My partner Peter Schiff and I have both been pretty aggressive over the past couple of years in telling our audience that gold companies were deeply undervalued.
Our thesis was simple: the price of gold was surging to fresh record highs every couple of months, yet gold companies were languishing at historic lows.
We also identified the reason why: foreign central banks are buying gold in preparation for a change in the global reserve currency.
Starting in 2023 and accelerating in 2024, central banks began buying hundreds of billions of dollars worth of gold, scooping up the metal by the metric ton— literally dozens of tons at a time.
Their goal was to diversify out of the US dollar. The long-term fiscal outlook wasn’t looking so great in America— inflation was still too high, the national debt was outrageous, budget deficits reached ~$2 trillion per year, and Congress wasn’t doing anything about it.
Then there were the other mishaps, like a senile President who shook hands with thin air, the humiliating withdrawal from Afghanistan (that severely dented America’s reputation for strength), and constant threats of government shutdowns.
Foreign central banks were becoming increasingly concerned about the US dollar’s long-term trajectory. It started looking more and more like the dollar would not last as the world’s reserve currency… and so, quite sensibly, they started trading their US dollars for gold.
We have all been witness to the same impact over the last month after “Liberation Day”—central banks doubled down on gold, more convinced than ever that the dollar would soon be on its way out.
No one really knows what the next reserve currency will be. No one knows which country’s banking system will provide the infrastructure for global trade and finance.
But what central banks do know is that whatever the future reserve currency may be, they will be able to trade for it with gold.
So in a time of upheaval and uncertainty, gold became a very sensible asset for central banks to buy.
For the most part, central bankers also buy gold irrespective of price.
Gold is is not a financial investment for them, but rather a strategic reserve asset. So a central banker won’t care very much if they buy gold at $3,000 or $3,250, because they’re not trying to ‘flip’ their gold holdings to turn a quick profit.
We did the math on this a number of times and found that a few hundred billion dollars’ worth of gold purchases from central banks caused the gold price to double.
And when you realize foreign governments and central banks have more than $8 trillion of US dollar reserve assets, it is easy to understand why the price of gold could skyrocket from here.
But the biggest part of our thesis was that central banks do not buy gold companies, gold miners, gold service businesses, gold streaming or royalty businesses, etc. Central banks only buy physical gold bars.
And, quite bizarrely, most investors had absolutely no interest in gold companies either, even though the price of gold— mining companies’ primary source of revenue— was going through the roof.
We said it over and over again: this is a crazy anomaly that is not going to last. With gold constantly rising to new heights, these mining companies were making money hand over fist.
Yet investors still weren’t buying them. The stock prices were very cheap… and we shouted from the rooftops that this anomaly wouldn’t last.
Just as anticipated, this thesis is now playing out in real time: many gold companies have seen a surge in their share prices. But thanks to gold’s continued rise, some of them are still reasonably priced.
Newmont Mining, for example, is up over 40% year to date. Yet its current share price is still valued at less than nine times forward earnings, which is quite reasonable.
Similarly, Barrick is up 23% and trades at roughly ten times forward earnings.
Plus both of these companies also pay a small dividend…
Bottom line, their share prices have gone up a lot. But they are still trading well below potential.
Now, those are just a few of the big ‘major’ gold companies. Our investment research at Schiff Sovereign tends to focus on hidden gems— small to medium-sized real asset businesses that are often overlooked and, frankly, present way more value.
Our criteria are sacrosanct: we only deal with extremely well-managed, profitable, real-asset businesses with pristine balance sheets, minimal to zero debt, and plenty of cash on the books.
We also look for obvious catalysts that can create some serious short-term gains, often because the market has misunderstood an important aspect of the business.
For example, in our March edition, we discussed how the CEO of a precious metals company let slip some critical information during a public interview at a large mining conference. Anyone could have seen it, but we were paying attention.
It was clear to us that their upcoming earnings announcement would be a major catalyst for the stock price. Sure enough, that is exactly what happened: the stock surged shortly after earnings were released and is now up 68% since we published our research in early March.
Another company fit the same mold: highly profitable, paying a solid dividend, and backed by a pristine balance sheet. In this case, we believed both the earnings report and the dividend announcement would serve as near-term catalysts.
Following the news, the stock nearly doubled.
Yet even after that surge, it is still trading at just 2x forward earnings—an incredible value.
Several other precious metals companies we have written about are in similar positions, but have not yet seen the same price jumps. We expect that to change any day.
The bottom line is that our thesis is playing out in real time. Gold companies are starting to catch up to gold itself.
But we still see plenty of solid value out there, and are finding new promising companies every month.
If you’re not already a subscriber I’d really encourage you to give our investment research a try.
We ran a special 50% promotion on our highest level investment research service— it’s called The 4th Pillar— throughout the entire month of February; it was the first promotional discount we offered in several years.
And while we can’t extend that same offer today, we believe the full price still offers exceptional value. Plus we offer an iron-clad, 30-day no questions asked money back guarantee.
CLICK HERE to learn more about The 4th Pillar investment research.
