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“the amount of capital being put into building gold mines is almost non-existent.” For Naguib Sawiris, it is a “safe haven” attractive enough for this enormously successful entrepreneur to have put as much as half his net worth into gold exposure.
So while there is a theme, the variations on that theme are so diverse as to be staggering in their implications. To put it simply: when gold starts to really move higher, there will be so many bold-faced names invoking so many different reasons for the move, that even a previous agnostic on gold will find amongst this intellectual buffet any number of justifications for a speedy conversion. Those who eschew gold as money will be persuaded by the fact that production of a commodity has peaked. Those who don’t undertake a deep dive on the industry will find gold’s excellent performance as a portfolio diversifier most compelling as a reason to pull the trigger. Some will fear inflation, or deflation, or negative yields and renewed QE-something. I could go on and on – and on. The point is that when investors feel they want an allocation to the metal, it will likely be at significantly higher prices. By then, they will also have myriad reasons (and advocates to choose from, in order to justify those reasons) to be able to pick and choose what specific arguments they will present to their investment committees.
Those who know me also know that, whereas I try to use an understanding of cycles and history (and macro factors) to fuel my convictions, my favorite
investments remain those that are underpinned by Economics 101: namely, supply and demand. I can think of countless solid reasons to buy gold from a macro standpoint. And though I try to avoid the fear factors that argue for an allocation to gold – I could cite dozens of black swan events that would be negative for the world but positive for gold – I also don’t dwell on those. Recalling Samuel Johnson, to my mind resorting to fear represents, much like patriotism (though perhaps, more accurately, nationalism), the last refuge of a scoundrel. For not only do I not need such harmful scenarios to unfold for my bullish thesis for NOVAGOLD to play out, I actually don’t want them to happen! Hoping for bad things to occur is an inadvisable way to wander through life. Preparing for bad things that you hope don’t happen, however, constitutes a philosophically sound – and downright therapeutic – practice, if done sensibly. Ask any stoic.
For myself, I find the parlous state of the gold industry itself to provide a sufficient analytical foundation for extreme bullishness. Supply inhibitors are not fussy, and with just a touch of the demand I see materializing, the conclusion is clear: a multiplication of gold prices, and a highly leveraged revaluation for the few gold-related assets that won’t be nationalized or otherwise confiscated. I’ll get to that in the Q&A that follows.
Superimposed onto this smart-money thesis is what I like to think of as the most enduring and unabashed of all insider trading: the gold-buying activity of central banks. Some people mistakenly believe that central banks epitomize dumb money. That simply couldn’t be more wrong. They are the ultimate insiders. The fact that central banks, which used to be sellers of gold, are now net buyers of gold – and at a pace that we have not seen in decades – should be interpreted as a flashing green light to investors. For unlike other financial assets, central bankers do not have to buy gold to prop up their respective economies. They are buying gold by choice. The absence of selling would be satisfaction enough. It would signal an appreciation of global risk akin to a wake-up call, a huge melodious bell that is ringing. But central bankers absorbing gold for their own reserves in competition with industrial and financial buyers is sweet music indeed. For who knows better than the custodians themselves that their treasuries are stuffed with dubious assets beholden to the generosity of strangers – and that having gold
1.20 1.00 0.80 0.60 0.40 0.20 0.00
Positioned to be One of the World’s Largest Gold Mines
Projected Annual Gold Production (millions of ounces)
1.10
USA*
Mexico†
Canada†
Colombia†
Brazil†
French Guiana†
0.45
0.41
* Donlin Gold estimates as per the Second Updated Feasibility Study, effective November 18, 2011, amended January 20, 2012.
† Peer group data based on company documents, public filings and websites as of January 31, 2020. Largest projected annual gold production, by comparable project and selected countries, from a comparison of 14 development projects based on large (2Moz P&P cut off ), North/South American gold-focused development projects with >75% projected revenues from gold: USA – Castle Mountain (0.17), Livengood (0.29), and Stibnite (0.34); Mexico – Metates (0.45); Canada – Back River (0.20), Blackwater (0.41), Côté Gold (0.37), Courageous Lake (0.39), Hardrock (0.28), and Magino (0.12); Colombia – Buritica (0.25) and Gramalote (0.38); Brazil – Volta Grande (0.21); French Guiana – Montagne d’Or (0.21).
0.38
0.21
0.21
Donlin Gold Metates Blackwater Gramalote Volta Grande Montagne d’Or
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