The blessing and curse of being a contrarian is this: an inevitable outcome is recognized well before it comes to fruition. Even though profitable opportunities may be identified well in advance, it can take so long for hallmark events such as capitulation to happen, that it gives ample time to second guess one’s convictions.
We’ve believed, even before the correction that has recently hit U.S. markets, that the bear market for gold was long in the tooth. With asset bubbles all over the place, it has seemed for awhile that gold and silver were the only assets that were reasonably priced. Then yesterday, our friends at Palisade Capital sent us over five charts on why they believe that gold stocks are the most undervalued that they have been in decades.
We tend to agree with that sentiment, which is why in last week’s chart of the week we predicted that gold had already bottomed and that it had nowhere to go but up. (We further predicted that other commodities such as base metals would continue to get routed for the time being, and that U.S. equities would not return to the same levels for awhile.)
In any case, here are the charts:
1. The divergence between the S&P 500 and Bloomberg Commodity Index is at an all-time high.
2. The bear market in the TSX Venture now stands at 1,090+ days.
The TSX Venture, the Canadian home to the majority of the world’s junior mining stocks, is still plagued with plenty of zombie stocks that amount to billions of dollars of negative working capital. The exchange and regulators have also been readily criticized for recent changes that limit access to capital from retail investors. However, in spite of all of this, there are truly some great projects and assets lying in some of the companies that have survived the onslaught. As you’ll see in the next chart, these companies have never been more undervalued.
3. Gold stocks have never been this cheap relative to the price of gold.
The Gold BUGS Index (HUI), which tracks the world’s largest gold miners, was last this low when gold was only $250/oz.
4. The gold bear market is closing in on being the longest in BGMI history.
Using the Barron’s Gold Mining Index (BGMI), this is already the worst bear market for gold miners. However, in just a couple of months, it will also surpass the 1996-2000 bear market as the longest.
5. The ratio between the gold/silver sector to the S&P 500 is unprecedented.
When pricing the S&P 500 in terms of the Gold/Silver Sector Index (XAU), it has never been this expensive. Put another way: gold and silver has never been this cheap.
All the World’s Metals and Minerals in One Visualization
This massive infographic reveals the dramatic scale of 2019 non-fuel mineral global production.
All the World’s Metals and Minerals in One Visualization
We live in a material world, in that we rely on materials to make our lives better. Without even realizing it, humans consume enormous amounts of metals and minerals with every convenient food package, impressive building, and technological innovation.
Every year, the United States Geological Service (USGS) publishes commodity summaries outlining global mining statistics for over 90 individual minerals and materials. Today’s infographic visualizes the data to reveal the dramatic scale of 2019 non-fuel mineral production.
Read all the way to the bottom; the data will surprise you.
Non-Fuel Minerals: USGS Methodology
A wide variety of minerals can be classified as “non-fuel”, including precious metals, base metals, industrial minerals, and materials used for construction.
Non-fuel minerals are those not used for fuel, such as oil, natural gas and coal. Once non-fuel minerals are used up, there is no replacing them. However, many can be recycled continuously.
The USGS tracked both refinery and mine production of these various minerals. This means that some minerals are the essential ingredients for others on the list. For example, iron ore is critical for steel production, and bauxite ore gets refined into aluminum.
Top 10 Minerals and Metals by Production
Sand and gravel are at the top of the list of non-fuel mineral production.
As these materials are the basic components for the manufacturing of concrete, roads, and buildings, it’s not surprising they take the lead.
|Rank||Metal/Mineral||2019 Production (millions of metric tons)|
|#1||Sand and Gravel||50,000|
|#3||Iron and Steel||3,200|
These materials fertilize the food we eat, and they also form the structures we live in and the roads we drive on. They are the bones of the global economy.
Let’s dive into some more specific categories covered on the infographic.
While cement, sand, and gravel may be the bones of global infrastructure, base metals are its lifeblood. Their consumption is an important indicator of the overall health of an economy.
Base metals are non-ferrous, meaning they contain no iron. They are often more abundant in nature and sometimes easier to mine, so their prices are generally lower than precious metals.
|Rank||Base Metal||2019 Production (millions of metric tons)|
Base metals are also the critical materials that will help to deliver a green and renewable future. The electrification of everything will require vast amounts of base metals to make everything from batteries to solar cells work.
Gold and precious metals grab the headlines because of their rarity — and their production shows just how rare they are.
|Rank||Precious Metal||2019 Production (metric tons)|
While metals form the structure and veins of the global economy, ultimately it is humans and animals that make the flesh of the world, driving consumption patterns.
A Material World: A Perspective on Scale
The global economy’s appetite for materials has quadrupled since 1970, faster than the population, which only doubled. On average, each human uses more than 13 metric tons of materials per year.
In 2017, it’s estimated that humans consumed 100.6B metric tons of material in total. Half of the total comprises sand, clay, gravel, and cement used for building, along with the other minerals mined to produce fertilizer. Coal, oil, and gas make up 15% of the total, while metal makes up 10%. The final quarter are plants and trees used for food and fuel.
Silver Series: Perfect Storm for Silver (Part 2 of 3)
In the second part of the Silver Series, we show that the supply and demand fundamentals are potentially shaping up for a perfect storm in silver prices.
The Silver Series: A Perfect Storm for Silver (Part 2 of 3)
In Part 1 of the Silver Series we showed how precious metals can be a safe haven during times of volatility in a debt-laden era.
Today’s infographic is Part Two of the Silver Series, and it comes to us from Endeavour Silver, outlining some of the key supply and demand indicators that precede a coming gold-silver cycle in which the price of silver could move upwards.
Silver is produced primarily as a by-product in the mining of non-precious metals, and there is currently a dwindling supply of silver as a result of low base metal prices.
However, silver is more than just a precious metal and a safe haven investment. Its industrial uses also create a significant demand on silver stocks.
As the production of green technologies such as solar cells and EVs quickly escalates, upward pressure is being placed on the price of silver, indicating the potential start of a new gold-silver cycle in the market.
Just like gold, silver has functioned as a form of money for centuries, and its role as a store of value and hedge against monetary inflation endures.
Currency debasement is not new. Governments throughout history have “printed” money while silver’s value has held more constant over time.
In today’s age, the average investor does not own physical silver. Rather, they invest in financial instruments that track the performance of the physical commodity itself, such as silver exchange-traded funds (ETFs).
Until recently, ETF investment in precious metals has been relatively flat, but there has been a surge in the price of silver. Meanwhile, demand for silver-backed financial products have increased the demand for physical silver and could continue to do so.
Silver is also helping to power the green revolution.
The precious metal is the best natural conductor of electricity and heat, and it plays an important role in the production of solar-powered energy. A silver paste is used in photovoltaic solar cells which collects electrons and creates electricity. Silver then helps conduct the electricity out of the cell. Without silver, solar cells would not be as efficient.
As investments and the green revolution demand more and more silver, where is the metal coming from?
A Perfect Storm for Silver: Supply Crunch
The bulk of silver production comes as a by-product of other metal mines, such as zinc, copper, or gold mines.
Since silver is not the primary metal emerging from some of these mines, it faces supply crunches when other metal prices are low.
Silver supply is falling for three reasons:
- Declining mine production due to low base metal prices
- Declining silver mine capacity
- Declining reserves of silver
The demand for silver is rising and the few companies that produce silver could shine.
Don’t miss another part of the Silver Series by connecting with Visual Capitalist.
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