Frank Holmes said gold investors should focus on the royalty and streaming companies such as Franco-Nevada, Wheaton Precious Metals, and Royal Gold
Frank Holmes | September 30, 2021 | SmallCapPower: The gold price has continued to trade in a very narrow range since the last flash crash two weeks ago, which saw the yellow metal plunge below $1,700 an ounce.
(The following is an article originally published on usfunds.com on August 23, 2021)
The stronger dollar bears a lot of responsibility for gold’s woes. But something doesn’t add up when inflation is running at 5.4% year-over-year and real rates remain deeply negative. By one measure, rates are lower now than they’ve been since 1980, the same year gold hit its all-time high when adjusted for inflation.
Are investors betting that inflation will be “transitory,” as Federal Reserve Chair Jerome Powell insists?
Or is gold being manipulated?
If you talk to Chris Powell (no relation to Jay), secretary and treasurer at the Gold Anti-Trust Action Committee (GATA), the answer to the latter question is an emphatic yes.
Back in 2019, Chris told me that gold is largely manipulated through the futures markets and the London over-the-counter (OTC) market. “The mechanisms are gold swaps and leases between central banks and bullion banks, and through the sale of futures contracts,” he said.
When I asked him where he thought gold would be were it not for the kind of institutional manipulation he’s observed, Chris wisely said that the “true value of gold is whatever our free market wants it to be.”
If gold is being suppressed, as Chris and others believe, with G7 countries and central bankers continuing their modern monetary theory (MMT) experiment, the spring effect has the potential to be even greater. We could see gold at $2,000 to $2,400 an ounce.
Gold Miners Could Be a Buy
No surprise, but gold miners are also down, as much as 20% for the year so far. Based on the 14-day relative strength index (RSI), the NYSE Arca Gold BUGS Index shows that producers are oversold right now, meaning they could be a buy in anticipation of higher metal prices.
If I were investing, I would focus on the royalty and streaming companies such as Franco-Nevada, Wheaton Precious Metals and Royal Gold. As I’ve explained several times before, these companies provide many of the benefits of the gold mining industry without a lot of the risks.
Recent earnings are evidence of that. Take Franco-Nevada. Despite lower gold prices, the Toronto-based company reported record sales of $347 million during the second quarter, an increase of 78% from the same quarter a year earlier. Adjusted net income came in at $182 million, almost double the income from a year ago.
This sets Franco up for a record year, says Paul Brink, president and CEO, adding that the company’s royalty business model “is particularly attractive during periods of industry cost inflation.”
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