Good Morning!

Gold and Silver stocks are correcting, as anticipated and that is a good thing.

It's another opportunity for newcomers to buy quality at a reasonable price. 

Even though GDX & GDXJ have doubled from their 2022 lows, most investors remain disgusted with gold stocks. 

Today I explain the 3 structural reasons why they have underperformed. 

#2 Reason Gold Stocks Have Underperformed

Precious metals were in a secular bear market from 2011 to October 2023 or until Gold's breakout in March 2024. 

Gold was roughly flat for almost 13 years. Think of all the cost inflation during that time. Silver was down almost 65% from the peak to October 2022. 

Think of how silver companies had to move into Gold to survive. A secular bear market means lower valuations, which is part of the 2nd reason. 

The miners & juniors vs. Gold made a secondary peak in 2011, albeit a lower high but trended down for the majority of the period, ex 2016 & 2018-2020.

#1 Reason Gold Stocks Have Underperformed

The large gold stocks peaked against Gold in 2004 & 2006 while GDXJ peaked in 2007. 

(GDXJ data was obtained from MVIS website and I attached personal data pre 2004).

Here is the #1 reason.

The introduction of the GLD ETF in November 2004 and the other ETFs that followed, created competition and diluted the buying power in the sector.  

Before late 2004, there was no easy way to buy Gold. One had to go to a futures broker and buy futures contracts. 

And before 2004 the best and only way to get Gold exposure was to buy the gold stocks! 

The introduction of Gold & Silver ETFs essentially diluted the buying of gold stocks by providing major competition.

Lower Valuations in 1990s vs. 2010s

The secular bear market caused lower valuations in gold stocks. That's natural. 

But the bear market valuations of 2011-2023 were lower than valuations during the 1980s and 1990s. And this is because there were no Gold and Silver ETFs that provided competition for investor capital. 

This chart made the rounds last year. Even in the late 1990s (1996-2000 was brutal bear market for miners), P to NAV valuation was significantly higher than in the last 12 years.

Even using Price to Cash Flow, the valuation tended to be higher in the 1990s vs. 2010s. 

Its not as stark as the P to NAV metric. 

But from 1990-2000, the P to CF spent all but very end of decade from 10x to 17x while last 13 years has averaged around 9x CF.

New Sponsor Companies

Calibre Mining (CXB.to, CXBMF) is a well run junior producer that is about to reach mid-tier producer status as its Valentine Mine in Canada begins producing over the months ahead.

The company produced 242K oz Au in 2024 and should come close to producing 500K oz Au in 2026, with potential to reach 550K oz Au in 2027.

GoGold Resources (GGD.to, GLGDF) is currently a small Silver producer with a pipeline of two development projects. Its CEO Brad Langille owns a large position in the company and has a very strong track record.

The company is attractively priced and in position to produce 9M oz Silver-equivalent/year in a few years, with another development project that could take it to 16-17M oz Silver-equivalent. 

For more analysis of these company and many more companies, consider TheDailyGold Premium.

#3 Reason Gold Stocks Have Underperformed

Finally, here is the 3rd reason why gold stocks have underperformed. 

The stock market remains in a secular bull market, thereby restricting capital flows into precious metals. 

Some capital is flowing into PMs, but its mostly going to Gold ETFs. No capital for marginal juniors & exploration companies. 

The signal for when that changes in favor of PMs, is Gold breaking out against the S&P 500 (and 60/40 Portfolio).

Where Do These 3 Factors Stand Today?

To conclude, we have 3 structural factors. 

1) Introduction of Gold & Silver ETFs in mid 2000s 

2) Secular Bear Market 2011-2023 

3) S&P 500 Remains in Secular Bull 

#1 is permanent forever 

#2 has ended 

#3 is ongoing but nearing its end

In TheDailyGold Premium....

TDG #923 included a report on one of our favorite silver stocks.

Their story and value proposition is getting better. It's a must own for investors. 

We have been cautious on the sector, advising hold on all positions for the past few weeks. 

The objective is to buy high-quality positions with big upside potential at reasonable prices. 

Wait for the sector to get oversold and wait for these stocks to trade down to attractive entry points. 

Thank you for reading.

I wish you all the best in 2025 and beyond.