Big Surprise? Flat Gold Is Good Gold

Written by Adam English
Posted September 14, 2021

Flat gold prices can be just as good for us as gold prices that keep creeping up.

I feel dumb just typing that, but I'm pretty sure we're seeing that now, and we haven't seen the likes of it in decades.

If that doesn’t make sense, we'll get to it shortly.

We all love a rapid march upwards, buoyed by nothing but good news. That was never a real possibility for gold miners up until the last couple years, especially with some of the behind-the-scenes deals that happened.

Today I think that is in flux, and I want to unpack a hard-to-see, but major, part of it.

We should probably start with a chart and go from there. Here is one covering the last five years:

gold price 5 yr 13 sep 21

The price of gold hasn't really moved much for quite a while, but it is way up in recent years, though that is far from the only thing in play when it comes to gold miner stocks.

Gold is great to find in the ground. That's expensive enough to do. Pulling it out and smelting it is far, far worse. It's a risky business and risk comes with a cost premium.

A lot of "paper" — shares and warrants — is issued to push projects along. To grease the wheels, figuratively and literally, someone has to front a whole lot of cash. It's a speculative game that heavily favored financiers for years. They could set the terms. There was little competition. Not so much anymore.

That surge in gold prices a couple years ago, along with the surge in the number of gold miner investors, pushed a lot of small gold mining stocks up a good bit, and it's about to pay off. A lot of that cheap paper is issued in ways that companies can call back, and a whole bunch of it is working its way off the books.

Small gold mining stocks are throwing off the yoke.

I want to go back to what is above, “Flat gold prices can be just as good for us as gold prices that keep creeping up.”

Gold miners are in a position to recapitalize on their own terms in a way we haven't seen in a couple generations, right at a time when they are historically undervalued.

The longer gold prices stay elevated compared to a year ago, or two, or three, the less the old deals matter. This is especially true for the kind of short-term financing a lot of junior miners used to travel across the land to find, hat in hand.

Did a gold miner need capital when gold was just $1,200 per ounce several years ago? Most definitely. Should they pay the same for it now when gold is around $1,800 per ounce? Definitely not.

Any miner worth investing in today is in a position to dictate its own terms.

New capitalization can quickly wipe old obligations off the balance sheet, and that's what we're seeing now.

There has been a flood of money into the junior mining sector. The smart miners are consolidating their shareholder structures and are going to demand premiums we haven't seen in decades.

And as they do it, you can stake your claim.

Gold stocks seem simple. And they should be, in theory. But the devil is in the details, and gold miners that are worth their salt are putting Old Scratch behind them.

The good ones are finding their voice. The great ones are setting their own terms. The best ones have financiers coming to them now, hat in hand, and don't need to say much at all.

It isn't easy to find those top-tier picks, but it is possible, and they'll mint fortunes.

Luke has kept a keen and trained eye out for them and he's your man to separate the wheat from the chaff. It's paid off so far, and the trend has only just started to play out.

Take care,

adam english sig

Adam English
Editor, Outsider Club

follow basic @AdamEnglishOC on Twitter

Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page

*Follow Outsider Club on Facebook and Twitter.

Heal Your Ailing Portfolio Body