With gold prices rallying, is it still a good investment?
Should you invest in the physical commodities or in the equities of gold-producing companies?
What characteristics do a strong mining company often exhibit?
In order to answer these questions, it is necessary to understand that gold and paper assets like stocks and bonds have historically had a very cyclical relationship. Investors tend to become overly bearish on gold, causing it to become radically undervalued relative to financial assets. Today, with the unprecedented amount of paper money bring printed in response to the COVID-19-driven recession, we believe gold is indeed dramatically undervalued, even including the recent rally.
Mining companies’ business models entail a considerable amount of earnings leverage tied to gold prices, and this often makes them fantastic investments. With fixed cost structures, miner’s earnings margins expand exponentially when the price of gold rises and the cost of extracting it from the ground remains the same. This, among other reasons, often results in the equities of these companies being better investments than the actual physical commodity itself.
So where should investors start when analyzing investments in mining companies? The quality of deposits is critical, but there are many other aspects to consider. In this video, Adam Rozencwajg of Goehring & Rozencwajg sits down with Max Wiethe of Real VisionTM to explore the ins and outs of investing in these assets.
Press play below to start the interview.
