Have you ever had the chance to hold a gold bar?
I had the opportunity once while in South Africa, to hold a large gold bar. It was following a due diligence trip to Durban Deep…
They allowed me, a humble editor, to step into a steel cage where a single gold bar rested on a wooden table. A stern-faced man with a pistol at his side ensured we understood we couldn’t take it and run (and trust me, that’s the first thought that crosses your mind).
Lifting the weighty gold bar, it resembled something straight out of a scene from the Goldfinger movie, was a bit unreal. The price of gold at the time was $250 an ounce which was less than the cost to pull it out of the ground.
I remember someone taking a photo but I couldn’t tell you where it ended up. The most striking aspect of gold is its weight compared to something like lead. It’s an experience unlike any other. It feels almost otherworldly — undeniably fascinating.
People Hoard It
Gold has served as a reservoir of value throughout history. Across all nationalities and cultures, people admire and desire it. Its lustrous appeal and malleability make it ideal for crafting into art or jewelry, symbolizing status and affluence.
Above all, gold is scarce. All the gold ever mined (155,000 metric tons) could fit into just two Olympic-sized swimming pools.
And gold maintains its worth over time.
Legend has it that an ounce of gold would have bought an important ancient Roman a fine toga… at $24,000 an ounce today, it still holds the purchasing power for an Armani suit.
Gold Heading Higher
Here is GLD the gold ETF. As you can see it has sliced through resistance dating back to 2020.
The Bank of America just released a report predicting that gold will hit $3000 an ounce. This seems conservative. A jump to $3500 an ounce will happen faster than people expect.
There are any number of reasons that will drive the price higher. First is that inflation has proven stubborn. In the 1970s there were three waves of inflation each one worse than the one before. Gold was the best investment of the 1970s, going from $32 an ounce to $1000.
Furthermore, the U.S. seems to have backed away from its prior role as policeman of the world. Few government leaders take this administration seriously (why would they?). This has allowed all sorts of bad actors to believe the risk of aggression is worth it.
At the moment Israel has said it will retaliate to the recent attack from Iran. Russia is escalating its war with Ukraine and France is talking about putting troops in the country. Gold is a safe haven for geopolitical tensions.
And on top of this central banks are buying significant gold which puts a floor on the price.
Sweet Chart of Mine
If you want to maximize your gains on gold’s upside, and I assume you want to make the most of it, you should buy the gold miners. They tend to launch when the price of gold gets moving.
One chart that struck my eye as I was digging through gold companies was Gold Fields Ltd (GFI).
The chart has broken out and is putting in new highs and higher lows. That’s the definition of a bull market. GFI has 2.244 million gold-equivalent ounces in reserves and can pull it out of the ground at an all-in-cost of $1,512 an ounce. That cost is mostly fixed which means the higher gold goes in price the bigger the margins and the more money drops to the bottom line.
Goldfields is a blue chip gold miner with a ~$18 billion market cap and a p/e of 22. They have a 2.47% dividend yield, have mines all over the world, and are based in South Africa.
As you can see by the low volume, few people are buying these gold miners yet, but if gold hits $3,000 an ounce, they will be.
All the best,
Christian DeHaemer
Outsider Club
