Silver remains historically undervalued relative to money supply and is now technically forming a double bottom. Last times we had such a divergence between the Philadelphia Gold and Silver index relative to its 200 day moving average, it also marked two important bottoms. Here are some technical reasons to be long precious metals: We think silver is the cheapest metal on earth. Yes, this ratio was higher during the covid crisis, but the current levels are almost as low as it was during other major bottoms. The gold to silver ratio usually reaches historical lows when miners are near peak cycle. Note, however, how the shiny metal tends to come screaming back after these pullbacks. The price is now 14% lower, and the entire financial media already claims that gold is dead. We are probably seeing a similar issue today again. In March 1978, gold briefly reached a record level and then corrected by 15% soon after.Īlso, January 2008, the metal hit new highs and continued to appreciate for another month until declining by 28% during the GFC. We have seen this price behavior happen twice before. It is quite normal for gold to struggle after making new highs. We are barely seeing any deals being done today. Remember, mining companies tend to overpay for deals at the peak of the cycle. PM miners have turned gun-shy when it comes to acquiring new projects or companies. We have not even seen the onset of an M&A cycle yet. In fact, gold and silver miners just repaid the largest amount of debt in the last 25 years. These companies have become true free-cash-flow machines and are now able to not only pay down debt but to avoid significant equity issuances to finance their businesses. We are experiencing the complete opposite today. Historically, mining companies tend to lever up and dilute massive amounts of shares when they are at the top of their cycle. That is the highest level we have ever seen. The median free-cash-flow margin is now above 25%.īelieve it or not, today, 73% of the top 50 gold and silver miners are profitable on a free cash flow basis. Note that in aggregate terms, the same basket of companies also trades at its highest free-cash-flow yield in history.Īdditionally, as shown in the second panel of the chart below, gold and silver miners continue to expand their margins in a significant way. Miners are now trading at the cheapest fundamental multiples we have ever seen.Īssuming the current 2022 free-cash-flow estimate relative to the current enterprise value, the median company among the 50 largest miners in the US and Canada exchange now trades at an unprecedented 7% yield. Gold and silver stocks have never peaked at historically undervalued levels. Let’s start by looking at the usual fundamental trends of this industry as part of prior historical cycles. There is no shortage of questions on why gold has significantly underperformed during such an ideal macro setting. ![]() Where are we in the precious metals cycle?
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