Why commodities? An example - Gold mining stocks
The opportunity is incredibly simple. It's all about profiting from a tangible asset that's been around for thousands of years. Gold is recognised as being valuable anywhere in the world. We're not talking about pieces of paper or digital stuff.
Let me show you why it's so compelling.....
Firstly, take a look at the chart below that sets out the All-In Sustainable Cost ("AISC") for gold mining companies. Clearly this is an average, but if we were to assume an AISC of US$1,000 per ounce - I don't think that's unreasonable.
If we assume a gold price of US$1,500 per ounce, that's a profit to our mining company of US$500 per ounce.
Let's say the gold price moves up 20% to $1,800 per ounce. Although costs are likely to rise, they are unlikely to rise by the same amount. Let's say the AISC move up 10% to US$1,100 per ounce. This would provide a notional profit of $700. An increase of 40%.
In this example, a 20% increase in the gold price has delivered a 40% increase in profitability.
In today's market many producers are already generating a lot of cash. Not only that, but some have dividend policies whereby they distribute a good chunk of this to their shareholders. Providing a very nice income stream.
Following the Coronavirus, dividends are becoming increasingly difficult to find. But many gold miners are still paying theirs.
The opportunity is incredibly simple. It's all about profiting from a tangible asset that's been around for thousands of years. Gold is recognised as being valuable anywhere in the world. We're not talking about pieces of paper or digital stuff.
Let me show you why it's so compelling.....
Firstly, take a look at the chart below that sets out the All-In Sustainable Cost ("AISC") for gold mining companies. Clearly this is an average, but if we were to assume an AISC of US$1,000 per ounce - I don't think that's unreasonable.
If we assume a gold price of US$1,500 per ounce, that's a profit to our mining company of US$500 per ounce.
Let's say the gold price moves up 20% to $1,800 per ounce. Although costs are likely to rise, they are unlikely to rise by the same amount. Let's say the AISC move up 10% to US$1,100 per ounce. This would provide a notional profit of $700. An increase of 40%.
In this example, a 20% increase in the gold price has delivered a 40% increase in profitability.
In today's market many producers are already generating a lot of cash. Not only that, but some have dividend policies whereby they distribute a good chunk of this to their shareholders. Providing a very nice income stream.
Following the Coronavirus, dividends are becoming increasingly difficult to find. But many gold miners are still paying theirs.
Source: World Gold Council (Metals Focus Gold Mine Cost Service)
Here's the gold price over the same period.
Source: World Gold Council