Why gold and silver miners are cheap right now
Mining stocks trade at a fraction of what they could be worth. Many are priced at pennies on the dollar. Some could be five-baggers (grow five times) in 18 months if silver and gold prices climb.
The value of these stocks is built on future metal prices, not today's price. I model them using $7,000 gold and $200 silver. I think those numbers are conservative and we go higher.
My website, goldstockdata.com, has a tool where you plug in any future gold price, future production, and many variations. Don't just use $7,000 - use $7,500 and $8,000. Don't just use $200 silver - use $150, $200, $250, $300. This shows what a company could do.
Most people sell too early. They don't expect gold to reach $7,500 or silver to reach $250, so they miss the upside. The compounding is wild. Once silver hits $150, every $10 it rises can double a stock. That is the part almost nobody understands.
The specific picks
My five picks are Silver Gold, Denarius, Talisker, 1911, and Jaguar. All are based on a 36- to 60-month view with gold and silver rising a lot. I could be wrong - this is speculation.
1911 Gold is very cheap. It goes into production in Q4 this year and ramps up in Q1 next year at about 45,000 ounces a year (phase one). Gold today sits at about $4,000. If it goes to $6,000, which I think is possible next year, and you put a 10 multiple on the company, it prints as a five-bagger in 18 months. They have another deposit of about 500,000 ounces at roughly 8 grams to add, which takes them to 60,000-70,000 ounces. Eventually I think they reach 80,000-100,000 ounces.
Jaguar Mining is an undervalued producer growing output. It has three mills. One sits idle on care and maintenance. The other two run at half capacity. The plan is simply to fill those mills. Exploration has gone well, and I like the CEO and the team.
There are 45 more picks beyond these five. A week ago I posted 50 "buy the dip" stocks. On the website each of the 50 gets a three-paragraph write-up plus a lot of metrics, all modeled at a set gold and silver price.
Three ways to invest, and why most fail here
Way one: long-term capital appreciation. You aim for 5% to 20% a year, steady, for 20, 30, 40 years. This is how most people have invested their whole lives. It does not work for gold and silver miners. They are too speculative and too volatile. This is exactly why Wall Street ignores miners.
Look at Agnico Eagle, the elite of the elite. It fell from $250 in January to about $135, now around $145. The company is still valuable, but Wall Street doesn't care about value. Gold miners simply don't fit a buy-and-hold strategy, and that is the main strategy people use. Investors won't catch falling knives or step in front of the steamroller. They only chase momentum, because they want confidence they'll make money.
Way two: short-term focus with outsized returns. A big chunk of miner investors do this. They want annual returns but will step outside the box when they spot momentum - oil, gold, commodities, tech doing well. They want 50% to 100%, and they want it now. The problem: momentum arrives only after the biggest gains are gone.
Way three: how I do it. I don't care about the next 12 or even 24 months. I'm speculating on a thesis: gold goes higher. I don't know when - it could be three months. I'm confident that in the next 36 months gold is significantly higher, potentially double. I use a future price looking out three years, sometimes three to five, and I constantly adjust the gold number I use to value miners.
Why own miners at all
The only reason to own gold and silver miners is if you don't believe in the US economy. If you feel confident everything stays stable, stay out. I don't believe it. Belief matters because of the volatility. There's been a 36% correction since January, and it hasn't bothered me, because I'm convinced gold ends up the winner.
How the economy broke
The pivot happened in stages: Nixon took the US off the gold standard in 1971; then the shift into globalism and money printing; then the Greenspan put in 1987.
In October 1987 the market dropped 22%. The next day Greenspan said don't worry about the stock market, I've got your back, I'll print whatever is needed. The market turned around immediately. From that day it was called the Greenspan put: if stocks fall, the Fed does whatever it takes to lift them back up. No problems came until 2001.
Greenspan then started lowering rates to support stocks. It created a massive bubble from 2001 to 2007, the housing bubble, with rates cut to 1% and heavy printing. The great financial crisis was really the Greenspan crisis - rates too low, too much money. Since then it has been bubble after bubble. We've been living on bubbles.
Greenspan held office from 1987 to 2006 and told us what he'd do: lower rates, print money, everything's fine. He got away with it because there was no inflation during his era. He also set a precedent that the Fed would manage the economy and forget free markets. He rug-pulled the free market. That precedent is a core reason to own gold.
Bernanke followed. His thesis was that the Depression should never have happened - all they needed was to print money, because it was a liquidity problem, which is exactly what the Greenspan put is. Bernanke came in ready to print like crazy, took rates to zero, and said he was Greenspan on steroids. Mario Draghi did a similar thing in Europe. Those two were the tag team that destroyed the US economy.
Since 1971 the dollar has dropped 86%. The stock market looks fantastic in dollars, but valued in gold it's down 86%. The system is broken, which is why I own gold and miners.
The fragile setup - the trap
Two things hold the stock market up. First, passive investing. About 60% of the market is passive investors - 401k plans and pension funds. Every month they put in $100, $200, and the money just buys, buys, buys. They never sell. When 60% of the market is buyers only, there are no natural sellers.
Second, the US government's fiscal dominance. It takes in about $5 trillion, pays out about $7 trillion, and borrows the $2 trillion deficit, shoving that money into the economy. On top of that sits the Fed, ready to pump up the volume.
Warsh came into office saying inflation is his number one priority. But look at the Fed's balance sheet since he arrived - it's increasing, which means they're printing. They don't really care about inflation. Warsh even echoed Milton Friedman: inflation is a monetary problem. Print money and expand the money supply, and you create inflation. The Fed has ignored Friedman forever and doesn't even discuss the money supply, though it will have to start.
The danger is this. About 20% of the money in the stock market is foreign, and it's here only to make money. If we hit a recession - people insist we never will - and the market drops 10% or 15%, that foreign money rotates out and leaves. Once it leaves, the passive money turns and wants to sell. Nobody backstops the passive money. These funds are so massive that if they decide to sell, there is no one on the other side. Add in the derivatives, and it's a house of cards. Watch liquidity as closely as earnings or valuations.
