Animal Spirits Podcast - Talk Your Book: Investing in Goldminers

Episode Date: May 26, 2025

On this episode of Animal Spirits: Talk Your Book, ⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠ and ⁠⁠⁠⁠Ben Carlson⁠⁠⁠⁠ are joined by Imaru Casanova, Portfolio Manager for the active gold and Precious Metals Strategy at VanEck to discuss gold hitting all time highs, gold miners vs gold performance, macro factors investing in gold, demand from central banks, and much more! Learn more at: https://www.vaneck.com/us/en/investments/international-investors-gold-fund-inivx/overview/ Find complete show notes & VanEck's disclosure for this episode, visit our blogs... Ben Carlson’s ⁠⁠⁠⁠A Wealth of Common Sense⁠⁠⁠⁠ Michael Batnick’s ⁠⁠⁠⁠The Irrelevant Investor⁠⁠⁠⁠ Feel free to shoot us an email at ⁠⁠⁠⁠[e-mail]⁠⁠⁠⁠ with any feedback, questions, recommendations, or ideas for future topics of conversation. Check out the latest in financial blogger fashion at The Compound shop: ⁠⁠⁠⁠https://www.idontshop.com⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. See our disclosures here: ⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠⁠ The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits Talk Your Book is brought to you by Vanek. Go to Vanek.com to learn more about their Vanek International Investors Gold Fund. That's INIVX. Check out Vanek.com to learn more. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Redholz wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast.

Welcome to Animal Spirits with Michael and Ben. Michael, there's a lot of stuff that you and I don't know. And I think one of the platforms for learning sometimes is this podcast. We had an interview live at the Torrey Pines Lodge in San Diego with Vanek and a room full of financial advisors. And we talked to Ema Casanova, and she's a portfolio manager for a gold and precious metals fund. You were peppering her with questions about mining, just like, how does this actually work? Right? Talk to me like I'm a golden retriever.

Yeah, like what do they actually do to get, extract these metals from the earth? And I definitely learned a lot. And it sounded like it's different kind of depending on what part of the earth you're taking it from. It's one of those things that happens and no one really thinks about, like, how do you get from this thing that's in the ground to the gold bar. One of the big takeaways for me after speaking with her was the quality of companies and the decision making by management is so different today than it was back in, let's say the late aughts, similar to home builders.

They got burned, gold miners got burned. And so I brought up a stat that seemed, if you were just looking at a vacuum, why would you own gold miners? Because when gold is up, they underperform. And when gold is down, they lose more than gold. Well, actually, that's in the past. In 2025, as of May 19th, GDX is up 39% year-to-date. Gold is up 23% year-to-date.

Kind of a huge spread. And that is a historical, for reasons that we discuss in the show. But these companies are better informed, better managed, capital allocation decisions seem to be better. So, yeah, maybe it is time to look at gold miners if you're a gold bug. Yeah, maybe they actually learned their lesson because that was always the thing is that the leadership for these companies, the management, just constantly did the wrong thing at the wrong time, right?

Gold prices went up and they just... All in. Yeah. They didn't take into account the cycles that this stuff is cyclical. And it sounds like now they're... According to her, they're doing better at this. Yeah. Which is interesting.

So, anyway, we had a really fun time. This is a live show. Great audience. They were definitely more interested in asking her questions than us because she's more interesting than us. Right? Afterwards. But it was, yeah, it was a lot of fun.

And we thank Vennick for bringing us there for it because uh got to do it in a lovely lovely venue absolutely so here's our live talk from san diego with emma casanova from bannock thank you to the whole van nek family for having us we're excited to be here ben and i took a nice walk on the hills of troy pines anybody done that no yeah careful of your neck my neck is on fire right now it's not prepared for that we're going to be about gold miners today. When I think of gold miners, I probably the first thing that comes to mind is tough investments. Been a tough couple of years, decade, longer. But also, I think of Van Eck, because GDX, of course, when I think of gold miners, I think of GDX. But Jan's father

started the first gold mining fund in 1968. Unbelievable. A lot of history here. All right. So the first question I have for you email, we're going to start very high level. Because I think as investors, sometimes we lose sight of the fact that we're actually investing in things beyond just like a ticker and shares and prices on the screen. These are actually businesses that were putting our money behind. So my first question is, what is a gold mining company? What do these companies do? Yeah.

First of all, when you said tough, it resonates with me. Vanek in December of 2011. So gold had just peaked at that point was the peak in 2011. And here we are. So I'm hoping it, you know, this is it and this is the good cycle for gold stocks. But what are gold stocks? So I think it's good to start there because I think especially for investors to, it's particularly tough to invest in a sector that they don't know well. When you ask the broader investor

about gold companies, few of them can actually name a gold stock. So what are gold stocks? First of all, when we talk gold, we say I'd run the active gold equity fund. So not just investing in the commodity. We do have some commodity exposure, but we invest in this miners. These are the companies that are getting the gold and some other products. So as they get gold, they might also extract silver or some base metals as byproducts. But these are the companies that are extracting the metal out of the ground. And that comes with a lot of risks and challenges. The way we classify them so that you can maybe start to talk some of the chargon is the large caps or majors, which is really a dozen companies. And then, we can, we can, we start to talk some of the chargon, is the large caps or majors, which is really a dozen companies.

And we go to the mid-tieres, which produced less than a million and a half ounces of gold. And then we move to the juniors, which some are producing from a single mine, usually, about less than 300,000 ounces of gold. And a group, a significant group, are the developers, which are the companies that don't have a mine yet in production, but are working on bringing a deposit into production, trying to make a deposit a mine. And that's where it all starts for all of these companies, of course.

I have a very naive question. Yes. There are no junior healthcare companies. Is there a story behind how these smaller companies were called junior instead of small caps? Is there a reason for that? And it's a really good branding because think about it. There's no junior consumer discretionary stocks. There's no junior health care.

It's just all small caps. Okay. Maybe I haven't been in the sector long enough. It's been 20 years. But as long as I've been in the sector, we've referred to. to them as the junior, small-cap juniors. And so I agree. It's a catchy name. Another important things you remember about this company, except for investors, a very small universe. I think that's also very unique. You know, our investable universe, it's 400, maybe with the run-up in price

closer to 500 billion. That might be shocking for many of you, because, you know, that's half the market cap of some of these mega stocks. Only one in the S&P. Yes. Only Newmont mining in the SMP, which also, you know, that might be the one company that advisors know or investors know because it is in the S&P. A very small sector, so what's important to know about that as well with such a small universe, a very small shift in demand for these investments

can have very obviously very large ramifications for their stock prices. Once, you know, investors decide, It's time to maybe rotate some money into gold stocks. There's not that many to choose from. I was listening to Agniko Eagle. I was listening to one of their conference calls in preparation for this. And what is the main job of the CEO of a gold-minded company?

And the reason why I asked is because some of the questions I kept coming up on the call, I listened to Newman as well, it was a lot about capital allocation. So these companies have mines. Are they always looking for new pockets of gold? Or are they looking for the way to most efficiently extract the metal from the mines that they have? Like, what is the role of the C-suite? And I asked because, well, you know what? I'm not going to say something.

Well, I didn't say it. Mark Twain said, what's this line about miners? A mine is a hole in the ground at the bottom. Or a fool. So I would imagine that the leadership of these companies have come a long way, right? This is obviously a lot different than it was back in the late 1800s where people were scamming people and raising money for mines. And so there's a horribly long-winded question.

I'm sorry. No, I think I won't take it back to the 1800s, but I think it is relevant to take it back to the 2000s, the last gold bull market. And I think it's relevant because in a lot of investors' minds, that's still fresh. what happened in that period where gold prices were increasing rapidly, and yet gold stocks weren't, didn't do quite what they were expected to do. Things worked for, you know, that's first part of the cycle, but as gold continued to rise, the costs kept up with the gold price, basically, and these companies weren't generating the cash flow that they were supposed

to generate. Number one, two, they were taken on debt. to buy assets. They were desperately just wanting to get bigger. So at that time, the CEO's role apparently was just getting bigger for the sake of getting bigger. And what that meant is a lot of value was destroyed. They were buying assets they shouldn't have bought. And they were taken on debt and issuing equity to finance that. They were hedged. The hedge books were large. So as the gold price is rising, you're not getting the full impact. because half of your production is, you know, pegged at a certain number, it was bad. And so the new management, to answer your question, what are these managers doing now?

We've been talking now, I think, for at least the past five years, about a sector that has been transformed. Those guys learn their lessons. Those CEOs, some of them, and you mentioned at Nico Eagle, Sean Boyd, who was the CEO, He just recently stepped down. He's still chairman. He's one of the few that survive that transformation because in many cases the transformation meant change of leadership and reset. And the big shift for CEOs, I think in particular and for the leaders of these companies was to say, we don't want to just grow for the sake of growing. We don't want just more reserves

and more production. We want to grow the right metrics. We want to grow per share. We want to grow per share valuation. We want to extend life of minds. We want to reduce costs. We want to increase our margins. And so that's the sector that we have now. And so it's time to forget, not to forget, you never forget, but maybe forgive those mistakes and say this sector now, these CEOs now, this leadership, particularly a company like at Nico Eagle is our top holding in the active fund. It's a company that is doing what they said they're going to do. You also brought up capital allocation, so I don't want to forget about that.

And that's a big part of the story. What are these decisions? This company is at $3,200, yes, gold is above $3,200 again today. These companies are just generating incredible amounts of cash, and then the capital allocation question comes. Now, I just told you I don't want them to go buy anything. I don't want them to just go buy mines because they have all this cash. I mean, some companies are sitting with more cash than debt.

So that's the other, you know, the debt part, the transformation involves very healthy balance. She's, in some cases, no debt, in some cases cash in excess of debt. With buybacks. I was just getting to that. So now we have all this cash that is coming in, and that's what the market's been ignoring. We have all this cash coming in. What are this companies going to do? Yes, this is a growth business.

I want them to go and put that cash to work, but then at the same time, I want them to do it in a disciplined manner. And given that perhaps they haven't been the greatest capital allocators in the past, yes, I would love some back in the form of share-by-backs and dividends. And these are the two forms that companies are now giving back. I'm glad you mentioned share-by-backs because it is different from dividends. I think a dividend, you set it, you have to be able to. able to maintain it. There's no investors are very unforgiven. Like, do not reduce my dividend after

you give it. Yes, give me special dividends. I'll take those. And so companies have to be careful with their framework and policies around dividend. It's a lot more flexible with buybacks. Okay, we're going to buy back X amount of shares in the next year, very opportunistically, when the price of the shares we can come in. And as a shareholder, I'm being anti-diluted. I'm still getting it back. So, yes, those two strategies, buybacks, pretty much every large cap, and a lot of mid-tieres have buybacks in program. Dividend deals for the larger caps, which used to be zero when I started in this business, 0%. Dividendant always going into the business. Now we're talking about 3%, maybe, 4%, with looks to increase in it with the special dividends.

And then they're putting it to work, but they're putting it to work in a disciplined manner. And what does that mean when we meet with these companies, obviously, many times throughout the year. And believe me, when I tell you that as a shareholder, I go in there and I pound the table on this discipline. So we say, what are you looking to buy? Why are you buying something? Why? And the answer is we don't want to buy anything that lowers the quality of our portfolio. Is that harder to do when gold is continuously hitting all-time highs?

Because I was curious about the correlation there because one would think, obviously, when gold is up, the gold miners should be up too. But is there any sort of lag there? And then how does the price of gold impact the behavior? And with the gold price being so high, is that a big risk if they do get over their skis a little bit and they do overextend themselves? It is. And that's what happened last time, which is why investors companies are being a lot more careful. So what happens as the gold price increases, yes, there is more cash. And a lot of these, obviously the, what one of the major, you know, ways for especially larger companies to grow is to buy other companies. So these juniors that we're talking about become particularly attractive in this environment

because the larger caps, the Newmans, the Agnikos, the Kinross, and so on of the world. Yes, they have deposits. You mentioned that in your comments too, that they're obviously can expand and they can grow and develop. When you're producing a million, five million ounces of gold, it's very tough to just do it organ, to replace those ounces that you're mining annually organically. So they go to the juniors to acquire them. And obviously, we'll already see a pickup in that activity.

So we're seeing, you know, several of the companies we own in our active portfolio have been taken out in just even this year. As gold prices get higher, companies have more cash. When there is more cash, I say there can be a cash component to those acquisitions versus just equity. you know, a lot of these are just share transactions, so I'll issue your share. If you're a shareholder of the target, you get shares of the acquirer in this environment, because there is so much cash, we'll give you some cash and shares, which makes it a lot more

attractive, obviously dilutes us if we're at the acquire company less. And so your question was, what does this gold price do for that activity? The expectation, honestly, I think most of the, those of us that follow the market is that there would have been a lot more activity. And I think the fact that we're seeing sort of moderate levels of activity is a testament to the discipline that these companies are exercising. Getting back to the minds themselves, how much exploration is being done versus like that's not how it works at all? Like you don't just find gold versus like how much are they able to harvest from the minds that they currently own? Okay. So,

It's both. And yes, you just, you do, you explore and you find gold. You know where to go. They're, you know, a little sorts of different tools. Now, where you can go and do that, gets, it's a lot, there's a lot less of that. And then, honestly, a lot of the places where there's a lot of unexplored areas, so there's more opportunity to find stuff, it's in tricky places, you know, where investors... Like, geopolitically? Geopolitically, where investors don't necessarily want to go. The life cycle of a mine, is it like once you have a mine, you get 80% out of it in the first year on making that up? Like, how does it... Oh, the life cycle of mine is a very long cycle.

So I don't even want to call it a mine, and this is where the juniors come in. The life cycle is the mine is just what you said, and some sort of unexplored tenement, where there is indications that there might be a deposit. So you might spend, you know, five years just drilling that deposit to a level where you can say, some certainty that there is gold and at what concentration there is gold there. And obviously, the more you drill, the more convinced you are of the quality of that deposit, but it's costly to drill. So at some point, you just have to get the density that the market has recognized or experts

as a certain level of confidence. Then that's not even it. Then you're talking about getting permits to build a mine. You're talking about having to build a baseline of environmental data. to design a plan that is going to mitigate any impact in the environment. That can take years, and obviously varies with jurisdictions. Then you've got to get your permits. Then you've got to build a thing.

And actually, that doesn't take actually building it. If it's an open pit, you can have a mine up and running in 18 months, two years. If an underground, you've got to develop underground, clearly that's more complex. And then you get into production, and of course, then it's a matter of how much more you can continue to add. So let's say it's 10 years, that's a perfectly reasonable period of time from discovery to first production. Some mines have been running for 100 years. And then your question of exploration comes to the line. Most companies are not going to define, you know, 30 years of production.

It's very costly to prove that levels of research. So what they do is once they have about 10 years, maybe 15, if you're lucky 20, you say, okay, we're ready to build this thing with this economics. And then as they produce and generate cash, with that cash, they can finance more exploration. And that mine, instead of running for 15 or 10 or 20 years, runs for 30 or 40 or 100. But they just keep replacing the reserves and adding. So exploration happens at the brown field level, brown by meaning we already have an operation there. You got the infrastructure, you got all the processing facilities. So every ounce that you discover in an existing mine is obviously a lot more valuable than a new ounce in a greenfield deposit where you have to go to the beginning of that 10-year period.

So, yeah, it's a combination of both expanding your existing operations through exploration and going and finding new deposits. You mentioned that the opportunity set here is not that large. I'm curious if the concentrate, ends up looking like something like the Mag 7 in the S&P where it's just it's concentrated in the in a few names and then how you differentiate between those those stocks that you're looking at. Yeah, and I I giggle because I don't see I don't see a Mag 7, you know, situation for sure and gold. The the nature of this business is that these assets are spread all over the world. So a company that operates in Latin America, they know how to operate in certain countries. They know the permitting framework. They know the labor culture.

They have an edge in operating there. It's difficult for them to go then operate, you know, acquire assets in West Africa or in Finland or even we've seen frictions between Canadians acquiring or Australians acquiring Canadian assets and thinking they can integrate them. So I don't picture an environment where, you know, we just have four or five stocks or seven or ten. I think it is very fragmented, and as shareholders, we want more consolidation because what happens is what is so fragmented, clearly the skills are in there. You know, every little company doesn't have the best teams. And so you get assets in the hands of the wrong teams, which can lead to trouble.

As far as how we differentiate, it's quite for us, it's quality. We're in here in the active fund, we're in here for the long term. We're looking for companies to add value through that long process. And so what are the things we're looking for? Obviously, we decide if jurisdictionally it's an area, a country, a region where we're comfortable. Then we're looking, obviously, everything, it's, you know, grade is king is the same. Great is how rich in gold your deposit is, grams per ton. The deposit wins.

We have to make sure that it's the right size. right quality, the right technical, technically feasible, and not overly risky or challenge. So the deposit is number one. And then we're looking at, obviously, what happens to the infrastructure? Is there infrastructure available? How are they going to power this thing? Communities, are they supportive or not? Governments, of course, and permitting landscape. Skill labor, you know, is it available? And management, what's their track record? Are these companies one of those teams, one of those Agniko teams, one of those teams that we respect, one of those G-Men teams that know what they're doing and know how to bring a mind into production?

And for us, I keep saying this, all of this company, none of them, you know, have, you know, a 10 score. It's a spectrum. Our job as managers is to decide where they fall in that spectrum, in that risk spectrum, and where those risks are justified by the current valuation. And so it, for us, is about management, track record, deposit, quality, and size. We're not going to invest in a company that is going to run a deposit for five years. There might be people, people call us all the time, I have a mine. You know, it's like not for us.

We need some sort of side. And it needs to be in a place where we think miners can operate, which, by the way, it's not always like places that you think, oh, there are some geopolitical troubles in social unrest and other problems in some areas where miners can operate. And so we need to be able to discern that. So last question for me on the mines before we start talking about the stocks and the investment case and all those things. All right. So they're digging for gold. They get the gold. What do they do with the gold? How do they make money? Where does it go?

Michael wants to go into the mines, I think. I'll take you. I go to them all the time. They move a lot of rock. I think that's important to understand people. Gold is very diluted. And they have to move the rock that is economic, and they also have to move the rock that is waste, depending. At 3,200, a lot of that waste, I was telling other advisors, some of that waste becomes, you know, ore. They process it. That can be very complex. Sometimes the gold is tied up in there, and you have to apply pressure and heat to unlock it. Sometimes you just grind it and it falls with gravity.

you process it most a lot of companies produce dorae on site so unrefined bars of gold and then they're sent to refineries and they get paid others might produce a concentrate so if you hear the word concentrate is like a slurry and usually when it's a concentrate it contains other stuff copper or silver or other metals and they ship that to a smelter that will produce the bar of gold but the miners get paid and in U.S. dollars. Gold is, you know, trade in U.S. dollars, and they get paid and that cash in the bank. I would imagine the costs are relatively stable through time? No. Why not? They haven't been. That was part of the problem in the last cycle.

Costs just kept increasing. There's a variety of reason why costs go up and down. The grade that you're mining, you know, if you, if gold is at 3,000, a mine is not, it makes a mine and certain portions of a mine economic. that wouldn't be economic at 1800s. So what happens is, as the gold price increases, as a company, you're still going to make money, but your margin might be small, which means the cost of getting out of the ground goes up. You're still going to make more revenue, but your cost creep up.

So grades and gold price can increase the gold price. And then there is, of course, just regular inflation like we had recently. Grade is probably the main reason. The lower the grade, the more material you have to move to get it out of the ground, which means costs go up. But there is instances where, you know, in a commodity boom, where it's not just gold, but other metals are also being, you know, are in demand. And there's a lot of projects and a lot of mines. And these companies, this gold miners are competing for talent, for equipment, for tires, for all sorts of consumables with other miners.

That might also drive up industry costs. So a variety of reasons. And right now we're in an environment where we think costs are contained, meaning. Yeah, they might increase three, four, five percent this year, maybe a little more. But we don't expect them to explode like they did in the last cycle as the gold price increases. And so all things consider, if you're mining the same deposit, you'll have variations depending what portion of your deposit you're mining. So cost for a mine, for sure, will vary. for the industry, as an average, will also vary.

They get paid in U.S. dollars. And I was looking at this recently. If you look at just the price of gold, in years when the dollar is up, gold is, like, on average, it's flat. And years when the dollar is down, it's up huge. It's like 25% annualized or something. So when the dollar is down, that tends to be good for gold. As a macro factor, is that also good for the miners if the dollar is down,

or does it all kind of wash out in other stuff? So for the miners, there's obviously there's a very strong, negative correlation historically between the U.S. dollar and gold. Is that one of the headwinds that we've seen for the last, whatever, decade plus, the dollar has been so strong? That's definitely been for, you know, one of the reasons gold hasn't performed as well. For the miners, in specific, the currencies do have an impact. You said they get paid in U.S. dollars, but their costs are denominated in local currencies.

Not all of them, but a big chunk of their costs. if you have a mine in Mexico, labor is about 40% of your cost base, that's all going to be in pesos and so forth, depending in Canada or Australia, where you're operating. So obviously, what happens to those foreign currencies, has an impact on the cost side, lower, you know, a depreciation of the currencies is good, lower local costs, higher margins, and vice versa. So that's how they get impacted. And then obviously, there is a that if you're a commodity country, the dollars up, you know, there is all those dynamics. So very much impacted by that. But at the end of the day, you know, gold, they collect revenues

in dollars. Do you have any hard and fast macro rules for gold itself? Some people think, well, it's an inflation hedge and it's been proven that sometimes that's not true. And sometimes people think, well, it's deficits in government spending and chaos. Or do you think, no, it's strictly supply and demand. And that's all I care. Do you have any hard and fast rules for the price of gold? Oh, yeah. The number one rule is not supply and demand in the traditional way. There are some demand centers that are historical, have been drivers of the gold price.

But if you try to do supply and demand analysis on the entire gold market, you will never figure it out. So deficit or surplus, no correlation. Historically, the main driver of gold, higher gold prices have been investment demand. We can track it if investment demand goes up, gold price goes up, otherwise, you know, it goes down. And that relationship sort of broke down in 2022, where the gold price started to rally and investment demand kept declining. and the reason was that somebody, another participant, another center of demand took that role and it was central banks. Central banks decided that they needed to start buying gold at record

levers doubling the trend of the previous 10 years. So 22, 23, and 24 central banks as a group but a thousand tons versus an average of 500 tons in the previous 10 years. That, That is now becoming a driver of gold prices. And that was the Russian sanctions that kind of put that? I think so, yeah. Are they buying futures contracts and or taking delivery? No, they're buying physical goals. Physical, from who?

From wherever they can get it. From wherever they can get it. I mean, obviously, the large producers like China, it's probably all domestically sourced. But, yeah, the central banks want gold. They want physical gold. It's one of the reasons I think, you know, gold stocks have lacked because central banks don't buy gold equities. Investors do.

And the perfect sample is this year. As we still have the central banks on board, the trend seems set for them to continue to de-dollarize their reserves, and then we get investors, at least in the first part of this year going, okay, maybe we should own some gold, and then by proxy, some gold equities. And we see the response in the gold price. Probably the reason it's been so steep climb, because it's not just one player, it's two. It's central banks, and then your historical driver coming in

and supporting that even further, your Western investor. And so to me, that's what explains, you know, obviously we've had gold rallies, but from 2,700 to 3,500 in four months, that's a pretty strong rally. And I think is the teaming up of two now very strong centers of demand. Well, one strong center of demand, and that reemerging center of demand being investment demand. Is there a sweet spot for the, not necessarily the price of gold per se, but the behavior of the price of gold on the business of the miners?

Is it like a slow and steady uptrend? Is it a calm sideways market? If gold goes up 40% in a year, is that necessarily good for the businesses? or does that present problems because then they have, like, then they chase or whatever? Like, what is the sweet spot for the price? Every dollar higher is amazing for the gold miners. The more, the higher the gold price, obviously, the more now. There is some discretion, and this is where management comes in, that, you know, it is a cyclical.

We know that. It is a cyclical environment. And one of the key, I think, challenges for this. managers and these CEOs and the C-Suite is to demonstrate that these companies can operate through the cycles. They're not just making money. One goal is 3,500. They can weather, and clearly in this environment they can. $2,000 goal. These companies don't need $3,500 goal. Their costs, on average, at around $1,600 for this year. Anything about $1,600, on average, makes money. So

companies need to demonstrate that resilience through the cycles. But in general, higher gold prices is everything the companies need. So this is not cherry picking per se, but we looked

at the returns since the inception of GDX in 2006. And a lot of the numbers in here are from the mismanagement during the 2010. So it's cherry-picking number. So it's cherry-picked a little. bit. But so in the years when gold is up, the miners lag by a little bit, not a ton, a little bit. But in years when gold is down, the miners have gotten destroyed relative to gold. Okay. So historically, and yes, we can spend all afternoon here picking periods

to make one point or the other. But in general, the miners are leveraged play on gold. When the gold price goes higher, they're by a certain percentage, they're supposed to go up twice as much. Why? Because their margins are expanding much more in proportion, and relative to the expansion of the gold price. And this year they have. They're up 37% this year. So what happened? Investors can't ignore this over the past three years, up until the beginning of this year, really. The miners hadn't been doing that. So gold is up, up, up, 22, 23, 24. And the miners are up, but they're not outperforming gold. And that's where investors go, wait a minute. it, why would I own and take all the risks that come with owning these miners if they're not

going to deliver me that leverage play in gold? And, you know, that's a perfectly good question. Now, I kind of alluded to why I think that was the case, because there was no demand for gold from investors. And there was no demand for gold equities. Now, 2025 comes in, and that's exactly what you're saying. Gold is up 20-something percent. Stocks are up. Our fund is up about 40 percent. Check. That's what we need. And so to your question, and I did, in one of my monthlies, we put out a monthly blog, I did periods where gold is up. And then the key factor for me was what's happening with the investment demand during those periods.

And when gold was up, an investment demand was up, the miners outperform. When gold was up, but investment demand was down, the miners underperform. perform. And so to me, that means, yes, in a normal environment where gold is being driven, more normal and more historically normal environment where gold is being driven by investment demand, the equities should outperform, and they are doing so this year. How do you measure investor demand? What are you looking at? Great question. We look at global, gold bullion ETF holdings as a proxy for investment demand. It's been a pretty good one. I've been covering the sector, I use that as a proxy.

And if you plot gold price and global gold bullion ATF, you get a really strong correlation up until like 22. And now more recently that we've reestablished that correlation with investors coming down. Is there any way to like predict what demand would be? Or is that just like, is that just only backwards looking? Because how would you possibly predict that? Well, I mean, only in the sense that I, it'd be fair to predict that in the current environment, investors are going to see a need to own gold in their portfolios.

And so my prediction would be we should be seeing more and more investment demand, given the uncertainties, the de-dolarization theme. We've been talking about de-dollarization for years. I really feel like we've hit an inflection point this year where it's becoming more real. I mean, the banks have been on board, the central banks have been de-dollarizing for years now, but investors haven't sort of jumped on that bandwagon. I think with what's happened this year, a trend to not just not buy dollar but also not to invest in the U.S. or walk away for investment in the U.S., go to international stock, that theme is going to support.

investors looking at gold to do what it has done through history, protect against inflation, that's a solid case. Gold is offers protection during inflationary periods, as a safe heaven during types of crisis, as a portfolio diversifier and risk adjusted return enhancer. So a lot of people have made the case. And the narrative about something like Bitcoin has changed a lot over the years. But some people think, well, digital gold is a pretty good fallback if it's not going to do some of the other things people think. Do you think that Bitcoin poses a threat to investor demand in the decades ahead? Bitcoin as digital gold and gold can coexist. I think the question is just like, okay, nobody's going to buy gold because

everybody's just going to find it easier to buy Bitcoin. I think that I don't see that. I see gold's role firmly established with a very, very long track record. It's culturally ingrained and globally. And so do I think given role goals properties and how it performs and the fact that Bitcoin is also an alternative asset with some of the same qualities that they can benefit from both benefit from the de-dolarization trend? Absolutely. Do I think that means that gold, you know, investment demand dries up now? So my favorite gold anecdote is that when Jesus walked the earth, you could buy a fine men's suit for an ounce of gold and you can do the

same thing today. I know, I love that. A client told me that. There wore suits back then? The robe things with the tie and, yeah. The guy took it to a fine Italian suit. Okay. Do you know with that coin? I have it at home. I would have bought a fine Italian suit and I can still buy it today. So the ticket for the fund is I and IVX and credit to you, you have outperformed over basically every time frame that I looked at. So when you're constructing the portfolio, what is the most important thing for you? Are you looking at the fundamentals of the businesses, the managers, the minds, like the quality of the minds, versus how important, if at all, are you looking at? things like traditional equity analysis stuff like the whatever pick whatever issue you're looking at like

what's more important to you they're both as important valuation is it's very important and that's that honestly that's step one I mean we can run a lot of very quick screens when we see you know we're presented or pitch the company and there could be one or two screens that say okay that one's out we don't even need to build a model but it does start with a very we are maintained over 100 models. And so we're doing our own assessments. We have the benefit of being engineers and geologists that can just not take estimates or guidance from the companies

or punch in capital estimates or cost, but we understand how these deposits work, how this industry works, what are the cost pressures, the challenges, the risk, and build some of those sensitivities into our model. So that's step one. How does this stack up relative to? to the other companies in our universe.

And it's apple to apples, we do everything at spot prices, we trim everything at 20 years, if you have a mine that runs for longer than 20, we're truncated, we don't think the market pays for that. And then once we have an evaluation, our metric is free cash flow per ounce. It means of all this gold that you're telling me you're gonna mine, how much free cash flow

are you gonna generate for every ounce of gold. And then we look at how they compare with their peers. Then comes the second part. It's, OK, this company looks, if you plot Agneco Eagle, it looks really expensive. And it looks expensive for good reasons, because it operates in US, Canada, Finland, and Mexico,

and which are very safe jurisdiction, because it has delivered against their targets consistently, because it has a bunch of growth, organic growth, coming in. And the list goes on. So then we layer all of the more qualitative aspects and say, is this stock trading at a premium for good reasons? If not, obviously, it might be time to take some profits or exit. Premiums don't scare you. It sounds like Agniko is expensive or not, it gets a premium multiple because it's earned it.

Exactly. The premiums do not scare us in the same way that very cheap valuations don't attract us. It's very easy to look at a stock. It's straightening up 0.3 times price to NAVs, because this company's wrong for so long, NAVs. It's a good metric, I think. I don't like P.E. Like, what happens in the next year earnings? It's completely irrelevant. This company is going to operate for 100 years. And so we look at price to N.A.V. And it says, oh, it's stock straightening at 0.3 times. And then you do a quick check. Well, yeah, it's in Burkina. It still has to, you know, it's had all kinds of social issues, or the deposit is.

it's, you know, got this much complexity or whatever the reason might be. And you go, yeah, okay, it's cheap for a reason. The market's not dumb. It doesn't just give away value. No, the market is acting pretty dumb, though, right now, if you ask me. Which market? The broader market. I don't know which market you mean.

Which market do you mean? I mean the market. When I speak of the market, I don't talk of gold funds. But, yeah, you're right. You know, if something cheap usually is for a reason. I just think when you compare the gold equities to the rest of the equities, the SMP and ask like a, they look really cheap. And yet this has been the case for many years now and nobody cares.

And it's one of the reasons I think, you know, I agree, markets are efficient. And so these, these locations can't last forever. At some point we're going to have to recognize this companies are like, don't know what to do with cash, and maybe that'll attract some investors. What does that mean, and they just return more cash to investors eventually? I think as long as they can't find a good place to put it, yes, and maybe that all attract more dividend funds than other sorts of investors. Maybe they start buying more visitors.

I want them to keep doing what they do, which means they have to put some of that money back in the business. What do you think is driving gold right now? Because gold is on a tear. It has investors' attention. There's never like a sign where it's like, oh, this is why markets are. moving, like, we could all speculate and we could form our own narratives, but what do you think it is? Well, you said it has investors attention, and that's probably where I would leave it,

attention. People are talking about, oh, the gold market is over, you know, crowded, the gold trade is, it's not. Doesn't feel crowded at all. There's nobody in it. I mean, nobody owns gold. One percent of global financial assets are allocated to gold. What happened is, yes, it became very clear earlier in this year with everything that's to happen, that maybe we should own some goal, and a few investors jumped on that, and that combined with the central bank support to go higher. So what's driving it, obviously in 2025 is fear. We need to diversify, I need to protect. We think that will continue to drive gold from here, and we think central banks will continue to provide support. We think every portfolio should have an asset allocation. If you own zero

gold to us that makes no sense. And if you own, if you put a, you know, the question is, should I own it? Is it too late? It's not too late. This is actually, you know, gold pulling back, which we expect it. You know, nothing goes up to $3,500. That's a baby pullback. Yeah. It might pullback to lower. I think $3,000 is maybe a good range, around that range. And you ask them about how gold trades or maybe what it means for the miners. And after very strong periods, price rallies, we could, we do come to periods of sort of a pullback and consolidation. I think that's happening at a much higher level right now, so 3,000 might be it. But if you don't own it, it's not too late to own it. You should own about 5%, some might argue as much as 10. And then you should

not just own gold boole. You should definitely consider the equities. And lastly, if you're going to consider the equities, please do not try to pick your own stocks. It's a really bad idea. By the index, buy GDX, GDX, JDX, J-D-D-X, our fund. I-N-I-V-E-N-I-V-X. International Investors Gold Fund. Let us do the work. Believe me, it's very challenging to pick the stocks. Or just do an index approach, do whatever, but do not buy individual stocks.

I guess I would say if you're debt set and buying individual stocks by the royalty and streamers, which we didn't touch on. What's that? Should I put that in the basket. They're not gold producers, but they are companies that. invest, that have interest in the minds of the gold producer. So let's say your barrack or one of those mines, I'm a royalty company, and I own 2% of the production, several of your mines.

And so they have a portfolio of interest in mines at different stages. Some are producing, some are in stage of development. And so they're very much diversified. They don't have exposure to cost increases. I give you money, let's say I give you $100 million, you give me 2% of your future gold production, and you're going to give me that gold production no matter what your costs are doing. So they're shielded from inflation, and it's a very broad, at least the big four. It's a broad portfolio of companies, so they look almost like a mutual fund.

That's the only thing I would maybe recommend owning as a single stock if you're debt set on picking a stock, otherwise buy a basket. Do you ever own gold in your own fund, or do you stick strictly to the miners? It's funny because, you know, I just said own 5% in gold. That's the exposure we have right around my, we can own Boolean. You know, we decide based on the environment if we want to own more, Boolean or less. Right now, about 4.5% of the active gold strategy is invested in Boolean, which is basically the number I said everybody should own stuff.

But, of course, we're on the other 95% in the equities and maintain very little cash. It's all put to work in this environment. Okay, thank you to Vanek. We should say Jan Venek was there even. Of course. The legend. Check out Vanek.com to learn more. Email us, animal spirits at compound news.com.