If You Don’t Buy Gold Now, You’ll Kick Yourself Later

Gold miners like Yamana Gold Inc. (TSX:YRI)(NYSE:AUY), Goldcorp Inc. (TSX:G)(NYSE:GG), and Agnico Eagle Mines Ltd. (TSX:AEM)(NYSE:AEM) have a lot of upside.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

We’re drowning in phony paper money and hidden inflation. Since 2008, the world’s big four central banks have printed over US$6 trillion in new fiat currency. You have likely seen the impact of this policy in higher prices at the grocery store or the gas pump.

Yet, precious metals, which are usually seen as a hedge against inflation, get less respect than Mr. Bean’s dog. Over the past few years, gold prices have been hammered. And as you can see in the chart below, miners have fared even worse.

Company 3-Year Price Change Market Capitalization
Agnico Gold Mines Ltd. (TSX: AEM)(NYSE: AEM) (-44%) $7.2B
Goldcorp Inc. (TSX: G)(NYSE: GG) (-45%) $21.8B
NovaGold Resources Inc. (TSX: NG)(NYSEMKT: NG) (-50%) $1.1B
Yamana Gold Inc. (TSX: YRI)(NYSE: AUY) (-54%) $5.8B
Barrick Gold Corp. (TSX: ABX)(NYSE: ABX) (-69%) $18.1B

Source: Google Finance.

Now, it might sound odd, but no other asset can match the upside I see right now in gold. Let me show you three things Mr. Market missed when it comes to this metal:

1. Mr. Market forgot about economics

Poor sentiment can push asset prices to levels that don’t make any sense. Gold is a good case in point. Opinion of the yellow metal has soured to such an extent that prices have fallen to US$1,250/oz. This is nearly 35% below the all-time high hit in 2011.

The problem? Based on industry estimates, the average cost to produce gold is as high as US$1,350/oz. You don’t need a Ph.D. to see the issue here. At current prices, the industry is losing money on almost every ounce of gold it hauls out of the ground.

That’s why this situation can’t last. Small miners will go bust. Large producers will scale back operations. At some point, prices will rise to meet the cost of output.

2. Mr. Market forgot about inflation

In spite of the European Central Bank’s best efforts to juice the market, the continent remains mired in stagnation. Since June, the ECB has already cut interest rates twice. However, new data shows many European countries could fall back into a recession.

To stave off a crisis, more money printing is likely on the way. The end result of all this cheap cash: higher inflation. Even a hint of rising prices could push investors into safe-haven assets like gold.

3. Mr. Market forgot about the smart money

The world’s smartest money managers are also bullish on gold. In a recent SEC filing, billionaire investor John Paulson disclosed a US$1.3 billion stake in the SPDR Gold Trust (NYSEMKT: GLD). The fund is now his largest holding.

In the past few months, hedge funds have been buying other miners such as Goldcorp Inc., Yamana Gold Inc., and Agnico Eagle Mines Ltd. Given that their costs are mostly fixed, profits could soar if gold prices rally even slightly.

What could have these stock sharks so bullish on gold? I’d say it could be only one thing: They see a big rally coming.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no position in any stocks mentioned.

More on Investing

Payday ringed on a calendar
Dividend Stocks

How to Convert $500 Monthly Investment Into $200 Monthly Income

If you want the stock market to give you regular monthly income, you have to invest in the stock market…

Read more »

falling red arrow and lifting

RRSP Investors: 3 Dividend Stocks to Buy on the Dip

Inflation has delayed retirement for Canadians. RRSP investors should buy cheap dividend stocks like Fortis Inc. (TSX:FTS)(NYSE:FTS).

Read more »

Growth from coins
Tech Stocks

Got $1,000? Buy These 3 Under-$20 Growth Stocks to Earn Higher Returns

These under-$20 growth stocks can deliver solid returns in the long run.

Read more »

worry concern
Dividend Stocks

3 Ultra-Safe Dividend Stocks for Jittery Investors

Motley Fool investors nervous about the market downturn should consider these ultra-safe dividend stocks that keep paying passive income no…

Read more »

Economic Turbulence

The TSX’s 1st Crypto ETF Lost $500 Million in 1 Day

The TSX’s first crypto ETF lost $500 million is one day and is down nearly 58% year to date.

Read more »

House Key And Keychain On Wooden Table
Dividend Stocks

Is the Real Estate Boom Finally at an End?

It might be hard to believe, but Canada’s decades-long housing boom might be at an end.

Read more »

stock analysis

RRSP Investors: 2 Oversold TSX Financial Stocks to Buy for Total Returns

Top TSX financial stocks look oversold right now for RRSP investors seeking attractive dividends and total returns.

Read more »


Got $500? 3 Undervalued TSX Stocks for Superior Returns

These undervalued stocks have strong potential for growth and will likely generate superior returns in the long term.

Read more »