As unending currency debasement prepares the funeral pyre of fiat money, the only true store of wealth—gold and silver—have risen, once again, to take their rightful place as the anchor to our global monetary system. Even without a sudden adoption by current central banks, precious metals are being recognized by investors and common people all around the world as a true store of value.
This acknowledgement by the general public of hard money is growing at a furious pace (albeit still relatively small), only to accelerate as governments around the world continue to inflate fiat money into oblivion and lose what confidence is left in a system that was destined for failure from the start. This is evident through the 11 year bull market that has sent gold and silver to highs of $1,900 and $49, respectively. But what will prove even more evident is the continued rise in prices once thought unimaginable.
Numerous events following the collapse in 2008 have awoken the public to major cracks in our monetary foundation. Massive bailouts with purely fabricated money to cover trillions of spiralling debts have amounted to a tremendous loss of confidence in paper money. While the endgame may be one, two, five or more years down the road, investors will and should continue to diversify their assets out of the USD. One industry in the equity market to be considered is mining.
Gold and silver mining stocks will be the utility stocks of the future as they essentially mine for the only true store of wealth. One could argue this is a crazy assumption to make and point to the fact gold has risen every year but one since 2001, yet dividend payouts have remained meager at best. However, we are now starting to see dividends ramp up as both mining companies and investors recognize the consistent value of precious metals in the face of long-term currency depreciation.
This recognition caused many companies to seek aggressive growth, develop existing deposits and explore and expand producing mines. This, however, can’t be done overnight because of the lengthy process of first identifying a deposit to commercial production. Following 2008, the case for precious metals grew much stronger and it became more apparent than ever that it was only a matter of time before the fiat money house of cards came crumbling down and precious metals were seen for what they are: real money.
To date, the majority of mining companies have been aggressively reinvesting and raising money in pursuit of much larger production growth, developing projects that would be uneconomical at lower metal prices. Early in the cycle, most every gold and silver producer generated little to no cash flow and presented balance sheets with little cash. However, development projects taken on in 2001-present day are starting to generate substantial cash flow. Now these investments are paying off and we are finally seeing much stronger balance sheets in the industry as a whole, allowing companies to begin paying out excess profits, i.e. “free cash flow”, to investors while maintaining the ability to fund growth plans. Although payout ratios still need to go much higher in order for these companies to be considered at par with utilities, we are now seeing the early stages of the transformation.
If you'd like to gain any more information on some of the companies under our research, please feel free to contact me at marchese[dot]chris[at]gmail[dot]com.
