by John Rubino
If you’re paying attention you’re probably 1) watching gold rise along with global instability, and 2) wondering if it’s finally time to load up on precious metals mining stocks.
But of course you have no idea how to do this successfully, because hardly anyone does.
Bob Moriarty – veteran mining analyst and proprietor of the 321gold website – has stepped into this information breach with a book that explains everything from why gold is rising to how to find (and when to sell) tomorrow’s great mining stocks.
Moriarty starts by setting out the “global financial crisis” thesis which, he asserts, is a done deal. It’s coming, it’s coming soon, and when it arrives it will wreak havoc pretty much everywhere. The world’s governments will have no choice but to massively devalue the dollar, euro, and yen. Savings denominated in those currencies will evaporate, while the price of real things like farmland, gold and silver will soar in local currency terms. And because gold and silver miners are leveraged plays on the underlying metals, their bull market will be the most impressive of all.
Here’s how he explains it:
If the world is going to hell in a hand basket — and it is — and the gurus are all full of crap — and they are — and the banks are about to close, why would anyone in their right mind want to invest in resource stocks?
Dr. Marc Faber says it best, in every resource conference where he speaks. He goes through the same sequence as I have here; doom and gloom, everything is going to hell. He tells his audience what they should invest in, with that broad Swiss accent. “Everyvon shuud buy a million-dahler Tee Bill.”
That wakes up the sleepy punters at the show. All of a sudden everyone is hanging on his every word.
He continues, “You shuud frame it and putt it on zee vorl. Vehn your grandkiddies come over you shuud point to it and say, ‘Zat used to be money.’”
He makes a very valid point. When we go into the mother of all depressions during The Great Reset, the pumped-up assets from the last ten years are going to take a giant dump.
If the world is sitting on $250 trillion in debt that we know cannot be paid, those paper assets, including T-Bills, aren’t going to be worth very much. Which would you trust more: a piece of paper representing debt which mathematically can never be paid, or shares in a company investing in resources, either in exploration or mining?
The question may sound simplistic, and it is, but it is also a very valid question.
Would you rather have a gallon bucket of Monopoly money or a Krugerrand?
Obviously you want the Krugerrand.
Once that’s established, says Moriarty, half an investor’s work is done because “in a bull market everything goes up.” In other words, what you own within the soon-to-be-rocking precious metals sector is less important than that you own something in there. Gold and silver bullion, precious metals ETFs, mutual funds, and high-quality mining stocks will all do well in the coming global currency crisis. So most investors can just buy a variety of precious metals related assets and get on with life, secure in the knowledge that their capital is safe.
But for those who want to do more than just rise with the precious metals tide, Moriarty lays out some principles for outperforming this market, including:
Start with physical metal. “If you don’t own some gold (or silver or platinum or palladium or rhodium) that you can lay your hands on, you may regret it. Precious metals are the most secure insurance policy that you can buy to protect your financial house, even as it begins to burn down.”
Take profits. “If you don’t sell at a profit, the only alternative is to sell at a loss.” Moriarty relates some stories (both poignant and, alas, familiar to anyone with resource stock experience) of investors who rode mining stocks from pennies to dollars a share, only to ride those shares back down to a loss.
Embrace the royalty companies. “Since streaming and royalty companies are only providing cash to miners, they are best looked at as specialty finance companies. However, for most investors interested in adding precious metals to a diversified portfolio, they are probably the best option. The reasons tie back to the unique streaming model, which includes contractually locked-in wide margins.”
Expect silver to outperform gold. “As I write, early in 2019, it takes a little over 84 ounces of silver to purchase one ounce of gold. You always want to buy what is cheap and sell what is dear. The gold to silver ratio has been as high as 86:1 in the last month. The ratio has varied from 17:1 to 100:1 over the past 100 years; the mean average is 53:1. Silver has spent less than one percent of that time above 85:1, so by buying silver and selling gold now, you are entering a trade that has been profitable for 99 percent of the last 100 years.”
For life-changing returns, play the junior miners. “You can lose money faster in the junior market than in any other investment. You can also make more money than you can in anything else.” This is the most useful part of the book, both because Moriarty knows whereof he speaks and because the junior sector is so full of landmines. By explaining the frequently crazy nature of these stocks, he takes some of the emotion out of owning them. That alone will save a lot of people a lot of money in the next few years.