Gold, Silver And Copper Stocks Are Primed To Go Much Higher Than Many Metals Bulls Can Imagine

Exploration is crucial for mining and mining is an absolute necessity for everything that makes the modern world go round. These seem like topics that every politician, business and consumer should be aware of and top priorities for investments, but they aren’t.

Miners of gold, silver and copper are relying on old mines while the pipelines of new mines are severely broken to the point that the miners are struggling to increase production and replace what they mine.

Gold is going through a transition that is 50 plus years in the making. Going off the Gold Standard allowed debt to grow to the point of creating a Death Spiral of Debt. The fiat currency system is broken beyond repair due to decades of devastation of purchasing power for all global fiat currencies including the US dollar. 

To combat the 2008 GFC, central bankers turned to the Free Money Era which caused the debt to skyrocket. To deal with the inflation it caused, the Fed jacked up interest rates in 2022 from near zero to over 5% which is now resulting in the problem that will break the debt camel’s back. Which is the cost of servicing the debt that is now consuming way too much of the income from taxes. 

Kicking the can of debt down the road was a lot easier when the interest rates were near zero. With interest rates where they are now, combined with the size of the debt and politicians that only know how to spend like drunken sailors, the interest rates have to go back toward zero or break the debt camel’s back.

The Fed knew they needed to declare victory over inflation and start a rate cutting cycle. As every consumer knows, they didn’t beat inflation, they only slowed down the rate of inflation growth. Prices are still going up. 

The bond market is not cooperating with the Fed’s rate cutting plans as there is a buyers strike and the yields are going up. Either the Fed will have to stop cutting rates or get in there like Randolph and Mortimer Duke in Trading Places and buy, buy, buy. 

If they want to keep cutting rates, they will have to manipulate the yield curve and rapidly increase their balance sheet. If they don’t cut rates, the cost of servicing the debt, and the increase in spending from the next president, will make covering the debt servicing costs the highest expenditure of the government.

With a world awash in massive debt, and purchasing power of fiat currencies being destroyed by the day, the inevitable conclusion is that the world is on its way back to the Gold Standard. It is a snowball heading down the mountain that can’t be stopped.

Gold is the soundest money and currently the second biggest reserve currency held by central bankers. It passed the Euro this year and likely within five years it will surpass the US dollar. 

Debt is one reason, the other is the destruction of purchasing power of the US dollar and every other fiat currency. These factors are part of the perfect storm for gold to go higher by multiples of its current price.

When I listen to huge investors like Ray Dalio, Stanley Druckenmiller, Muhammad El-Erian, Paul Tudor Jones and others sing the virtues of gold, their bullish arguments are primarily about the debt and destruction of the purchasing power of fiat currencies causing strong demand for gold. 

But, this is only part of the perfect storm for the gold bull. Yes, demand is very powerful and will stay that way for many years that will likely turn into decades. What is less well understood is how broken the supply chain is because while the debt was growing and investors merrily bid up the stocks on Wall Street, the investment into the gold supply pipeline waned. 

The evidence of how broken the gold supply chain is out there for investors worldwide to see. They aren’t paying attention to it yet, but that doesn’t mean it isn’t broken.

Major gold miners are struggling to increase production while gold is at record prices. The main reason is they are depending on old mines that have seen the head grades in decline for many years. Plus, they have to go deeper into the mines which increases the costs of producing gold.

Cases in point are two of the top 3 gold miners, Barrick and Newmont, that are both struggling to increase production, seeing their costs of production go up and also under pressure to replace their old mines with new mines. This is happening when gold is at record prices which is helping them make a lot of money, but it doesn’t fix their long-term issues.

Economics 101 teaches people that when prices go up, production will as well. That is certainly not happening for gold mining as production has pretty much peaked and is on its way to dropping.

The drop in production is inevitable because most gold miners are having similar issues as Barrick and Newmont. There are shining lights like Agnico Eagle and Alamos Gold that are seeing all their key metrics improving making them standouts when it comes to their peers, but they are few and far between when it comes to gold miners.

To understand more about why gold supply will drop, one needs to drill deeper into the supply chain. There aren’t enough new gold mines in development to help the gold miners maintain production and replace the old mines with new mines. Which is why as mergers and acquisitions are picking up, the buyers are needing to pay premiums.

Due to the lack of new mines in development, the premiums in takeovers will rise. Which makes for an exciting opportunity for investors that have vision that can see the spectacular opportunities in gold mine developers. 

To fix the problem with not enough new gold mine developers, the explorers with important discoveries that can move into the development phases are crucial. But, the explorers have been starved for capital, to do the grassroots exploration that results in important discoveries, for decades.

Evidence of how severe the problem is from the explorers up is found in the inevitable situation of not enough new mines in development. 

So the bottom line is that the perfect storm for gold to go much higher is fully intact. Demand is strong and growing, while the supply chain from top to bottom is broken. These are the key reasons that I made the prediction earlier this year that gold is going to $20k within 10 years. 

The same supply and demand arguments are present for silver, in fact they are even stronger than gold. Silver benefits from being a monetary metal like its big brother gold, and is also seeing strong demand from growth in solar energy that is consuming tremendous amounts of silver crucial for solar panels.

Silver is already in a significant deficit as physical supply from mining is being overwhelmed by demand. There is only so much silverware and other above ground sources that can fill the gap to make all the solar panels. Plus, demand for silver is going up in India, China and other countries as a store of value and hedge against inflation.

What is the most surprising thing about silver despite a remarkable supply and demand story is that there is a huge paper short position. I’ve never seen such a powerful fundamental story to be so highly shorted in the market during my 30-year career in mining. It seems tremendously risky for the shorts and if they are ever squeezed would cause an explosive move to the upside for silver.

Copper also has a fantastic supply and demand story. Demand is growing at a rapid pace because it is the most critical of all the metals. It is needed for everything in the modern world, to make the stuff we use and to make it all work. No electricity and the world goes back into the dark ages.

There is a vast amount of the world’s population that has very low market penetration of everything we have in the Western world. As the emerging world grows, they will consume massive amounts of copper. Even in the Western world, there are serious issues for the power grids that are aging in a way that make it very difficult to provide energy to consumers.

We are seeing the ramifications of the long-term under investment for the power grids in what is happening with Artificial Intelligence. It consumes massive amounts of energy for the data centers to make AI reality. As the data sets get bigger and usage grows, the energy needed will be massive. The big tech companies see the problem and are trying to revive mothballed nuclear power plants. 

The AI revolution is going to take gargantuan amounts of copper. Something that is great about the AI revolution is it is showing everybody how much the power grids need updating. They get extremely stressed when it gets very cold or hot when people crank up their air conditioners and heaters that big cities in America have rolling blackouts. That is a remarkable thing to see happen in this day and age in the biggest economy in the world.

Imagine what would happen if there was widespread adoption of electric vehicles, it would break the power grids in countries throughout the West. 

AI is not the only technology that needs enormous amounts of copper including the internet, cloud computing and other tech that use a vast amount of copper. But the copper supply chain is extremely stressed.

There is a reason that every mining company, including gold miners, wants to have copper mines. They can see all the demand coming, yet the copper supply chain isn’t prepared for the demand.

The copper mines are in a similar situation as the gold mines. The copper miners are depending on old mines and they aren’t replacing them. Plus, there aren’t enough copper projects in development. I would argue that practically every copper development project needs to become a mine to meet the growing demand. 

That won’t happen unless copper prices are dramatically higher. Even then there aren’t nearly enough mines in the pipeline to supply the demand that is right around the corner.

Looking at the copper exploration side of the business, the discoveries have been in dramatic decline for the past couple decades. I’m extremely bullish on copper, but struggle to find a lot of great copper exploration companies. I would love to have more copper picks in the reports, but they just aren’t out there to add.

The bullish arguments for gold are extremely powerful, the same can be said for silver and copper. But the best way to build wealth is in the explorers with important discoveries, high-quality development projects and the best run miners.

The mining industry needs much more grassroots exploration, vastly more explorers with important discoveries, and many more development projects that can help the miners increase their production and replace their old mines with new mines.

I don’t think that investors should buy any old company with gold, silver and copper in their names. I focus on trying to find the best in breed explorers, developers and miners. As should investors, if they are reasonably good at, the gains can be financially life changing.

In Closing

I can clearly see gold, silver and copper going much higher and being in long-term bull markets that will astonish investors.

I also see that explorers, developers and miners are the leveraged way to play these metals as valuations on historical metrics are still very subdued. There is a catalyst coming that will change the fortunes of mining stocks from the explorers to major miners.

The current metals bulls won’t be the catalyst, it will be when the generalist investors start showing some love for gold, silver and copper stocks. The current shareholders can help by hanging onto their shares tightly. 

We are starting to see it in gold as until a few months ago investors in the West were taking money out of the gold ETFs and now they are putting money into them. Certain gold stocks are seeing much improved prices since earlier in the year. The trends are getting more friendly to gold and gold stocks.

It won’t be long before they figure out the bullish scenario for silver and the silver stocks. I also think the same thing will happen for copper stocks as well.

What many investors don’t grasp is how bullish things are going to get for the gold stocks, silver stocks and copper stocks when the generalist investors start finding their way into them. A key reason is because there is only a small menu of high-quality miners, developers and explorers with important discoveries for them to choose from.

This is a recipe for the stocks in gold, silver and copper companies to blast off and head much higher than even ardent metals bulls can imagine.

I’ve seen this movie before. Back before the 2001 to 2011 metals bull market, very few believed it was coming. Same as now. But back then the setup was in a perfect storm and now it is an even better setup. This metals bull market will be more powerful and last much longer.

All the best,

Allan Barry Laboucan