Are we headed for a Greater Depression?
Sorry to ruin your day with such an abrupt reminder of the precipice on which we sit, particularly when Mr. Market is numbing the reality by mainlining FAANG. But, better to prepare for the bear before the bear prepares for you.
The “bear” in this case isn’t specifically Wall Street. I mean, sure, we’ve likely got a bear market stalking us. But that’s a different story. No, the bear I’m talking about is a metaphor for the overall economy. Few exist in history analogous to the one we’re now in: widespread unemployment, economic contraction unlike anything the country has ever experienced, a raging pandemic that seems to be catching a second wind, a bumbling federal government/White House ill-equipped for the fight at hand, social discord, interest rates methodically inching toward negative, a US dollar on a southerly track, the Federal Reserve now shooting BBs rather than bullets.
I could go on, but, frankly, kicking an economy that can’t lift itself up seems overkill.
So, let’s just jump to the point: Preparing for this bear means owning gold.
I don’t say that from a gold-bug’s perspective. I say that relative to gold’s place in economic history as the solution – in some form or another – to pretty much every significant economic crisis going back millennia.
This time will be no different. It never is. The stories change, the reasons for the crises change, but the solution always involves gold bring stability to a currency or an economy. It happened in ancient times, in Rome and Greece. It happened in modern times, when FDR confiscated gold in 1933, repriced it 69% higher and, in the process, sacrificed the US dollar to save a collapsing economy.
So the question really isn’t, “Will gold come to the rescue again?” The question is: How to play gold to best benefit from what’s likely?
Gold ETFs, though wildly popular, might not be the best answer because of a particular event that emerged back in March and April, when Covid first began running amok in America. Challenges popped up in London with HSBC and the SPDR Gold Trust, the famous GLD exchange-traded fund. But that, too, is a different story.
Part of that is recent news that Papua New Guinea won’t renew a lease on a mine Barrick owns with a Chinese partner. That would pull more than 200,000 ounces out of Barrick’s annual production stream of just over five million ounces.
Frankly, in the grand scheme of gold, Papua New Guinea is a side note.
Yes, it’s about 4% of Barrick’s production, and that’s not chump change. But we’re now seeing Wall Street firms such as Goldman, BofA, and others call for $3,000 gold. Some say $4,000. Some say five figures.
Not saying any of those will come to pass. But if any do, the windfall profits that drop into Barrick’s bank account will far outweigh the Papua New Guinea news.
Among gold miners, Barrick is a class act. It’s scalability rating of 99 puts it among the top companies across all industries.
That score largely reflects the fact that Barrick’s profit margins are nearly 41% and year-over-year revenue growth exceeds 32%, which itself define Barrick as one of the growthier companies on the Street.
Better still, both of those data points are certain to ramp as gold prices continue marching higher. In a largely fixed-cost business like mining, every higher prices for the underlying commodity drop to the bottom line absent anything but some taxes and whatnot.
The cherry atop this golden cake might just be that Barrick has been something of a laggard because of the Papua New Guinea news. Competitors such as Newmont (NEM), Yamana Gold (AUY), Agnico Eagle Mines (AME), and Eldorado Gold (EGO) are all up between 8% and 25% – two to six times Barrick’s effort.
As such, Barrick has some catching up to do. And it very likely will.
And if gold ultimately is called upon again to repair yet another of history’s economic crises … all bets are off. Because at that point, gold’s price is unthinkably higher. Which means Barrick’s is, too.