I first invested in gold stocks back in 2000. I sold my last gold stock about 7 years ago. That turned out to be a good decision as gold and gold stocks have been pretty bad the past seven years.
As you can see above, the return from gold and gold stocks has been negative since 2012.
Economic and market cycles play out over a long time. In the past several months, we have seen the foundation for a rise in gold again. In addition, there is recent actions, a new condition and a coming catalyst that could start to push prices up soon.
The recent actions that will likely support gold prices is actually an inaction. Over the past several years, in order to fix their balance sheets, gold miners have reduced spending on finding more gold. In addition, several smaller gold miners have gone out of business altogether and there are few replacement companies due to the challenging nature of gold mining in general and the unprofitable gold market recently.
When capex is reduced in markets like gold, oil, copper or commodities, that lack of investment by companies on more commodities, eventually leads to a tighter markets and higher prices. We are starting to see that with gold as less of it is reaching the market.
A recent condition that should support gold prices going forward is that the 4 largest gold miners have gone through a pair of mergers combining them down to a pair of companies. Barrick Gold was formed from the merger of Barick and Rangold. Newmont Goldcorp was formed from the merger of Newmont Mining and Goldcorp. These two behemoths have a lot of control of the price of gold suddenly.
A coming catalyst is that the Federal Reserve is talking about reversing course on the tighter monetary policy of the past 18 months and in fact loosening come September. When central banks loosen up, that is generally good for gold and to a lesser extent silver.
Something more speculative is that I believe it is very likely that sometime in the early to middle 2020s we will see another recession that requires bailouts, stimulative fiscal policy and expansionary monetary policy. This will be bullish for gold as well.
Buying 2 Gold Stocks
I have recently started accumulating two gold stocks. The first is Newmont Goldcorp, which is now the largest gold miner in the world.
The primary reason I am accumulating this company's stock is that the merger will provide billions in synergies and cost controls in coming years. That cost savings combined with a likely higher price of gold should drive the stock higher in coming years.
The second stock I am accumulating is Coeur Mining. This is a small company with all of its operations in North America. Having all of its operations in North America makes it a relatively safer play, despite its size. Their newest mine offers gold, silver and lead.
In short, the company has undergone a repositioning of its entire business the past five years and is now a simpler company with a much better outlook. If gold, silver and other commodities they produce rise in price, which appears likely, this unknown and unloved stock could do very well.
Who Owns These Stock
Newmont is in stock portfolios that lean towards collecting dividends. Those near retirement or in retirement are likely to own this stock.
Coeur is in most stock portfolios. I have sold cash-secured puts in some accounts to generate income on the stock while we accumulate it.
I suspect we hold these stocks through the next price spike. I'm not sure how many years that is, but expect these to be regular holdings for a while.