Blog: You, us, everyone

Gold is at its highest historical prices! Yet, the spot price for precious metals is expected to benefit further from near-term economic uncertainty and historically high inflation, which we think is to stay relatively high for longer than expected. Precious-metal mining stocks usually perform best during the early stages of a bull market, which we expect to happen prior the first FED rate reduction. Furthermore, we note that institutional investors hold less than 5 % in gold and gold related assets.  Finally, we note that the stock market usually bottoms out before the U.S. economy does.

Positives:

•  US April inflation was in line with expectations, and lower than last month, but still stubbornly high and above the long-term trend,
• FED members indicated that during the meeting, the FED’s most likely intention is pause with rates hikes.

Negatives:

• The debt ceiling debate has been the main headline for quite some time. While we believe that an agreement will be found, an estimated $2 billion of new TB will be issues between now and the end of this year. This is clearly a drag to the stock market flows.
• It is very likely that the US will escape a lasting recession which occurs on the back of a banking crisis (crisis of confidence in absolute terms) - yet this crisis keeps lingering for longer than expected.

As the US enters a recession, retail and instructional investors are expected to seek a natural hedge opportunity. Therefore, gold stocks appear an opportune investment vehicle:

SSR Mining (SSRM) is one such company that can thrive throughout 2023. While major gold-mining companies are still in recovery mode from 2010 net-debt positions, SSR mining disposes the equivalent of ½ billion dollars net cash, cash equivalent, and marketable securities. Given the lean balance sheet, higher spot prices are expected to translate into shareholder value which the company expects to give back to its investors via increased dividend payments and a share-buyback program.

First Majestic Silver is another interesting investment case. Silver is gaining industrial demand; it is one of the key metals for the energy transition, in particular electric vehicles and photovoltaic panels. There's also a strong likelihood of silver outperforming gold in the near term, given that the gold-to-silver ratio is above its historic norm. First Majestic Silver is expected to improve further its operating efficiency at the flagship San Dimas mine and coupled with the strong demand, First Majestic could have a banner year.