Gold Bugs: Get Bullish

The last few months have been brutal for gold and silver bugs.

But as the Iran war winds down (fingers crossed), the worst is behind us. There’s a good chance that gold, silver, and miners have all bottomed and will now surge to new highs over the next year.

The largest gold miner ETF (GDX) peaked exactly as the Iran conflict began in late February.

This was no coincidence.

Miners have been on a downhill slide ever since.

Source: Google Finance, with my notation

The war was a double-whammy for the precious metals (PM) space.

As oil prices spiked, costs jumped for mining stocks. Extracting metals from the ground requires lots of diesel fuel.

So that was the first hit.

Then came the second hit. A few countries in the Middle East were forced to sell a portion of their gold reserves. Their primary revenue source (oil and gas) was cut off. In some cases, countries went from billions of dollars in revenue per day to zero.

And some other countries, even ones without significant oil revenue, like Turkey, were forced to sell gold to cover rising expenses and defend their fiat currencies.

Gold served its purpose well, rescuing countries from economic destruction. This is exactly why countries (and people) should own PMs.

Miner Margins

Gold fell from a peak of near $5,500/oz to $4,330 today. Silver was trading at around $90 as the war began, and is sitting around $70/oz today.

That’s a hit to precious metals bugs by itself. But most of us own mining stocks too.

Gold miners that were making a profit of nearly $3,300 per ounce of gold at $5,000 were suddenly making a profit of around $2,100.

Higher fuel costs, lower realized prices on metals. Still very lucrative, but not quite so much as they were.

So investors with significant exposure to miners and metals (like yours truly) took a hit. Still, even after the selloff, gold is still up $2,000 an ounce over the past 2 years. Not bad.

Over the past year, the GDX gold miner ETF is still up 56%. But it was up well over 100%.

Buying Opportunity

If the Iran war is finished, miners and precious metals should rebound strongly from here.

The debt bubble is still building. Interest costs on global debt are still soaring. Inflation remains problematic.

I’m still holding my miners and metals. Today the GDX gold miner ETF rose 6% as of 2:10 pm ET. The SILJ silver miner ETF jumped 6.46%.

Gold is up 2.5% and silver by about 3%. A nice day. But if this is truly the end of the war, I think we’re going a lot higher.

Is the Deal Real?

A deal with Iran is scheduled to be signed June 19th in Switzerland.

It looks like it’ll probably happen. The active phase of fighting may be done.

There are still two big unanswered questions. Namely: Whether we can convince Israel to stop fighting in Lebanon, and what will happen with the upcoming nuclear negotiations.

However, it seems as if we’re headed towards some sort of resolution, even if it doesn’t last forever.

Hopefully the Strait of Hormuz opens up soon, and stays that way. Oil inventories and fertilizer stocks have gotten very low, but if it opens soon it looks like we’re going to avoid extreme economic damage.

Regular readers know my plan by now. I’m holding onto my miners and metals for at least another 3-5 years.

These precious metals bull markets tend to last a decade. And this recent run only began in 2022.

Given the size of today’s debt problems (120% U.S. debt-to-GDP vs 35% in the 1970s), this bull market could even last longer than the 1970s.

I suspect what we just experienced was a sort of early intermission of the PM bull market.

Nothing goes straight up. At some point, we were guaranteed a significant correction. Now we’ve got one. And I suspect it’s over.

The only thing that could spoil it at this point would be some catastrophic escalation in the Middle East. And at this point, I think both the U.S. and Iran have had enough war.

It looks like both sides compromised more quickly than I expected. Which I’m extremely happy to have been wrong about.

Now is a fine time to begin or add to existing gold/silver/miner positions. We’re buying at a nice discount, and this is still a world which calls for every portfolio to have a healthy helping of precious metals.