There are always lessons that can be learned from the “smart money”.
Unlike regular investors, billionaire money managers like Ray Dalio and Stan Druckenmiller are professional investors. They have entire institutional teams at their disposal, dive deep into the nuances and complexities of the market, and spend every waking moment of their lives thinking about how to get more from their investments.
They want to make money – but they also want to execute on strategies that will protect their wealth and build robust portfolios that can withstand any type of macro event.
Turning to Gold
In recent months, some of these elite investors have turned to precious metals like gold as a part of their overall investment strategies.
In the following infographic from Sprott Physical Bullion Trusts, we explain why these investors are adding precious metals to their portfolios, the underlying tactics, and the best quotes each investor has on assessing today’s market.
Why are these billionaires buying precious metals?
Their cited reasons can basically be summed up with six categories: wealth preservation, store of value, inflation hedge, portfolio diversification, future upside, and investment fundamentals.
What Billionaire Investors are Doing
1. Lord Jacob Rothschild
In late summer 2016, Rothschild announced changes to the RIT Partners portfolio because he was worried about very low interest rates, negative yields, and quantitative easing, saying they are part of the “greatest monetary experiment in monetary policy in the history of the world”.
His solution? Buy gold to help preserve wealth, and as a store of value for the future.
2. David Einhorn
Einhorn has a similar assessment. He believes that monetary policy is becoming increasingly adventurous, and that this – along with the policies of the Trump administration – will eventually lead to large amounts of inflation.
In February 2017, he shorted sovereigns, and bought gold.
3. Ray Dalio
Ray Dalio is the founder of the world’s top hedge fund, Bridgewater Associates, but he’s also no stranger to gold.
If you don’t own gold, you know neither history nor economics.
– Ray Dalio, Bridgewater Associates
More recently, in 2016, Dalio is quoted as telling investors to own a well-diversified portfolio that is 5-10% gold.
4. Stanley Druckenmiller
Druckenmiller, some people argue, is the best money manager of all time.
Lately, he’s placed his bets on gold as well, but for different reasons than the above managers. Druckenmiller has always placed big trades with lots of conviction, and in February 2017 he put his money in gold because “no country wants its currency to strengthen”.
How to Avoid Common Mistakes With Mining Stocks (Part 4: Project Quality)
Mining is a technical field that manages complex factors from geology to engineering. These details can make or break a project.
Mining is a technical field and requires a comprehension of many complex factors.
This includes everything from the characteristics of an orebody to the actual extraction method envisioned and used—and the devil is often found in these technical details.
Part 4: Evaluating Technical Risks and Project Quality
We’ve partnered with Eclipse Gold Mining on an infographic series to show you how to avoid common mistakes when evaluating and investing in mining exploration stocks.
Here is a basic introduction to some technical and project quality characteristics to consider when looking at your next mining investment.
View the three other parts of this series so far:
- Mistakes made when choosing a team
- Mistakes made with the business plan
- Mistakes with project jurisdiction
Part 4: Technical Risks and Project Quality
So what must investors evaluate when it comes to technical risks and project quality?
Let’s take a look at four different factors.
1. Grade: Reliable Hen Vs. Golden Goose
Once mining starts, studies have to be adapted to reality. A mine needs to have the flexibility and robustness to adjust pre-mine plans to the reality of execution.
A “Golden Goose” will just blunder ahead and result in failure after failure due to lack of flexibility and hoping it will one day produce a golden egg.
Many mining projects can come into operation quickly based on complex and detailed studies of a mineral deposit. However, it requires actual mining to prove these studies.
Some mining projects fail to achieve nameplate tonnes and grade once production begins. However, a team response to varying grades and conditions can still make a mine into a profitable mine or a “Reliable Hen.”
2. Money: Piggy Bank vs. Money Pit
The degree of insight into a mineral deposit and the appropriate density of data to support the understanding is what leads to a piggy bank or money pit.
Making a project decision on poor understanding of the geology and limited information leads to the money pit of just making things work.
Just like compound interest, success across many technical aspects increases revenue exponentially, but it can easily go the other way if not enough data is used to make a decision to put a project into production.
3. Environment: Responsible vs. Reckless
Not all projects are situated in an ideal landscape for mining. There are environmental and social factors to consider. A mining company that takes into account these facts has a higher chance of going into production.
Mineral deposits do not occur in convenient locations and require the disruption of the natural environment. Understanding how a mining project will impact its surroundings goes a long way to see whether the project is viable.
4. Team: Orchestra vs. One-Man Band
Mining is a complex and technical industry that relies on many skilled professionals with clear leadership, not just one person doing all the work.
Geologists, accountants, laborers, engineers, and investor relations officers are just some of the roles that a CEO or management team needs to deliver a profitable mine. A good leader will be the conductor of the varying technical teams allowing each to play their best at the right time.
Mining 101: Mining Valuation and Methods
In order to further consider a mining project’s quality, it is important to understand how the company is valued and how it plans to mine a mineral resource.
There are two ways to look at the value of a mining project:
- The Discounted Cash Flow method estimates the present value of the cash that will come from a mining project over its life.
- In-situ Resource Value is a metric that values all the metal in the ground to give an estimate of the dollar value of those resources.
The location of the ore deposit and the quantity of its grade will determine what mining method a company will choose to extract the valuable ore.
- Open-pit mining removes valuable ore that is relatively near the surface of the Earth’s crust using power trucks and shovels to move large volumes of rock. Typically, it is a lower cost mining method, meaning lower grades of ore are economic to mine.
- Underground mining occurs when the ore body is too deep to mine profitably by open-pit. In other words, the quality of the orebody is high enough to cover the costs of complex engineering underneath the Earth’s crust.
When Technicals and Quality Align
This is a brief overview of where to begin a technical look at a mining project, but typically helps to form some questions for the average investor to consider.
Everything from the characteristics of an orebody to the actual extraction method will determine whether a project can deliver a healthy return to the investor.
Comparing Recent U.S. Presidents: New Debt Added vs. Precious Metals Production
While gold and silver coin production during U.S. presidencies has declined, public debt continues to climb to historically high levels.
Recent U.S. Presidents: Debt vs. Coins Added
While precious metals can’t be produced out of thin air, U.S. debt can be financed through central bank money creation. In fact, U.S. debt has skyrocketed in recent years under both Democrat and Republican administrations.
This infographic from Texas Precious Metals compares the increase in public debt to the value of gold and silver coin production during U.S. presidencies.
Total Production by Presidential Term
We used U.S. public debt in our calculations, a measure of debt owed to third parties such as foreign governments, corporations, and individuals, while excluding intragovernmental holdings. To derive the value of U.S. minted gold and silver coins, we multiplied new ounces produced by the average closing price of gold or silver in each respective year.
Here’s how debt growth stacks up against gold and silver coin production during recent U.S. presidencies:
|Obama's 1st term (2009-2012)||Obama's Second Term (2013-2016)||Trump's term (2017-Oct 26 2020)|
|U.S. Silver Coins Minted||$3.7B||$3.3B||$1.4B|
|U.S. Gold Coins Minted||$6.7B||$5.1B||$2.9B|
|U.S. Public Debt Added||$5.2T||$2.9T||$6.6T|
Over each consecutive term, gold and silver coin production decreased. In Trump’s term so far, the value of public debt added to the system is almost 1,600 times higher than minted gold and silver coins combined.
During Obama’s first term and Trump’s term, debt saw a marked increase as the administrations provided fiscal stimulus in response to the global financial crisis and the COVID-19 pandemic. As we begin to recover from COVID-19, what might debt growth look like going forward?
U.S. Public Debt Projections
As of September 30, 2020, the end of the federal government’s fiscal year, debt had reached $21 trillion. According to estimates from the Congressional Budget Office, it’s projected to rise steadily in the future.
|U.S. Public Debt||21.9T||23.3T||24.5T||25.7T||26.8T||27.9T||29.0T||30.4T||31.8T||33.5T|
By 2030, debt will have risen by over $12 trillion from 2020 levels and the debt-to-GDP ratio will be almost 109%.
It’s worth noting that debt will likely grow substantially regardless of who is elected in the 2020 U.S. election. Central estimates by the Committee for a Responsible Federal Budget show debt rising by $5 trillion under Trump and $5.6 trillion under Biden through 2030. These estimates exclude any COVID-19 relief policies.
What Could This Mean for Investors?
As the U.S. Federal Reserve creates more money to finance rising government debt, inflation could eventually be pushed higher. This could affect the value of the U.S. dollar.
On the flip side, gold and silver have a limited supply and coin production has decreased over the last three presidential terms. Both can act as an inflation hedge, while playing a role in wealth preservation.
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