Summary

Tom Brady pointed to the dramatic increase in economic and policy uncertainty this year as key drivers of the gold and silver price. The response to this economic downturn has led to huge fiscal stimulus packages; the IMF estimates that governments around the world implemented packages totalling more than $9 trillion. Many countries government debt is over 90% of GDP which is a level that can curtail economic expansion. However, this has translated to low real-interest rates which is very positive for gold and silver. Going forward, if governments, as seems likely, decide to respond by boosting growth with even more expansive monetary/fiscal policies, this would be a positive backdrop for gold and silver. Though if governments decide to shift policy to austerity, this would clearly be negative for gold and silver. Tom went on to talk about the gold silver price ratio which reached a new high in 2020. Gold historically leads silver most of the time. Silver is more volatile given the smaller market. Tom highlighted Murenbeeld & Co.'s four proprietary indices included in the Gold Monitor - the Mining Finance Window Index, TSX Global Gold Index Valuation Oscillator, Mining Cycle Generalist Involvement Index and Economic Value-Added Margin Indicator. Each index helps generalist investors re-engage with the gold industry. They show valuation, quality, and broad cycles as experienced by gold equity investors. Today the industry setup is very favourable to equity investors. From 1990 until 2009 shareholders rewarded ever increasing assets as growth in ounces was the key metric, so that is what managements delivered. From 2010 onwards growth in ounces has not been blindly rewarded. Instead shareholder focus moved to cash flow, capital allocation and shareholder yield. As of 2020, valuations per ounce are cheap on general 'value' factors. If it is true that ‘low prices eventually cure low prices’, then a definable relationship must exist between three key variables: AISC, Commodity Price, Risk free rate of Return. Murenbeeld & Co. have built a sensitive model for measuring gold oversupply and undersupply.

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