That's true of a great many mines. A few are drive in if they are near a regional center. And a small proportion of the workforce might live in a place like Kalgoorlie, but on any given day there will probably be as many mineworkers in their Hi Vis work wear at Perth airport as everyone else put together. I have met people to fly from Tasmania to work in NW Western Australia on 3 week on 2 week off rosters and similar.
The miners are uninvestable. 3X volatility and at best they return a small premium to spot.
It's why gold is the perfect real asset - its price reflects the cost to pull it out of the ground over the long run. And the cost to pull it out of the ground reflects the state of fiat money supply, labor costs, and productivity gains.
IMHO, the best explanation for why gold is rallying is that central banks are increasing their purchases. WGC data shows a steady rise, averaging about 60 tons per quarter, since the US and the EU froze Russian foreign reserves. This looks like the classic case of a "price insensitive buyer". If a reserve manager fears that their nation will fall out of favor with Washington, it behooves them to diversify their reserves. However, once that decision is made, it becomes obvious quickly that there is no good alternative. The EUR works as a currency but it has no reserve asset. Japan reserve asset is similar. The UK and Switzerland are too small. Thus, gold becomes the only alternative.
It's also apparent that China, through the BRICS, is working to create an alterative clearing system for trade other than using the USD/Treasury system. But, Beijing has no interest in running current account deficits to supply CNY for reserve purposes. Nor is it interested in giving up capital controls, which is necessary for using Chinese sovereigns for the reserve asset. What China seems to be engineering is a system where it pays for commodities in CNY but facilitates the use of gold to settle imbalances between BRICS nations. Essentially, its a barter system with a gold backstop. Not all that efficient, but your reserve balances don't fall to zero if you get sanctioned.
The fact we are making new highs without private sector buying is important. When that buying returns, we could see much higher prices.
This theme that you have identified is so spot-on from a political perspective, in my view. and I love the simplicity with which you describe it as long GLD/TLT. of course, based on the reduction in GLD shares outstanding, nobody is listening!
I think the miner's weakness relates to central banks. When private sector buyers look to buy gold, they have the choice of either the metal or the miner. In our hard asset portfolios, we treat miners as a levered play on gold. But a reserve manager is looking to diversify away from USD/Treasury and would have little need or regard for owning mining stocks.
We are seeing some life in miners recently, which I suspect is coming from the private sector market beginning to become interested in gold.
BTW, I use the holdings of gold ETP's to measure private sector interest. These holdings have been falling steadily. Also, coin buying is mostly flat.
Another way of thinking about this is that we are making new highs in gold with almost no private sector investing. I
Interesting Idea, Russell. I thought it was the market discounting higher price of oil over the next few years. Although that would not be in line with crude futures curve.
Have you checked the % change in costs for employees at these mining stocks over the last years? Is it really that bad?
agree on the increase in the cost of mining, but that is not going up at the same price as gold, right? As gold prices trend up, miners are marginally more profitable anda generate more cash, no?
do we maybe need to see 1Q24 numbers and guidances for the year before the market understands that the lag in the miners rally is to come?
When you talk about the 2 people needed for 1 equivalent miner dynamic in Australia, is that due to the conditions there being harsher than in other mining jurisdictions? For example, one person can get twice as much accomplished in a day of mining in Canada vs what they could accomplish in a day of mining in Australia?
GLD has had a net outflow of 1.5m so far YTD, so the price move has been driven by foreign CBs and foreign buyers, NOT US investors afraid of mega-QE or high inflation. Gold has been a huge winner in a lot of foreign currencies, so this may be a mo-mo trade for them. I'm skeptical it can be sustained but do believe the miners will catch up if it is, despite high costs, simply b/c a huge bump in profitability will be immediately reflected in Q1 EPS. Buy miners for a trade.
I think it makes sense but what do you think of the miners here? I am long in fairly large size for full disclosure.
The rising costs definitely make me nervous. On the other hand, I view them as a big issue when gold is high but in a range, or rising very gradually - they're very frustrating because profits don't go up even with a "good" gold price as you point out - but less of an issue when we're in a strong up-leg and gold prices are rising rapidly - as seems to be the case now - since then the leverage they provide to the price of gold re-ascertains itself, if only for a temporary period. Sentiment was very depressed and felt like capitulation two months ago, and even now after a strong rally most non-gold bulls (and even many gold bulls!) remain quite negative on them because they've been so frustrating for so long. It reminds me a bit of 2016 when after a painful bear market everyone was saying that miners were hopeless and then they doubled in like 6 months when the gold price recovered. Especially in a market which remains very speculative and chasing themes (or memes), it feels to me like there is a good chance that the narrative will change with prices yet again and we see a speculative spike if gold remains strong.
Does it make sense or do you think it's wishful thinking and the miners will remain dogs? I'm quite encouraged that so far we still seem to be in the disbelief stage, maybe very slowly moving to cautious hope. In the very short term sentiment on gold seems a bit overextended, but nothing like euphoria either.
Russell , I agree in many things with you, but not that the world (with exception of China) is turning pro-labour given the west is on a large scale exploiting immigration hiring to lower wages...
Ok - but sentiment is also a huge factor. While we all need to eat and have a place to live, no one needs to own gold. It’s a safe haven asset, and to the extent people want to own it, there will be demand for it. If that demand for a safe haven declines, so will the price of gold, regardless of what it costs to mine it.
That's true of a great many mines. A few are drive in if they are near a regional center. And a small proportion of the workforce might live in a place like Kalgoorlie, but on any given day there will probably be as many mineworkers in their Hi Vis work wear at Perth airport as everyone else put together. I have met people to fly from Tasmania to work in NW Western Australia on 3 week on 2 week off rosters and similar.
The miners are uninvestable. 3X volatility and at best they return a small premium to spot.
It's why gold is the perfect real asset - its price reflects the cost to pull it out of the ground over the long run. And the cost to pull it out of the ground reflects the state of fiat money supply, labor costs, and productivity gains.
Amazing!
Many miners have grades of 2-4 grams/ton which obviously exacerbates your point. Over10 g/t would be considered very rare/
IMHO, the best explanation for why gold is rallying is that central banks are increasing their purchases. WGC data shows a steady rise, averaging about 60 tons per quarter, since the US and the EU froze Russian foreign reserves. This looks like the classic case of a "price insensitive buyer". If a reserve manager fears that their nation will fall out of favor with Washington, it behooves them to diversify their reserves. However, once that decision is made, it becomes obvious quickly that there is no good alternative. The EUR works as a currency but it has no reserve asset. Japan reserve asset is similar. The UK and Switzerland are too small. Thus, gold becomes the only alternative.
It's also apparent that China, through the BRICS, is working to create an alterative clearing system for trade other than using the USD/Treasury system. But, Beijing has no interest in running current account deficits to supply CNY for reserve purposes. Nor is it interested in giving up capital controls, which is necessary for using Chinese sovereigns for the reserve asset. What China seems to be engineering is a system where it pays for commodities in CNY but facilitates the use of gold to settle imbalances between BRICS nations. Essentially, its a barter system with a gold backstop. Not all that efficient, but your reserve balances don't fall to zero if you get sanctioned.
The fact we are making new highs without private sector buying is important. When that buying returns, we could see much higher prices.
This theme that you have identified is so spot-on from a political perspective, in my view. and I love the simplicity with which you describe it as long GLD/TLT. of course, based on the reduction in GLD shares outstanding, nobody is listening!
I think the miner's weakness relates to central banks. When private sector buyers look to buy gold, they have the choice of either the metal or the miner. In our hard asset portfolios, we treat miners as a levered play on gold. But a reserve manager is looking to diversify away from USD/Treasury and would have little need or regard for owning mining stocks.
We are seeing some life in miners recently, which I suspect is coming from the private sector market beginning to become interested in gold.
BTW, I use the holdings of gold ETP's to measure private sector interest. These holdings have been falling steadily. Also, coin buying is mostly flat.
Another way of thinking about this is that we are making new highs in gold with almost no private sector investing. I
Sorry and yes Iron Ore and Lithium certainly fall under that Copper too. It's really about the location not the metal.
Interesting Idea, Russell. I thought it was the market discounting higher price of oil over the next few years. Although that would not be in line with crude futures curve.
Have you checked the % change in costs for employees at these mining stocks over the last years? Is it really that bad?
agree on the increase in the cost of mining, but that is not going up at the same price as gold, right? As gold prices trend up, miners are marginally more profitable anda generate more cash, no?
do we maybe need to see 1Q24 numbers and guidances for the year before the market understands that the lag in the miners rally is to come?
When you talk about the 2 people needed for 1 equivalent miner dynamic in Australia, is that due to the conditions there being harsher than in other mining jurisdictions? For example, one person can get twice as much accomplished in a day of mining in Canada vs what they could accomplish in a day of mining in Australia?
GLD has had a net outflow of 1.5m so far YTD, so the price move has been driven by foreign CBs and foreign buyers, NOT US investors afraid of mega-QE or high inflation. Gold has been a huge winner in a lot of foreign currencies, so this may be a mo-mo trade for them. I'm skeptical it can be sustained but do believe the miners will catch up if it is, despite high costs, simply b/c a huge bump in profitability will be immediately reflected in Q1 EPS. Buy miners for a trade.
I think it makes sense but what do you think of the miners here? I am long in fairly large size for full disclosure.
The rising costs definitely make me nervous. On the other hand, I view them as a big issue when gold is high but in a range, or rising very gradually - they're very frustrating because profits don't go up even with a "good" gold price as you point out - but less of an issue when we're in a strong up-leg and gold prices are rising rapidly - as seems to be the case now - since then the leverage they provide to the price of gold re-ascertains itself, if only for a temporary period. Sentiment was very depressed and felt like capitulation two months ago, and even now after a strong rally most non-gold bulls (and even many gold bulls!) remain quite negative on them because they've been so frustrating for so long. It reminds me a bit of 2016 when after a painful bear market everyone was saying that miners were hopeless and then they doubled in like 6 months when the gold price recovered. Especially in a market which remains very speculative and chasing themes (or memes), it feels to me like there is a good chance that the narrative will change with prices yet again and we see a speculative spike if gold remains strong.
Does it make sense or do you think it's wishful thinking and the miners will remain dogs? I'm quite encouraged that so far we still seem to be in the disbelief stage, maybe very slowly moving to cautious hope. In the very short term sentiment on gold seems a bit overextended, but nothing like euphoria either.
Russell , I agree in many things with you, but not that the world (with exception of China) is turning pro-labour given the west is on a large scale exploiting immigration hiring to lower wages...
Wonder whether this thesis could apply to oil and oil shares?
Ok - but sentiment is also a huge factor. While we all need to eat and have a place to live, no one needs to own gold. It’s a safe haven asset, and to the extent people want to own it, there will be demand for it. If that demand for a safe haven declines, so will the price of gold, regardless of what it costs to mine it.