As the market started correcting last December, precious metal stocks took off. They are catching up to gold which has been making new all time highs on a weekly basis. Capital is flowing into precious metal stocks. Alamos Gold is up 48% in the last 3.5 months. Franco-Nevada, a premier mine finance company is up 37% over the last 3.5 months. This shows the inverse relationship between commodities and financial assets. Precious metal stocks are breaking out on strong volume.
Conversely, big tech now offers virtually no income, minimal growth, and no margin of safety. With everyone already holding these names, they’re what investors are selling. Financial assets still have a long way to fall before the dumpster fire becomes apparent and margin calls hit these not-so-magnificent equities. Meanwhile, bond markets remain toxic and are among the worst places to be during inflationary periods. Excess debt built up in the system acts as a tailwind for companies like Franco-Nevada and Alamos Gold. Commodities move inversely to stocks over long cycles, and the opportunity to buy them now is arguably greater than it was in the 1970s or early 2000s. Today, stronger fundamentals underpin better companies.
Although commodities are higher than they were a year ago, nobody is rushing to build new silver mines. The market is signaling a new direction and sentiment shift, but most of the opportunity to buy real assets lies ahead. Owning mine finance (royalty) companies like Franco-Nevada and Royal Gold alleviates concerns about stock market volatility, commodity price swings, or broader economic health. These are durable, all-weather companies that provide complete leverage to rising prices. Unlike bonds, royalty companies “inflation-proof” a portfolio while increasing their distributions over time.
Mine finance companies boast 80% margins. Whether gold trades at $1,000 or $3,000, they remain profitable and have raised their dividends every year since inception. Now is the time to invest in precious metal companies, grab some popcorn, and enjoy the show.
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Disclaimer: This is not financial advice. The author holds no credentials to give investment advice, nor can he guarantee that this information is true or authentic. Philip Miller publishes a newsletter and consults on identifying top resource companies. He owns shares of Alamos Gold, Royal Gold, and Franco-Nevada. This article is intended to illustrate long-term trends and share useful information but does not constitute advice. Consult an accredited financial advisor to determine what is suitable for your objectives. While the author makes every effort to ensure accuracy, he cannot attest that this information is complete or precise.
