Goldʼs Buy Trigger Just Went Ballistic

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1 Goldʼs Buy Trigger Just Went Ballistic BANYAN HILL

2 Jeff Opdyke s Total Wealth Insider Gold s Buy Trigger Just Went Ballistic BIG forces are at play in the world. Very big forces. Their impacts will ripple in some cases, rip through our economy, our lives, and our pocketbooks here at home. Some hold the promise of forever changing the world we know. A few will surprise Americans with the costs they impose. Most experts will miss this. The media will certainly miss it and won t tell you about how and why the events happened until after they ve happened when it s much too late to be of any use to us as investors. As the stocks and bonds suffer through the inevitable fallout, one asset that will not only survive but thrive will be precious metals. Gold and silver prices will be driven out of their current range and you want to be poised to take advantage of this inevitable move. Gold Is Set to Soar Despite naysayers who wrongly contend that gold is anachronistic in the modern financial age, the metal has always played a leading role in the debasement/re-basement of currencies even our U.S. dollar. (And never forget that every age is the modern age at the time those past de- and re-basements occurred. Nothing is different today except the year.) Go back to FDR for a moment. He confiscated gold and revalued it in 1933 for two reasons. First, he needed to devalue the U.S. dollar amid the economic crisis of the Great Depression and the ensuing currency/ trade wars. Second, the government-dependent welfare state that FDR set out to build demanded that wealth be out of the hands of the people, since wealth keeps people from falling into a welfare mindset. As a result, gold remains the strongest form of wealth that history has ever known. Gold has captivated the imagination of the human race for millennia, spanning cultures, history and geography. From Ancient Rome to Ancient Egypt, to Africa, Asia and Central America, gold has symbolized wealth and prosperity. Wars have been waged and alliances forged because of it. Kings and queens wore it upon their heads as a symbol of their sovereignty. The search for the yellow metal has even toppled civilizations. And its worth is still recognized today in our jewelry, electronics, dentistry and medicine. So it makes sense that investors would single out gold as a great way to profit. It s a safe haven, plain and simple. Gold is a popular investment hedge. But even the biggest gold enthusiasts see the downside involved with buying the actual metal. It has an opportunity cost. No interest or dividends are paid while it just sits there looking pretty. However, there are a number of ways to invest in gold that can produce gains several times over what simple ownership of the metal would. In fact, these methods act as a multiplayer on the price of gold itself, such that relatively small price increases can yield big profits. 1

3 Once gold, which is now significantly undervalued, starts its inevitable climb past the $2,000 an ounce mark, investor who utilize these multiplayers will be positioned for massive gains. Crisis Creates Golden Gains The U.S. dollar was crowned king of the world on July 22, 1944, at the Mount Washington Hotel in Bretton Woods, New Hampshire. The 730 delegates from 44 Allied nations determined that the dollar would represent the global standard in currency and that each dollar would be convertible into gold at $35 per ounce. At that time, U.S. gold holdings amounted to roughly 630 million ounces. The value of all that gold was 75% of the monetary base (the liquid supply of greenbacks floating around the system). So, in effect, we had 75 cents in gold in storage for every $1 in cash. This coverage ratio is what the Allied nations of the world determined to be either the fair price for the U.S. dollar relative to gold, or the fair price for gold relative to the dollar. Whatever the case, the coverage ratio today is just 8%. To be fair, however, the dollar is no longer linked to gold in any fashion, so no one has any reason to pay attention to the ratio at the moment. This inattention to the dollar-gold ratio will change. In the crisis to come, the concept of a coverage ratio will come back into vogue as investors and central bankers look to anchor paper currencies to the only real asset that has a proven, intrinsic and historic value: gold. Applying the Bretton Woods standard to America s current gold holdings (258.6 million ounces) and our monetary base ($3.8 trillion) implies a shadow gold price of $9,860. Maybe 75% isn t the right number; maybe it s 50% giving us gold at $7,350 an ounce. Maybe it s 25%, which means gold at $3,675 per ounce. No matter how you value it, the fact remains that gold is radically mispriced today relative to the size of the monetary base. As a result, there is a very real risk that the quantity of Western debt will overpower governments ability to control it. Fortunately, governments are also unable to ultimately control the beliefs of people, who will not allow their wealth to vanish because of the government s inept fiscal and monetary policies. When Western governments realize that the failed Keynesian model of printing more currency units and taking on more debt is not the answer to fixing the problems of the global financial crisis, gold will take on a life of its own. The rally from the 1999 lows of $250 an ounce to more than $1,900 in 2011 was just the preamble to what s in store. Many investors try to gain exposure to gold by buying shares of mining companies, because they offer the potential for outsized gains. Gold miners normally give investors a leveraged way to invest in precious metals. When gold prices jump, a gold producer tends to see its earnings accelerate at a faster pace than the price of the actual metal. Let s say you own a mine that produces gold at $1,100 an ounce, but gold is trading at $1,200. You re making a profit of $100 an ounce. But let s say the price of gold jumps from $1,200 to $1,500. That s a 25% price increase. For the gold miner, however, profits have jumped from $100 to $400. That s a 300% gain from before. For that reason, stocks of miners have tended to outperform underlying precious metals, while the price of gold rises. In other words, higher prices of precious metals have normally resulted in even higher earnings and higher share prices. The King Among Gold Miners I looked for reasons not to buy Goldcorp (NYSE: GG) not because I have misgivings about the company (I don t), but because I wanted to assume there was a better alternative. There s not. 2

4 Goldcorp is not the cheapest miner in the gold patch, but the company is stronger than peers facing liquidity and operational challenge in the near term. Goldcorp s all-in sustaining costs the real costs to produce gold over the life-cycle of a company s mines are among the lowest in the industry and continue to fall. At the close of the third quarter for 2016, the company produced 715,000 ounces of gold at an all-in sustaining cost of $812 per ounce, down from 2015 s level of $858. It also reconfirmed guidance for gold production of 2.8 and 3.1 million ounces with an all-in sustaining cost of between $850 and $925 per ounce. It will continue to drift lower from there. Goldcorp will have breathing room if gold prices dip, which means greater profits as prices rise. The company has a robust project pipeline as expansions at Peñasquito and Musselwhite commence and the company completed the acquisition of Coffee Project. Existing mine expansions are expected to contribute to gold production growth and lower unit operating costs in The first ounces of gold are expected to come from the Coffee Project is expected at the end of All in all, the company is generating strong free-cash flow, which goes into new projects, debt repayment and dividends. Its balance sheet is among the strongest in the industry. Actions to take: Buy Goldcorp (NYSE: GG). The Royalty Touch The potential for higher returns offered by miners can be outstanding, but it also often comes with a higher risk. The performance of miners depends on several factors, not just on the price of the precious metals they dig out of the ground. You have to consider, for example, the company s balance sheet, management team and mining capability. Rising mining costs, for instance, are one of the biggest risks. In fact, these are the factors that have led to some rather poor performance for miners in recent years. But what if you could get the leverage that miners offer without the risk of rising exploration costs? Well, there s a special niche of the gold market that allows you to do just that. It gives you the opportunity to grab outsized gains while avoiding all the normal risks of mining. I m talking about companies that collect streams of income from owning royalties on the world s preeminent precious-metal mines. These are known as royalty companies. And investing in gold-royalty companies is one of the easiest and safest ways to turn a small investment into incredible wealth over the next few years. The reason? Well, they don t get their hands dirty. They aren t the ones digging the gold out of the ground. Instead, they provide financing to mining companies in exchange for future payments. As long as these drilling or mining operations are producing, the royalties roll in year after year. This is a safer way to invest in gold miners because the company is not exposed to risks such as exploration costs. They have zero exposure to the capital, operating and environmental costs inherent in running a mine. And when gold prices are rising year after year, it s a fantastic business. Another risky variable regarding investing in the gold miners themselves, that you don t have to worry about with royalty companies, is the cost of production, which has gone up dramatically in recent years. For example, back in 2000 the average cost of production for an ounce of gold was around $200 an ounce. In 2013, the average cost to produce an ounce of gold was close to $750. However, royalty companies are not exposed to these rising costs of production. They don t have to spend time or money investing in pricy drilling equipment, land, permitting and licensing fees, labor and all the other costs associated with mining exploration. And that s why these royalty companies buy up royalty stakes in as many of the world s best mining assets as they can. These royalties give them the right to a portion of the mineral resources for the life-time of the mine. 3

5 The best royalty companies make hundreds of small investments to spread out their risk and even out future payments. This is another factor that makes them a safe investment. Since they collect royalties from multiple mines, they provide diversification. So if something goes wrong in one of the mines, it doesn t have a big impact on the royalty company. Because of these advantages, royalty companies have performed much better than gold miners. I expect this outperformance to continue. And with the companies featured below, you ll be investing in the two royalty companies with the greatest potential. Royal Gold Consider Royal Gold (Nasdaq: RGLD). It used to be a penny stock with a market cap of less than $50 million when it entered the markets quietly in Research giants like Merrill Lynch and Goldman Sachs didn t know the company existed. Most mutual funds steered clear of it, too. But after securing a portfolio of rich royalty deals, Royal Gold s shares ascended from a penny stock to more than $60 a share. The company has generated returns of more than 100,000% since No, that s not a typo! Royal Gold is a model royalty and streaming company. Worth $4 billion and collecting royalty and streaming revenues from over 200 properties, the company offers many features you won t find in plain gold or even most miner stocks. The company the majority of its revenue from four projects Mount Milligan, Pueblo Viejo, Andacollo and Wassa and Prestea. The company runs an earnings-before-interest-and-tax margin at 90%, which is one of the highest in the industry. It runs with such efficiency because of its low overhead costs and its ability to run a company with just 21 employees. That allows it to allocate more and more to its shareholders as dividends and to make new strategic agreements. Speaking of dividends, the company generates a 1.47% yield currently, but it has a strong history of increasing them. In fact, the company has increased its dividend for the past 10-plus years. When was the last time gold sent you a check each quarter? On top of paying out a quarterly dividend, the company has increased the amount it pays out by threefold since Even with the strength of increasing dividends, the stock has just a 1.95 times price-to-book ratio; the fiveyear average is 2.5. This means the shares are deeply undervalued. The drop in the price of gold clearly plays into this, but this stock will turn around in quick fashion as the price of gold stops bleeding. Action to take: Buy Royal Gold, Inc. (Nasdaq: RGLD). Buying Physical Gold Can Be Easy Diversifying some of your portfolio with precious metals such as gold or silver may help to protect your wealth against the current market turmoil. One avenue for adding gold, silver, platinum or even palladium to your portfolio is through EverBank s Metals Select accounts. These non-fdic insured accounts allow you to buy specific coins and bars directly. Another option is the more affordable Metals Select Unallocated Account and have your metals pooled with other EverBank clients. Instead of buying particular coins or bars, you buy into a pool of precious metals, which may be in the form of bars, coins or bullion. This helps to cut down on fees while still keeping your precious metals secure in a vault. For the sake of full disclosure, we receive a marketing fee based on our relationship with EverBank. But, honestly, we d work with them regardless. 4

6 Automatic Purchase Plan Adding physical gold or silver to your portfolio doesn t have to be difficult. With the non-fdic insured Metals Select Unallocated Account, you can grow your metals ownership from one month to the next, thus eliminating concern over timing your metals strategy with the market. Plans start at just $100 a month and will be funded through automatic monthly draws from a companion EverBank cash management account. Gold, silver, platinum and palladium are available for the automatic purchase plan and you buy within 1% of the price available to Everbank. What s more, you may later convert to allocated coins or bars (though additional costs apply). It s exhilarating to buy and hold a new gold coin. Not many would argue that. And while many prefer this approach, plenty of others find it just as exhilarating to earn all the same financial rewards but without the storage or annual account fee. For full details on the automatic purchase plan, just click here. Speak with a Metals Expert 5

7 Banyan Hill P.O. Box 8378 Delray Beach, FL USA USA Toll Free Tel.: (866) Website: LEGAL NOTICE: This work is based on what we ve learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It s your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments carry large potential rewards but also large potential risk. Don t trade in these markets with money you can t afford to lose. Banyan Hill Publishing expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers. Such recommendations may be traded, however, by other editors, its affiliated entities, employees, and agents, but only after waiting 24 hours after an internet broadcast or 72 hours after a publication only circulated through the mail. Also, please note that due to our commercial relationship with EverBank, we may receive compensation if you choose to invest in any of their offerings. (c) 2017 Sovereign Offshore Services, LLC. All Rights Reserved. Protected by copyright laws of the United States and treaties. This Newsletter may only be used pursuant to the subscription agreement. Any reproduction, copying, or redistribution, (electronic or otherwise) in whole or in part, is strictly prohibited without the express written permission of Banyan Hill Publishing. P.O. Box 8378, Delray Beach, FL USA. (TEL.: ) 6

Golden Income Streams

A Publication of The Sovereign Society Golden Income Streams The Precious-Metal Industry s Best-Kept Secret By Jeff D. Opdyke, Executive Editor The Sovereign Society 55 N.E. 5th Avenue, Suite 200 Delray