Why It’s the Perfect Environment to Invest in Gold Miners

PRIEST LAKE, IDAHO – A rising gold price…

…combined with a strong dollar…

…combined with a falling oil price…

…is the perfect macro environment for a gold mining business.

The oil price represents about 25% of the cost of gold mining. Then, if the mine is outside the U.S., it’ll also benefit if the local currency gets cheaper relative to the dollar – just like American tourists benefit when currencies in places like Mexico or Thailand get cheaper.

(More below.)

Last Leg of Our Great American Road Trip

Another day… another campsite…

Greetings from Priest Lake, Idaho…

My family and I are just finishing up an epic camping trip around America. We started in Florida. We’re now in the Idaho Panhandle, about 50 miles from the Canadian border.

We’ve been on the road for over four months so far and rarely stayed in the same place for more than a night or two. We’ve covered a lot of backroad… and slept in a lot of different places…

This weekend, we camped in a beautiful trailer park/campground on the shores of Lake Pend Oreille, near Sandpoint, Idaho. We had electricity, water, internet, a clean bathroom, a hot shower, and a nice community hall we could use to do our “homework.”

It’s been a slow season in these parts due to COVID and the closure of the U.S./Canadian border (much of this trailer park’s business comes from Canada). Besides, winter is coming, so the trailer park will close for the season in two weeks anyway. So things were pretty quiet. Just the way we like it.

Yesterday, we drove about 50 miles north and now we’re camping next to Priest Lake. Our hosts are Peter and Donna and they’re putting us up in a garage, next to their snowmobile. It’s awesome – one of the best places we’ve camped in yet!

We’ll sleep here a couple of nights and then we’ll hit the road again. Here’s our camper… and further down, there’s us playing by the shore of the lake…

Optimism Isn’t Priced Into Gold Stocks Yet

Going back to gold miners, let’s say a NYSE-traded gold stock like Newmont Mining has all-in mining costs of $800 an ounce.

(All-in cost includes everything… the power, the equipment, the land, the labor, the marketing, the capital, etc.)

And let’s say these costs are falling – or at least, not rising.

If gold is at $1,800 an ounce, Newmont is making a profit margin of $1,000 an ounce. If gold rises to $2,800 an ounce, Newmont will make a profit margin of $2,000 an ounce.

Because mining costs are fixed, all the increase in the price of gold drops straight to the bottom line. So you can see there’s tremendous leverage in the gold mining businesses.

Gold stocks have risen recently, but their values in no way reflect a potential big bull market in gold. They only reflect the recent rise in the gold price.

For example, I saw a chart of the Barron’s Gold Mining Index, which dates back to 1938. It was the lowest it has ever been relative to the price of gold.

In other words, there’s no optimism priced into gold mining shares. Yet, the signs are everywhere that a tidal wave of capital is about to come smashing into the gold market.

Unlimited Debt Is Good for Gold

Zero or negative interest rates are a big part of this.

When interest rates are zero percent, you can keep adding debt and refinancing existing debt and you never have to pay it back. Debt just grows and grows.

As we reported on Friday, the Bank of England looks like it’s about to become the fifth major central bank to take interest rates negative.

(Never in the history of humanity have we seen anything like this. We’ve been calling it the greatest financial experiment in history.)

The U.S. federal government is heading the same way.

The Treasury just keeps building and building debt because it pays no cost to service the debt… And now that the Federal Reserve and its money-printer have become the buyer of last resort, there’s no limit to how much debt the Treasury can issue.

Tidal Wave of Capital Coming to the Gold Markets

This experiment can – and probably will – last a lot longer than anyone expects. They’ll keep interest rates at zero for years, the government will run bigger and bigger deficits, piling up trillions more in debt, and the Fed’s balance sheet will swell.

It’s going to end badly. My view is, they will repay the debt in full someday, except with watered-down dollars. We’ve been calling this a “soft default.”

People will begin to ask themselves, “Why are we saving our money in government bonds that yield zero or even negative, and have infinite supply… when we can buy gold, receive the same yield, except with highly limited supply?”

Once this narrative takes hold, it’s going to spread like a wildfire, gather weight like a snowball, and leave the credit markets and seek gold.

The longer this experiment goes on, the higher the gold price will go. And for the first time in 50 years, gold will have its moment in the spotlight.

How high could gold go?

I use the Dow-to-Gold ratio to project the future gold price. My initial target for the Dow-to-Gold ratio is 5. With the Dow at 27,000, that puts gold at $5,400 an ounce.

(I’m assuming the stock market won’t crash too far. The feds have said they’ll do “whatever it takes” to prop up the stock market and economy, so notwithstanding the usual ups and downs, I think this is a pretty safe assumption.)

If the Dow-to-Gold ratio falls to 2 or even 1, gold will end up far north of $10,000.

Important Signposts

I read this weekend that the combined balance sheet of the Federal Reserve, the Bank of Japan, and the European Central Bank just hit $21.3 trillion, equal to the GDP of the United States.

Here’s another important signpost I noticed over the weekend: FANGMAN stocks (Facebook, Apple, Netflix, Google, Microsoft, Amazon, and Nvidia) had lost $1.4 trillion in market capitalization since September 1. That does not include the declines this morning.

If we include this morning’s declines, Apple has lost 23%… Netflix is down 18%… Nvidia, Amazon, and Facebook are each down 17%… Google is down 16%… and Microsoft is down 14%.

Could the next leg down in the Dow-to-Gold ratio be upon us? We’ll see…

– Tom Dyson

P.S. I just recorded an urgent video about the economic mess America got itself into, what’s next, and the single best thing you can do about it today to preserve and grow your wealth. Don’t wait until it’s too late. Watch it here…

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Tom and his family have spent significant time in the West during their Great American Road Trip. Today, readers share more historical and nature recommendations…

Reader comment: Love following your adventures! First of all, we live in Bozeman and would love to treat your family to a home-cooked meal sometime this week if it works for your schedule. I did some homeschooling with my kids and might have some fun books to share as well.

Secondly, I highly recommend that you work in a visit to Wisdom, Montana, if at all possible. It’s a wonderful little town, classic Montana (not Bozeman!). There’s a great little campground right around the corner from Main Street (great restaurant, wonderful coffee shop, etc). About 15 minutes away is the Big Hole Battlefield where the Nez Perce were camped on their way to Canada when they were attacked by U.S. soldiers.

There is a very nice, small museum that overlooks the battlefield and gives a detailed history of what happened. Then, down at the actual battlefield, there are teepee “skeletons” set up in the approximate original locations along the river, and there is a walking trail through them. It is a sacred cemetery for the Nez Perce and is full of history and philosophical discussions for the rest of us.

Quite moving, and one of the most beautiful, largely untouched areas of Montana. I hope you enjoy your time here, whether we get to meet up or not 🙂

Tom’s response: I’m sorry I’m only seeing your message now. We would have loved to have been treated to a home-cooked meal! Wisdom, Montana sounds awesome. We’ll try to get there on our way back south after we’ve been turned around at the Canadian border.

Reader comment: Plan on spending a week dropping over to the California/Oregon border along the coast to see the Redwoods. There are two parks there that you would love, and because they are so far north of the big cities of California, they are not as populated. One has a well secluded but TALLEST redwood on Earth – the Uperian Tree. You will need another map from me to find it, for the rangers there at the park do not advertise it (that is, just if you want to explore that one tree). The park is still there and beautiful, and there are nice hikes you can take there. I worked near San Francisco, doing work as a certified arborist for a power company there two years ago, where we were on hold for four days. So another man and I drove up there to hike to that tree – 380 feet tall !!

Anyhow, it is near Orick, California, and there is a Forest Service station there to use restrooms and buy souvenirs (on the ocean coast). The park is about 3-4 miles (I think) up into the forest from there, and the rangers can guide you. I would wait maybe till they get a rain in that area since there are so many fires now in California, just to be safe. After a few days there, you could go north to Jedediah Smith State Park, which is also very beautiful, holding giant Redwoods, right on the ocean and near the Oregon border.

I’ve been there too, and be sure to stay overnight there so you can see the beautiful fog and mist in the giant Redwoods in the morning. It will remind you – as it did me – what it must have been like for Adam and Eve in the Garden of Eden.

Tom’s response: Wow… what a great recommendation! We’d love to go on that adventure to find the world’s tallest Redwood tree. Unfortunately, we’re not planning to head any further west from Idaho… so this adventure may have to wait for another year.

While one reader wonders how the Dyson family manages health insurance… and others wish Tom well in caring for his mother…

Reader question: I have greatly enjoyed reading your Postcards, Tom. You have explained your new lifestyle very well. One aspect you have not mentioned is health insurance. I assume you must have a policy of some sort. I’d appreciate it if you could address this at some point.

Tom’s response: We do not have health insurance. When we were traveling around the world, we just paid for our healthcare out of pocket in cash. But here in America, we were afraid to travel without insurance, so we bought a Christian sharing thing. It’s far cheaper. But it’ll only be of use to us if something catastrophic happens. Otherwise, we’ll just pay out of pocket in cash.

Reader comment: Dear Tom, I may be putting my nose where it doesn’t belong, but… Please reconsider NOT waiting until the spring to help your folks. When my Mom had a devastating stroke three years ago, we raced from Florida to New Jersey to help. The extent of my Dad’s dementia was much worse than we could have expected. We have been caring for them since back here in St. Augustine.

I know everyone’s situation is different, but most parents protect their kids from the details and many parents don’t realize how badly off they are. We had one last good Christmas with all the grandkids while both parents were still sort of “with it.” Whatever your decision, I wish you all safe travels and look forward to your Postcards.

Tom’s response: I agree with everything you said, particularly the part about parents protecting their kids from the truth and underestimating the full extent of their issues. I suspect we’re going to get a surprise when we next see my mother.

Reader comment: Hello Tom: I just read my first postcard from you. I love that you’re traveling around the country with your wife and two kids! Having done that ourselves several years ago, without kids, I am becoming nostalgic for that wonderful adventure. It’s amazing how exquisite this country is, and it’s sad that few people have really seen much of their country.

I’m really sorry to hear that your Mom’s condition has become so critical. I hope you are going to be able to join her for a while and help her. She sounds like a great lady. Intuitively, I feel that you have probably offered several times to help her and she has preferred to be on her own. I’m sure you will find a way to be there for her in person. If you have not discovered yet online, there are several holistic remedies for Parkinson’s that you may want to share with your Mom. I will say prayers for you, your family, and your Mom in particular. Love, light, and music.

Tom’s note: Thank you for your kind messages! We read every one you send us. Please keep writing us at [email protected].