Gold Bugs: Get Bullish

The past several months have been tough for advocates of gold and silver.

However, as the Iran conflict appears to be winding down (fingers crossed), the most challenging period seems to be over. There is a strong possibility that gold, silver, and mining stocks have reached their lows and are poised for considerable gains in the coming year.

The largest gold mining ETF (GDX) reached its peak precisely when the Iran conflict erupted in late February.

This timing was more than coincidental.

Since then, mining stocks have steadily declined.

Source: Google Finance, with my notation

The war dealt a twofold blow to the precious metals sector.

Rising oil prices pushed costs higher for mining companies, as metal extraction depends heavily on diesel fuel.

This marked the first challenge.

Then, a second issue arose. Certain Middle Eastern nations had to liquidate portions of their gold reserves after losing their main income from oil and gas. In some instances, these countries went from earning billions per day to zero.

Even some countries with limited oil revenue, such as Turkey, were compelled to sell gold to manage escalating expenses and support their fiat currencies.

In this scenario, gold played a vital role in shielding nations from economic collapse. This is precisely why both countries and individuals should maintain holdings in precious metals.

Miner Margins

Gold prices dropped from nearly $5,500 per ounce to about $4,330 today. Silver was near $90 when the conflict began and currently trades around $70 per ounce.

This alone hit precious metals investors hard, but many also hold mining shares.

Gold miners who once earned profits close to $3,300 per ounce at a $5,000 gold price are now making around $2,100 per ounce.

Although still profitable, higher fuel expenses and lower metal prices have cut margins.

So, those of us heavily invested in miners and metals (including myself) faced losses. Despite this, gold has appreciated by $2,000 an ounce over the past two years—still a solid gain.

Within the past 12 months, the GDX gold miner ETF has gained 56%, although it previously surged beyond 100%.

Buying Opportunity

If the conflict with Iran truly comes to an end, miners and precious metals are likely to experience a strong recovery from this point forward.

The global debt crisis continues to grow. Interest expenses on worldwide debt remain high, and inflation is still a significant concern.

I continue to hold my mining and metal assets. Today, by 2:10 pm ET, the GDX gold miner ETF increased 6%, while the SILJ silver miner ETF climbed 6.46%.

Gold rose 2.5%, and silver gained roughly 3%. A promising day, and if the war is genuinely over, I anticipate much higher prices ahead.

Is the Deal Real?

A formal agreement with Iran is set for signing on June 19th in Switzerland.

It seems likely it will proceed, suggesting the active combat phase may be ending.

However, two major uncertainties remain: whether Israel can be persuaded to cease hostilities in Lebanon and the outcome of the forthcoming nuclear discussions.

Still, it appears we are heading toward some kind of resolution, even if temporary.

Hopefully, the Strait of Hormuz will reopen soon and remain accessible. Oil supplies and fertilizer inventories have reached critically low levels, but reopening the strait could prevent severe economic fallout.

Regular readers are familiar with my strategy—I plan to maintain my holdings in miners and precious metals for at least another 3 to 5 years.

Bull markets in precious metals often last around a decade, and this current rally commenced only in 2022.

Considering today’s massive debt challenges (with U.S. debt-to-GDP at 120% versus 35% in the 1970s), this bull run might even exceed the length of the 1970s cycle.

I believe what we just went through was a brief pause within the precious metals bull market.

Markets never ascend without interruptions, and a sizable correction was inevitable. Now that it appears behind us, the path forward looks promising.

The only event capable of disrupting this would be a major escalation in the Middle East. At this stage, though, I suspect both the U.S. and Iran are weary of conflict.

It seems both parties compromised sooner than I expected, which I’m very glad to have misjudged.

Now presents a great chance to start or increase investments in gold, silver, and mining stocks. We’re buying at attractive prices, and given the global landscape, every portfolio should hold a healthy allocation of precious metals.