Gold Is The Soundest Money And Copper The Most Critical Metal

Silver has the best of both worlds as a monetary metal and industrial metal with equally if not stronger supply and demand fundamentals.

Gold is the soundest money, it is the second largest reserve currency held by central bankers after recently passing the Euro. For thousands of years it was the world’s most important currency, until the early 1970s when the floating fiat currency expirement took over and placed the US dollar (USD) as the world’s top reserve currenty.

The Petrodollar system helped keep the USD dollar as the dominant currency for world trade and as a reserve currency, but that is breaking down as the Petrodollar agreement recently expired.

The USD enjoyed its reign as the world reserve currency. It enabled American politicians and central bankers (which caused others to follow suit) to consistently do imprudent things with spending using the printing press of the world reserve curreny. Those days are numbered.

The floating fiat currency expirement has been an extreme failure which has constantly devastated purchasing power of the USD and all the other fiat currencies. It also enabled the politicians to spend like drunken sailors and the economies of the world to be been built on debt for far too long.

We are at a crossroads where the Death Spiral of Debt is returning the world to the Gold Standard. This is the most important economic event since the floating fiat currency experiment that will ultimately result in the return of economic sanity.

There are several factors piling up that are ensuring that the world will highly value the soundest money of all gold. Some fear that something like a world with $20k gold within 10 years will mean that the economic world has gone to hell in a handbasket.

I couldn’t disagree more. We are already in a worldwide debt crisis with fiat currencies constantly devasting purchasing power. The best thing that could happen is the return to the Gold Standard which will stop the bleeding of purchasing power and indiscriminate spending by debt junkies of politicians being supplied their drugs from the Fed and other central bankers.

To be (in the Gold Standard) or not to be, that is the question. The answer to be is becoming clearer by the day.

The (debt) can has been kicked as far down the road as it can be. The best economic thing that could happen is the Gold Standard. It is coming whether the politicians and central bankers like it or not. The debt pendulum has swung much too far in the wrong direction and the Gold Standard will move it in a healthier direction.

I don’t think the world should only go on the Gold Standard, I think every country should be increasing strategic reserves of every metal that they require for their own domestic needs.

The innovation of everything needs vastly more copper with demand ready to overwhelm supply. Silver is very unloved but is in a supply deficit that will only grow larger as it is a monetary metal and industrial metal crucial for solar energy. Plenty of other natural resources are crucial to making the modern world go around.

Investors give wild valuations to plenty of Wall Street stocks, while none of those companies can function without metals. With many metals having broken supply chains and ill-prepared to meet the demands. The supply patient is on life support with Dr. Copper swamped with not enough supply and powerful demand.

Mant metals have suffered from years of neglect. When it comes to the supply chains at a time when demand is going through the roof and demand is starting to overwhelm supply.

I follow gold, copper and silver because they have all suffered from too many years of neglect across their supply chains from mining, to new mine development and in exploration. The neglect has lasted for decades and will take many years to fix the supply problems. 

Ultimately, more exploration success is needed which leads to more mines in development to replace the old mines. There are structural issues across the supply pipelines of these metals that won’t only be fixed by much higher prices that will improve exploration success, new mine development and prepare the mines for the demands that will overwhelm supply.

Key severe problems in the supply chain of plenty of metals are permitting that takes much too long and not enough people in all facets of the supply food chains.

When I entered the mining business in 1993, there was a “lost generation” that started years before I started in the industry and lasted in the years since while still affecting the mining business today.

I started in mining when I was 29 and most of the other people in the sector were at least ten years older than me and many older than that, while not a lot of people around my age were entering the business.

Mining is hard, made worse by the ebbs and flows in the prices of metals. Instead of people younger than me and older wanting to enter the mining business, they chose computer sciences because technology companies offered much more lucrative pay and tremendous growth opportunities.

I often talk about the fantastic mentors I was fortunate to work with in the mining business, but it was like they were professors in a classroom of far too few.

I was fortunate because I worked with brilliant geoscientists who desperately wanted to pass down their knowledge to people in my generation. I am blessed to be able to honour my mentors as a reporter with an audience that enables me to pass down the knowledge they handed to me to those that follow my reports.

My mentors were passionate about rocks, they clearly understood how important the metals that the mining sector produces in our modern world. In every facet of it, look around you, everything you have needs metals to make them and make them work. It’s time to hug your miners.

The people problem in mining extends from prospecting to the board rooms and has never really been addressed. Now we have supply issues and even more people are needed now and into the future. I’m sad to say the Lost Generation in mining has turned into generations.

The 2001 to 2011 metals bull market certainly helped, but the lure to technology was still much more powerful. Since then, it is like the Lost Generation issue has kicked in again. So the industry has a severe people problem, all over the world.

Permitting has never taken so long as it does now. I’m not against regulations, I am for smart regulations that take into account how important mining is to the modern world. A world that relentlessly keeps innovating and needs more metals to make everything work has severe bottlenecks.

Another big issue after a discovery is made is that it has never been so expensive to define a resource, then run the economics on it. Plus, it has never been so expensive to build a new mine or operate it.

I often talk about the Lassonde Curve. There is a peak on the left side of the Lassonde Curve that takes tremendous work and tenacity to climb. A lot of the key mining jurisdictions have been well researched, and picked over for many decades. Which is forcing exploration to go into less well known jurisdictions to look for buried deposits. 

I often say that mining is treasure hunting for buried treasures that the mining sector does a poor job of marketing how exciting that process is. I am working on a report to discuss these issues in more detail.

To get a project that has the realistic potential to climb the left side of the Lassonde Curve has never been more expensive and challenging. The bottom line is there are woefully too few projects that can climb the peak on the left side of the Lassonde Curve.

After that peak, then the resource calculations start them into the development discount window where investors pull the plug and leave many of them orphaned.

This is a long valley until the right side of the Lassonde Curve when a discovery that passes all the tests in the development discount window, then it needs to get funded to go into production. Then it climbs the second peak on the right side of the Lassonde Curve.

What happens after the right side of the Lassonde Curve is dependent on how well the company operates their mine and what it does to secure other mines. There is actually an extension to the Lassonde Curve that is all about whether a company grows into a much larger miner, possibly as big as a mid-tier or a major miner.

My top pick of the Big 3 gold miners is Agnico Eagle, they started as a public company in the 1970s. They have had a legacy of being an excellent mine operator. Their efforts over the past few years have honoured the legacy of their past in an incredible way. 

It shows in their free cash flow growth which is a function of growing their production and keeping their costs lower than the average cost of production for gold miners. They are executing on efforts to increase production and further reduce their costs of producing gold which is already well below the average cost of production of the gold miners.

They are significantly outperforming their peers in the Big 3 of gold miners on the key operational metrics and in their respective stock action. They are a shining example of what can happen beyond the right side of the Lassonde Curve.

In a general sense, it is mainly only the largest gold miners that have joined the gold bull market. But they have come from very low bases because the gold miners had been in a bear market for a long time, until things started to turn for the better in February, 2024.

I would argue in the case of Agnico Eagle that they have improved significantly, but the current action is still playing catch up to their operational excellence. It hasn’t started pricing in the potential that the price of gold is primed to go much higher.

If you compare Agnico Eagle to other sectors that consistently are priced for perfection pulling backward success years into the future. While a company like Agnico Eagle has a lot higher to go just to more accurately reflect where they are today.

They are running a terrific business that when it is compared to other sectors in free cash flow growth is superior. Only to get better as they continue with their efforts to grow production and bring down costs as the powerful gold bull markets will drive their free cash flow through the roof.

Tech stocks get priced for perfection many years out, not so much for great gold miners like Agnico Eagle.

When it comes to companies with development projects, the lag of joining the gold bull market is more severe than in the gold miners. These are the companies that have the next generation of mines. I see some that clearly have free cash flow machines of future mines. But, they are sometimes priced at less than explorers that are a long way from moving their projects well into the development phases.

Early in my reporting career that started in 2005, I pretty much avoided development stage companies. Primarily because they had much healthier valuations. Now I follow more of them because I think they are significantly undervalued especially those that are approaching the sweet spot just before climbing up the right side of the Lassonde Curve. 

This can be a tremendous opportunity for investors. Especially now when the industry so badly needs new mines to replace the old mines to prepare the supply chain for the demand coming. 

The companies in the development discount window are too few, dramatically so. Which is a bullish thing for the price of metals, it also gives investors that want more risk than the miners for additional leverage to higher prices in gold, silver and copper incredible investment opportunities.

The key point is that the discounts for companies in development are still bearish, nowhere near bullish.

The explorers get the least love in the mining space. But, I argue that they are the most important. The mining business needs much more success in exploration to lead more projects into development and ultimately turn into mines to replace the old mines.

In the explorers, the asset allocation is the worst of all the segments in the mining stock food chain. There are haves and have nots, often I see haves that have too much funding and have nots that deserve much better funding and valuations to fund on more favourable terms.

This is my favourite segment of the mining space because although the risks are higher, the reward potential is much higher as well.

I look at these companies and consider them on the risk to potential ratio. How I evaluate that ratio is by assessing the combination of their valuations and realistic potential of their projects. With a particular emphasis on the realistic part of their potential.

When it comes to this part of the mining sector, it is all about what is coming out of the drilling with the Truth Machine. During my career, as I mentioned earlier, I have worked with terrific mentors that taught me what to look for when it comes to geology, geochemistry and geophysics. 

The combination of my experience and the poor asset allocation in the explorers, gives me a significant advantage over the current crowd and even more than generalist investors that make their way into mining stock.

I do a lot more homework than most in the crowd whether it comes to research, reporting and interviewing executives. This work allows me to stay on top the market like few others.

Across the board, whether it is the miners, developers or the explorers, I see a lot of poor asset allocation. Especially when I put it into the context of where the prices of gold, copper and silver are headed.

The various issues I described earlier are some of the reasons that I believe the supply chain is broken for gold, silver and copper, from mining to exploration due to long-term structural issues.

Which is the foundation for my bullish argument for these metals. On one side of the coin we have broken supply chains. On the other side of the coin we have powerful demand. The demand will overwhelm supply and drive prices of gold, copper and silver much higher.

While the gold supply chain has several issues, the demand story is very powerful. The Death Spiral of Debt is causing a return to the Gold Standard. 

The central bankers of the BRICS nations are already in the process of going on the Gold Standard and their buying is a healthy portion of the reason that gold has been making a series of new record highs.

Investors in the East are starting to put themselves on their own personal Gold Standard. The Chinese and Indian people own a lot of physical gold, and they buy it to never sell it, they are the ultimate hold on for dear life investors in physical gold. Until the past year, investors in the West for the most part have not joined the gold bull. 

Although we are seeing encouraging signs of their buying of physical gold in all places Walmart and Costco. These companies are excellent marketers that are good at spotting trends and understanding what their customers want. It has been an exciting development to see them get into the gold market. Although their buying is not huge, yet, they are taking physical off the market and putting it into the hands of consumers that want to hold it dearly. 

Until very recently, the ETFs were sellers of physical gold, but funds are starting to flow back in the right direction. These various buyers of physical gold are going to further tighten up the supply of physical gold.

This is why I have written in past reports that physical supply and physical demand is taking away the pricing of gold from the highly leveraged paper market. I will be discussing the physical gold market and the paper market in more depth in my report for tomorrow.

The bottom line is that the supply chains have structural long-term issues that have weakened the supply chains of gold, copper, silver and other metals. While demand for these metals are powerful.

These supply and demand fundamentals will drive the prices of metals much higher. Far higher than generalist investors can imagine or have started to prepare for.

In Closing

In addition to being extremely bullish on gold, copper and silver, I see the biggest torque for investors in high-quality explorers, developers and miners of these metals.

I’m also against passive investing through funds that make investors own the good, bad and ugly. I try to focus on the good in my reports and hunt with a rifle not a shotgun. I believe I do a great job of it, all my reports are available for investors to assess and form their own opinions.

All the best,

Allan Barry Laboucan

Disclosure

Rocks And Stocks News does not make buying or selling recommendations. The reports are for information purposes only. Sponsors pay a fee to Rocks And Stocks News for content creation. The business model of Rocks And Stocks News is to fund research and reporting on the sector, picks and sponsors through corporate sponsorship. We are thankful to sponsors for enabling commentary free of charge to readers and viewers of the reports. When reporting on sponsors it is on behalf of the sponsors discussed in the portion of the report mentioning the sponsor. Before making any investment decision it is important for you to speak with your financial advisors to consider your risk profile. It is also important to do your homework. To help in that process, Rocks And Stocks News means to be a gateway by doing reports and interviews of management of sponsors and picks. The reports and interviews should not be considered investment advice. Allan Barry Laboucan is the founder and owner of Rocks And Stocks News, he has worked in the mining sector since 1993 and has been reporting on the sector since 2005. He has worked with and been mentored by very talented geoscientists in geology, geochemistry and geophysics. He uses the skills he has picked up during his career to assess sponsors and picks in the reports. Whether a company is a pick or a sponsor they go through the same filter and are reported on when important news is made that Allan Barry Laboucan wants to discuss on the Rocks And Stocks News platform. He may own shares in sponsors and picks for investment purposes which he discloses when discussing them in the reports.