In today’s Issue:

  • Gold is a warning sign, not a bubble
  • By most measures, gold is barely getting started
  • Why it’s time to pivot to explorers

Is gold a bubble?

On the face of it, the answer is obvious.

The pet rock has outperformed the stock market over just about every timeframe investors like to click on.

The gold price is up an absurd 48% so far this year.

Clearly, this isn’t sustainable.

So, what happens next?

It’s funny you should ask…

Gold tends to price in the future

People buy gold to protect themselves from what’s coming. So, when the gold price spikes, it’s time to get ready for some action in geopolitics, inflation or the banking system.

The Chinese might be buying gold in preparation for invading Taiwan or escalating the trade war. The BRICS could be prepping their gold-backed currency launch. Or central bankers could be buying up gold in preparation for a currency reset.

Whatever it is, it hasn’t happened yet…

Gold’s boom has been so extraordinary that only large-scale price insensitive buyers could be behind it. Central banks are likely the key buyers. Their budgets are unlimited. And it makes sense for them to hold the monetary metal of the last few thousand years. But for the recent fiat money experiment, of course.

By some measures, gold’s geopolitical and monetary rerating has barely begun. As a share of global reserves, it remains low. It may have surpassed the euro and US Treasuries. But its campaign to replace the US dollar as the global reserve currency has barely begun.

US author of The New Case for Gold, Jim Rickards, reckons the gold price would have to rise manyfold to return the yellow metal to its rightful place as the world’s monetary base.

Technology has made it possible for everyday people to link their gold horde with everyday spending in a cost-effective way. Services like TallyMoney help them to keep their day-to-day bank account in gold.

Perhaps the attempts to use Russian money to finance Ukraine’s defence are causing the US’s geopolitical enemies to use gold to dodge SWIFT. In that case, many of the US’s geopolitical enemies have yet to join in the buying spree.

But you and I are not a central bank. Our budgets are not unlimited. And we need to protect ourselves from whatever the gold price is warning about.

The question is how…

Why it’s time to pivot to explorers

I’ve worked alongside a lot of gold stock investors. One of the lessons they teach is that gold explorers are the last stocks to move in a gold boom.

This makes logical sense for several reasons…

Right now, gold miners are printing money…ironically enough.

The gold price is up. The oil price is down. That’s the best possible combination for companies that burn oil to produce gold.

But what are gold miners going to do with all their money?

Buy up future gold projects, of course.

And that’s where explorers come in. They’ve been spending billions of other people’s money looking for gold deposits. They’ve found lots of promising deposits. But need financing to prove the gold is actually there.

And so large gold miners tend to “farm in” to projects. They commit to financing exploration projects in exchange for a share. The more money they spend developing the project, the greater their share of ownership.

But here’s the key…

At $1800 an ounce, a marginal gold project might get overlooked as uneconomic. But with gold trading over $4000, that same project suddenly makes a lot of sense…

Thus, the hurdle that gold explorers need to jump over falls as the gold price rises. The probability of striking a lucky partner in your project goes up too.

In the initial phases of a gold bull market, gold explorers often miss out on the gains. Indeed, their share price isn’t really correlated much with the gold price. It’s correlated with what they happen to find – the geology.

But once a gold bull market matures, the gold mining majors have the money to spend, and the explorers have the list of future projects to sell.

And so, it’s time to jump in.

Until next time,


Nick Hubble
Editor at Large