It bounced around an average of $16 through most of 2000; so a 170% gain.
          You would be up 344% now. That about a 9% return/yr over 35 year so pretty good if you hold very long term.

    • I know someone in far north QLD who has a small shipping container full of it. Mmm not sure how he sleeps!

  3. Gold is a tricky bet because it is driven by many factors, including rising inflation/inflation expectations
    At the moment, there is no driver of inflation.
    What we need to see is a change to the federal reserve act.
    Nouriel Roubini was bullish/positive on gold, so that is probably a good sell indicator.

    • Roubini is like a door-to-door salesman: ignore the hundreds of fails and celebrate the occasional win.

  4. Hmm.

    US drops trillion in printing… DXY rises… Gold/Silver falls.

    Everyone flows money into Stocks / Real Estate.

    Bonds rise… Interest Rates Rise… everyones hooked on huge amounts of debt and it cuts into them hard… whammo, Stocks get whacked down.

    Money Printing runs out of effect as a Cocaine addict only stays high for long… and then we’re back to where we started.

    I dont disagree with all of this but I have great concerns for the level of risk Im seeing everywhere. Its a pitty you cant trade risk because if you could, my guess is it would be explosive.

    Im not convinced growth is as strong as people claim. All Im seeing is a flood of money printing and migration. Basically, a pretend economy.

    We’re trading speculation at this point. How much money will we print today? Thats basically all it is.

    People think Im nuts for watching Bonds all day. Its like there’s actual real world growth going on that isnt attributed to just pure money printing lol. In my opinion, its all about bonds nowadays and who’s printing what.