Another Argument for Physical Gold

Last week, Newmont Mining posted their latest quarterly results, and to say the news was "disappointing" would be quite an understatement. As such, the price of Newmont shares fell sharply, ultimately reaching new five-year lows.

I suppose the best way to start this post is with a link to Newmont's latest earnings report. Maybe you should take a minute to look it over?

• https://www.newmont.com/investors/news-release/news-details/2024/Newmont-Reports-Fourth-Quarter-and-Full-Year-2023-Results-Provides-2024-Outlook-for-Integrated-Company/default.aspx

While the report sounds just peachy on the surface, the market responded to the news with a resounding thud. On the day the earnings were released, Newmont shares fell $2.43 or 7.3% to $30.89. In the two trading days since, it has fallen further. As I type on February 26, Newmont stands at $30.05, the lowest price seen since May 10, 2019. You might also note that, in just under two years, the shares have fallen by over 60%.

Newmont Mining Corp Weekly Candlestick Chart

It gets worse. Not only are Newmont shares cheaper than they were five years ago, they are also cheaper than they were TWENTY years ago! Oh sure, there have been ups and downs, and active traders with perfect foresight have been able to generate some profits along the way. However, how can anyone rationalize a long-term investment in a company that trades sideways for two decades while the price of their principal product moves up fivefold?

Newmont Mining Corp Monthly Candlestick Chart

Gold Monthly Candlestick Chart

Now this isn't to say there’s not decent fiat cash to be made in the mining sector. There is. My friend Eric Sprott has made hundreds of millions of dollars over the decades by searching out and discovering the right investments at the right time. But he's Eric Sprott and I'm not. And neither are you. 

You and I, as mere mortals, are left on our own trying to decipher good mining companies from bad. As such, it's quite easy to look at a company like Newmont—the largest gold miner in the world—and think they offer great leveraged exposure to the gold price. But, obviously, they don't. The chart doesn't lie!

So what's the point in bringing this to your attention? 

Sure, there are periods when it can be profitable to own and trade the mining shares. When gold and silver prices are experiencing robust up trends, the shares often wildly outperform the metals. For example, the first eight months of 2016 saw gold move up 25% while the HUI mining share index moved up 250%! It was great fun and we all thought we were brilliant! However, those brief rallies have always been followed by long, drawn out and extended pullbacks.

And sometimes those pullbacks get so deep that new lows are made, completely wiping out all the previous gains despite a gold (or silver) price that remains steady or slightly higher. Look again at those charts above. Twenty years of Newmont and twenty years of gold. What conclusion do you draw?

For me, I'm left questioning why I own mining shares for the long term. Yes, when prices break out above $2100 for gold and $28 for silver, the mining shares are going to once again see explosive rallies. Yes, that will again be great fun, and yes, I hope to participate. 

However, the simplest and by far best option for regular investors like me is the ownership of the physical metal itself. Physical gold and silver are their own asset class. They are money. They are financial insurance and your only protection against the madness of the politicians and their bankers. While investing in the mining sector can be fun and at times profitable, the single best alternative for most people, myself included, remains physical metal. 

Physical gold. Physical silver. Safely and securely stored. No headaches. No hassles. And no earnings reports that surprise to the downside.