It's Time to Pile Back Into Gold Stocks (Charts)
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It’s Time to Pile Back Into Gold Stocks [Charts]

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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.
Bloomberg Commodities Index vs. S&P 500

2. The bear market in the TSX Venture now stands at 1,090+ days.
TSX Venture Bear Market
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.
HUI to gold price chart
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.
Gold bear markets
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.
S&P 500 to Gold/Silver market ratio
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.

Chart credit to: Palisade Research and The Daily Gold

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Energy

Visualizing U.S. Consumption of Fuel and Materials per Capita

Wealthy countries consume large amounts of natural resources per capita, and the U.S. is no exception. See how much is used per person.

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Visualizing U.S. Consumption of Fuel and Materials per Capita

This was originally posted on Elements. Sign up to the free mailing list to get beautiful visualizations on natural resource megatrends in your email every week.

Wealthy countries consume massive amounts of natural resources per capita, and the United States is no exception.

According to data from the National Mining Association, each American needs more than 39,000 pounds (17,700 kg) of minerals and fossil fuels annually to maintain their standard of living.

Materials We Need to Build

Every building around us and every sidewalk we walk on is made of sand, steel, and cement.

As a result, these materials lead consumption per capita in the United States. On average, each person in America drives the demand of over 10,000 lbs of stone and around 7,000 lbs of sand and gravel per year.

Material/Fossil FuelPounds Per Person
Stone10,643
Natural Gas9,456
Sand, Gravel7,088
Petroleum Products 6,527
Coal 3,290
Cement724
Other Nonmetals569
Salt359
Iron Ore239
Phosphate Rock 166
Sulfur66
Potash49
Soda Ash36
Bauxite (Aluminum)24
Other Metals 21
Copper13
Lead11
Zinc6
Manganese4
Total 39,291

The construction industry is a major contributor to the U.S. economy.

Crushed stone, sand, gravel, and other construction aggregates represent half of the industrial minerals produced in the country, resulting in $29 billion in revenue per year.

Also on the list are crucial hard metals such as copper, aluminum, iron ore, and of course many rarer metals used in smaller quantities each year. These rarer metals can make a big economic difference even when their uses are more concentrated and isolated—for example, palladium (primarily used in catalytic converters) costs $54 million per tonne.

Fuels Powering our Lives

Despite ongoing efforts to fight climate change and reduce carbon emissions, each person in the U.S. uses over 19,000 lbs of fossil fuels per year.

U.S. primary energy consumption by energy source, 2021

Gasoline is the most consumed petroleum product in the United States.

In 2021, finished motor gasoline consumption averaged about 369 million gallons per day, equal to about 44% of total U.S. petroleum use. Distillate fuel oil (20%), hydrocarbon gas liquids (17%), and jet fuel (7%) were the next most important uses.

Reliance on Other Countries

Over the past three decades, the United States has become reliant on foreign sources to meet domestic demand for minerals and fossil fuels. Today, the country is 100% import-reliant for 17 mineral commodities and at least 50% for 30 others.

In order to reduce the dependency on other countries, namely China, the Biden administration has been working to diversify supply chains in critical minerals. This includes strengthening alliances with other countries such as Australia, India, and Japan.

However, questions still remain about how soon these policies can make an impact, and the degree to which they can ultimately help localize and diversify supply chains.

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