Quarterpoint Special Report
Historic Opportunity in a Timeless Asset
August 27, 2015
Observations
— Over the years money changed from weights of metal to “names”
— Gold is a far safer store of value than cash in the long term
— Gold currently trades at a 5-year low in dollar terms
— Gold mining companies now trade at historic lows
Which is worth more, a “name” or a weight? When it comes to money, a weight is
far more valuable! In 1930, approximately 1/20 of a troy gold ounce bought one
dollar. Today, the same gold quantity buys 55 dollars. In reverse, one dollar in
1930 bought approximately 1/20 of a troy gold ounce. One dollar now buys only
1/1,100 of a troy gold ounce.
Money used to be weights of gold and silver. As late as the early 1900s everyone
understood the value of a coin was based on the amount of gold it contained. Gold
is precious because humans value its lustre, portability, malleability, and scarcity.
Now, currencies are no longer weights of valuable physical metal, they are simply
names: dollar, yen, euro, rupee, dinar. There is very little physical backing of
currencies with the real objects of value.
The dollar fell
98% versus
gold from
1930-2015.
Gold is an unquestionably better store of value than currencies as shown by the
98% fall in the dollar versus gold over the past 85 years. In the dollar/gold
matchup, the dollar was decisively trounced!
Today’s news is filled with currencies devaluing against one another but the more
important backstory is all currencies are devaluing against gold due to
zero percent interest rates and quantitative easing, i.e. money printing.
These policies are reckless, unprecedented, and bode ill for national currencies.
Imagine: if the dollar lost 98% of its value against gold in a generally benign 20th
century, what is the dollar’s future under today’s far more dangerous monetary
conditions?
The answer is incredible devaluation against precious metals. In other words,
expect a large move upwards in the gold price. How high is anyone’s guess but
$5,000 per troy ounce is not out of the question.
Buying timeless
assets when
they are out of
favor is a smart
move.
Gold Stocks At All Time Lows
Gold was the best performing asset class in the decade 2000-2010 but after
peaking in 2011, gold has fallen 40% to about $1,100, a five-year low. Sentiment
on gold is extremely negative and investors are looking elsewhere for
opportunities. But gold will stand the test of time. Buying timeless assets when
they are out of favor is a smart move.
Gold mining and royalty companies provide more leverage to gold than bullion.
The good news for investors is gold companies currently trade at all-time lows, as
measured by the PHLX Gold/Silver Index and shown below.
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Sentiment has never been this negative for gold stocks. If gold is here to stay and
poised for large gains against the dollar, then gold-focused companies should
benefit. What better time to buy these companies than at historic lows?
Most investment advisors are not thinking along these lines.
Even fewer
recommend exposure to this sector. But money is made by buying assets at low
prices and waiting for them to appreciate. The hot asset classes of tomorrow are
often the cold asset classes of today.
We have identified excellent gold mining and royalty companies poised to benefit
from a recovery in the gold price and would love to share them with you. If you
interested in learning more, please call us at (406) 570-8741. We are looking
forward to speaking with you!
Sincerely,
Andrew Sullivan, CFA
This bulletin presents market analyses and conclusions only. Nothing in this bulletin should be construed as a past
specific recommendation of Quarterpoint Capital Management, LLC that was or would have been profitable or as a
current investment recommendation of Quarterpoint Capital Management, LLC. Although this bulletin includes graphs
and charts to demonstrate Quarterpoint Capital Management, LLC’s analyses and conclusions this bulletin should not
be construed as offering a graph, chart, formula, or device intended to determine which securities to buy or sell or
when to buy or sell them, or offering a graph, chart, formula or device intended to assist any person in making his own
decisions as to which securities to buy, sell, or when to buy or sell them.
Unless otherwise noted, index returns reflect reinvestment of capital gains, if any, but do not reflect income or
dividends; index returns do not reflect fees, brokerage commissions, or other expenses of investing. Investors may not
make direct investment into any index.
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