The price of gold in dollars, adjusted according to inflation, has emerged from a lower market which had lasted for 44 years, which has implications for the price of money and for the gold and silver mining companies.
The evolution of the course of gold, which reached its highest historical level in June, reflects several factors: the position of weakness of the dollar of the Trump administration, the uncertainty surrounding the state of the American government’s assessment and the without risk status of American treasury bills; The status of value refuge of gold in times of geopolitical and market uncertainty; and the prospects for real interest rates.
The dollar has dropped almost 11% compared to a basket of currencies in the first half, its worst performance since 1973. The uncertainty has hovered over the long -term impact of Trump’s pricing and budgetary measures, which should not disappear anytime soon. Trump’s “Big, Beautiful Bill”, which he promulgated on July 4, should add between $ 2,400 and $ 2,800 billion to the American debt over the next decade.
In our opinion, we are witnessing an acceleration of the loss of purchasing power of the currency issued by governments. The Sterling book, the yen and the euro, like the dollar, have depreciated compared to gold in recent months.
Many people know gold, but less the two related assets in the world of monetary metals: money and actions of mining gold and silver companies.
Silver shortage
Silver is a monetary metal and a slightly more volatile gold cousin. He has a higher beta and tends to follow the trends in the price of gold, with more marked increases and drops. What I particularly appreciate in this white metal is its structural shortage.
In addition to its role of reserve of monetary value, silver is used as an industrial metal, as it has the highest electrical conductivity properties of all the elements. More than 60% of the money supply is intended for industry: electronics and technology, including advanced batteries, solar panels, plasma screens and, more and more, medical and military applications.
The industrial demand for money increased by 4% in 2024 to 680.5 million ounces, establishing a new record for the fourth consecutive year; The demand for money exceeded the supply last year, also for the fourth consecutive year, according to the Silver Institute.
This money shortage is manageable until it is no longer. There are no reservations, unlike gold. The price of money has progressed at the same pace as that of gold in the first six months of the year (silver in dollars +27%, but in dollars +26%. However, unlike gold, money remains below its highest historic level of $ 50, reached in 1980. Additional capital flows will be necessary to reach this level, and we think that the first signs are already visible.
Pump liquidity
This brings us to mining companies with gold and silver. These companies tend to behave very well when the prices of the metals they extract are increasing. Currently, mining companies inject available cash flows.
Like money, the actions of mining companies tend to be “beta” values, more volatile than gold, and they tend to evolve a little later in the cycle than gold.
The mining actions have progressed this year: ETF Van Eck Gold Miners earned 54% in the first six months of the year, but the ETFs recorded outings in the last quarters, a trend of demand that I find disconcerting. The profitability of mining companies is increasing and their actions are negotiated with attractive valuations: they are lower than their long -term average in terms of ratio courses/cash flow and ratio course/net value of inventory, two indicators that we follow.
The profitability of mining companies exceeds that of actions, valuations are lower than the average
We expect to see the long-awaited long-known investors arrive in the sector in the coming weeks. Companies simply display operational performance too good to be ignored longer. The same goes for silver and gold, whose positions of ETFs on ingots are lower than record levels reached in 2020 (gold) and 2021 (silver).
Our strategy has been optimistic for the sector for more than a year, and we think it is wise to seek potential yields offered by adding money and mines to gold allowance.
Gold and silver are real currencies, they cannot be printed by central governments and banks, while money and mining societies of precious metals are the cousins “with high beta” gold. We believe that gold, silver and gold mining and silver actions have an important role to play in a well -diverse investment portfolio, in particular in the current context of the market and the macroeconomic economic situation.