Gold Stocks - Adding to Portfolio Stability and Growth

March, 27, 2020

The Bail-in

We hope you and your family and friends are well.

The global central banks embraced ultra-low interest rates as a solution to economic growth since 2008, which created a price bubble in global bonds. European and Japanese central bank bond purchases at negative interest rates, however, destroyed their bond markets. Governments’ “stay at home” orders to control the coronavirus spread have produced an economic recession and led to the recent multi trillion-dollar global margin call. Investors were forced to sell what they could causing a sell off across all asset classes. Governments are now working together to address the health, economic and supply chain issues that have arisen. Their central banks are creating stimulus packages to be funded with an estimated $15 to $25 trillion in additional debt, which may lay the seeds of future inflation. 

By contrast, gold prices were suppressed over the past decade allowing the central banks to rebuild their gold holdings at more favorable prices. The price suppression was sufficient to convince investors that the gold stock sector was not a competitive asset class until a year ago. Since that time, gold stocks have benefitted from rising gold prices and declining mining costs which led to strong increases in their free cash flows and stock prices as shown in the graph below. Conversely, the free cash flow to enterprise value for the S&P 500 companies is lower and has been falling as companies bought back stock financed with debt as shown in the table below.


We would suggest that the recent selloff in gold stocks represents an opportunity to acquire stocks in a sector which is benefitting from favorable fundamentals and could increase portfolio resilience, stability and returns over the next 3 to 5 years.  We have a more detailed analysis of gold and gold stocks which we would be happy to share.

 We welcome the opportunity to connect with our clients, friends and prospective investors.  Please feel free to call us with any questions or concerns you may have.  

Seamans remains committed to providing the best services to all our clients while ensuring the safety of our employees. Every employee is equipped with the resources and technology they need to remain a valuable resource, no matter where they’re located. Please don’t hesitate to reach out to us through phone or email for questions you may have for us.

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