The alternative investment expert claims the gold mining sector bull market has return
No portfolio is immune to the Covid-induced bloodbath on financial markets across the world. But for those looking high potential investments even in this volatile market, it’s the best time to invest in gold—be it the physical form of the precious yellow metal or miner stocks, says Eric Muschinski.
According to the alternative investment expert, gold is a space that’s very under owned by investors and the macro backdrop for the yellow metal is incredible in the current scenario. And given the energy costs—the miners’ biggest fixed expenses—falling, Muschinski believes that goldminers actually have higher earnings growth in this volatile market.
“The thing with the miners is the leverage they have, the massive leverage to the gold price, because they have fixed costs. I’ll give you an example. Newmont Mining, which is the company that is in the S&P 500 in late April. They increase their quarterly dividend by 79 percent, while obviously many sectors were just getting smoked or bailed out on May 5 during their Q1 earnings release, which they handily beat, they stated that they can produce a billion dollars a year in cash flow at 1,200 dollars gold.
“But every 100 dollar increase in the gold price gives them an additional 400 million annually in cash flow. That means that at 1,700 all gold, you’re talking about three billion dollar cash flow, which is tripled from their projection at 1,200, and that’s on a 40 percent increase in the gold price. That just shows you the power of the leverage on the upside in these markets,” he said in a recent podcast interview with Real Vision Finance.
In fact, according to Muschinski, the average gold mining sector bull market has return. “Some 440 per cent, that’s going back to the 1940s. And they’ve lasted as long as almost 400 weeks, which is seven years. The current cycle that we’re in, though, and the gold miners, which began in January 2016, is tracking most like the 2000 to 2008 bull cycle. And also the 1960 to 1968 market. Both of those cycles peaked up over 600 percent around 370 weeks.
“Right now we’re 220 weeks in and we’re up under 100 percent. We’re up just over 90 percent versus the 600 percent average in those two markets. So the big juice in the miner move, I believe, is it’s it’s just ahead of us. And I also am a big believer in the perennial principle, you know, so 80 percent of this move should come in the last 20 percent of its duration, which is also exactly what happened in those two other timeframes,” he said.
Underling the need for investing in this asset class, Muschinski told host Roger Hirst that “anyone who does not own gold at all, especially in this environment, just simply doesn’t understand its function”.
“The gold price since 1971, when it was obviously linked from backing the US dollar, is up 50 fold in 50 years. I don’t think many people realise that. In addition, it’s also compounded at over eight and a half percent the year over that same timeframe, the almighty US dollar.
“People tend to measure gold’s performance against equity markets, which is fine, but its primary role is as a store of value.You know, it maintains its purchasing power over time against fiat currency dilution. And it’s done this for millennia,” the founder of Gold Investment Letter said.
No portfolio is immune to the Covid-induced bloodbath on financial markets across the world. But for those looking high potential investments even in this volatile market, it's the best time to #invest in #gold, says Eric Muschinski. #TheIndianSunhttps://t.co/qVryrm8jMI
— The Indian Sun (@The_Indian_Sun) June 1, 2020