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Stansberry’s “Metropolitan Club” plan for the Gold Bull Mania

Friday File look at Porter's ideas for NIRP, currency crisis, and gold mania as he teases "The Gold Decade: How to Prepare for the Coming Bull Mania in Gold"

By Travis Johnson, Stock Gumshoe, April 8, 2016

Porter Stansberry is probably the best marketer out there in the financial newsletter world, and has access to the biggest email lists both within his company and in partnership with all of Agora’s other subsidiaries and affiliates… so when one of his ideas or letters gets a big marketing push, it tends to have a big impact and drive a lot of questions my way.

That’s certainly the case with his new push for gold, which he’s been ramping up over the past week or two — starting with a “special presentation” earlier on Wednesday. This is all in service of his new letter, which he’s calling Stansberry Gold Investor… and he’s also selling it in a different way, with a $1,500 up-front fee and, after that, a monthly $49 charge for “portfolio updates,” neither of which is refundable.

So, again, I feel like I should be raising prices here at Stock Gumshoe (kidding!). But we’ll put that aside for the moment — what’s Porter’s big idea, and what is he going to suggest for that $1,500 fee?

I can’t give you the whole story, of course, since I haven’t subscribed or seen his report — but he does hint at several investments and ideas in the ad, and we can explain those and feed ’em into the Thinkolator to see what pops out. And if you’ve got ideas or suggestions, we can listen to those, too.

The basic idea from Porter is that we’re about to have a “bull mania” in gold — with a gold price that could rise parabolically, perhaps hitting $10,000 an ounce or more. Here’s a taste of the ad to give you some idea (you can see the whole ad here, if you feel like sifting through it yourself):

“I recently returned from a private meeting in Manhattan with one of the most powerful men in the world. Based on this meeting, I believe gold and gold stocks will soon be worth 10-30 times what they are today. If You Missed My Emergency Briefing… Read this presentation immediately….

“The men at this table began to outline an economic scenario that horrified me.

“It’s a scenario akin to what happened in 1933 — a vast conspiracy to steal trillions of dollars from the U.S. Treasury.

“I would have never believed this if I hadn’t been at the dinner. Fortunately, two of my most senior colleagues were with me.

“They heard every word, too.

“And today, I want to show you what we learned and tell you how to prepare.”

Gets your attention, right?

The scenario that horrified Porter, to paraphrase a bit, begins with negative interest rates — going from ZIRP (Zero Interest Rate Policy) to NIRP (Negative Interest Rate Policy). That has already happened to some degree in Japan and Europe, and the big fear, he feels, is that it could h happen in the US as well… and in that case, in his words:

“… we’d likely witness not just a run on the banks… but an economic collapse like our country hasn’t experienced since the 1930’s.


“Because overnight, banks would no longer be a safe place to keep your money.

“You see, no one in his right mind would keep his money in a bank if the bank were to force him to pay for the privilege. Likewise no one in his right mind would buy Treasury securities or any other bond that would charge him to hold it.

“Worse, as a country, we’d essentially be broadcasting to the world that our government and our banking system is broke….

“The world’s biggest hedge funds and U.S. government leaders are worried that if the dollar — the last reserve currency to pay any substantial rate of interest — goes into negative interest rates… there could be a panic out of paper currency and into gold.

“This wouldn’t be your typical ‘bull market’ in gold. It would be a ‘bull mania.'”

Porter ties this in with some of the other “big picture” arguments he’s made over the years, like his “End of America” promotion back in 2011 that got everybody riled up…

“I’ve recounted a number of potential scenarios in my essays throughout the years, including the likelihood of riots — perhaps even revolt — as a result of this recklessness.

“We saw hints of that with the Occupy Wall Street movement that sprouted up in the wake of the last financial crisis.

“And that’s why, also for many years, I’ve been warning that you absolutely must own gold and high-quality gold investments.

“I recommend that you, as I do, keep a good portion of your wealth invested in them — as much as 20%.

“Today, I’m here to warn you: If you haven’t done this yet — you must absolutely do it now…”

So he’s predicting a huge ramp-up in gold prices in the future — the near future, really, though he does not claim to have a date in mind.

And while he thinks the gold price will move up rapidly just because folks will want to rush out of NIRP currencies (which could be almost all the major currencies soon), he’s also got a “next step” scenario where the move out of the dollar becomes like a “bank run” on the currency in general, and gold could then soar to what now look like ridiculous levels….

Is $10,000 Gold Just the Beginning?

“You see, according to my source — who has held some of the most powerful, senior economic positions in U.S. government — the plan being discussed involves the ‘confiscation’ of over 8,100 metric tons of gold — essentially all of the gold held by the U.S. Treasury.

“That’s all the gold in Fort Knox, all the gold in New York, all the gold at the Denver mint.

“The plan is to swap out all of the worthless Treasury bonds that the Fed currently owns — that’s the $2.46 trillion in paper that the Fed purchased during quantitative easing.

“This QE is what’s been financing the government’s large scale deficits and what was used to essentially bail out the banking system following the 2008 crisis.

“The plan is to use those bonds to ‘buy’ all of the Treasury’s gold.

“This plan would have the appearance of legality. It would look like a transaction.

“But in reality, what’s really happening is all of the government’s worthless debt is being traded for something that rightfully belongs to all Americans.

“In short, our government’s most valuable remaining monetary reserve will be liquidated to stop the global run on paper currency.

“This will dramatically devalue the dollar… by government force….

“The conversation at the dinner I had at the Metropolitan Club in New York was a discussion about how to actually affect this change in the dollar… how to communicate this change to the markets… and the legal structures that would have to be created in order to affect this policy.

“Immediately after this ‘swap,’ a single ounce of gold would be worth, in the open market, somewhere in the neighborhood of $10,000 an ounce.

“That price is based on exchanging roughly $2.5 trillion in Treasury bonds for over 8,100 metric tons of gold.

“This would put the dollar on a much sounder footing, because instead of backing the dollar with worthless Treasury bonds that are paying a negative rate of interest, the dollar would now be backed and fully convertible into ounces of gold — a form of money that everyone around the world trusts and respects….

“Which is why I think you could make a fortune buying gold — and an even bigger fortune buying certain gold investments — today.”

So that, of course, is what perks up the ears of Stock Gumshoe readers… I don’t know whether this move by the government is feasible, an effective return to the gold standard (it seems far-fetched, particularly for elected officials, but much of the financial world has seemed ridiculous for a decade now), but I can at least look into the gold investments Porter thinks we should be considering if it turns out that Porter and his secret confidant are correct (to be fair, lots of other people have similar thinking even if they might not describe it as enthusiastically — a great many hedge funds and wealthy folks are looking at gold again).

For that, we do get a few clues that we can sift through in search of answers… ready?

Porter has four steps for us, we’ll go through them and see if we can add some specifics to his hints.

First is “own physical gold” — and here, as his newsletters have done in the past, he’s looking at collectibles as a particular opportunity…

“… regular bullion coins should do well in the upcoming bull mania in gold. And I recommend you buy some if you haven’t already.

“But in compiling this specialized portfolio, we consulted with the man I believe to be the world’s number one expert on gold coins: Van Simmons….

“He’s the cofounder of the Professional Coin Grading Service, or PCGS. If you’ve ever bought or sold a collectible gold coin, chances are you know the name….

“Van told us about a number of gold coin investments that will simply skyrocket — and could return thousands of percent more than regular bullion.

“For example, in my report, you’ll learn about a commemorative gold coin set that first became collectible in the early 1900s… but is still available for purchase, in its entirety, today.

“You can buy just one of the coins in this set right now for around $2,000. Should gold prices spike, however, this coin could easily be worth 10 times that amount.”

Steve Sjuggerud has recommended some gold coins for his Stansberry-published newsletter several times, so it could be that some of the ones they like are in that same vein (that was mostly the widely-available St. Gardens Double Eagle coins that were the equivalent of a US bullion coin before FDR seized private gold in the 1930s). But that’s not the “commemorative” mentioned here — that was a regular $20 gold coin (roughly an ounce of gold).

I’m no numismatist, but I would guess that they’re talking about the first gold commemoratives, which began to be minted in 1902 or 1903 and continued every few years up until the 1926 Sesquicentennial coin. Collectors now consider this to be a set called the “Classic Commemoratives” — either 11 coins or, for those who have hundreds of thousands of dollars to spend on the biggest 1915 Panama-Pacific Exposition coins, which are extraordinarily rare, a 13-coin set.

There’s a good summary of the “classic commemoratives” here from NGC, the other major coin grading service. Most of the big coin dealers also have at least a few of them in stock at any given time — do keep in mind that this is a market of collectibles, and these commemoratives are priced based at least as much on scarcity and collector appeal (condition, principally) as they are on gold content.

The “melt value” of these coins would, at least theoretically, provide a backstop of value, but none of them trade anywhere near “melt value” — the $1 coins, which is most of them, are very small and have a melt value of about $60 currently, the $2.50 coins have a melt value around $150…. most of the relatively common ones are currently available for sale in the $400-$2,000 neighborhood, depending on the specific coin’s rarity, appeal and condition. There’s a list of available graded coins here from Apmex, for example, that’s a coin dealer I’ve bought from in the past (not specifically recommending them, it’s just one that I know that has some inventory to provide examples).

So that’s my guess on that, and it is just a guess. These seem to be a pretty hot item for collectors and who knows, maybe they will zoom in value if gold prices soar and a mania develops — that is indeed what happened in the late 1970s gold mania, which is the example Porter calls on in looking for mega returns. But they could easily fall, too, if coin collecting loses its allure, and it would take a steep drop before they hit “melt value.”

The more widely available St. Gaudens Double Eagle coins that Sjuggerud talked up for most of the past decade are priced much closer to “melt value,” at least at the lower levels of condition, as are many of the other more widely-minted pre-1933 US gold coins. Personally, my feeling is that anyone I deal with when buying or selling collectible coins is going to know a lot more about them than I do… so I’d rather just stick with bullion or modern coins, try to buy them when they’re priced without much premium over the gold “melt” price, and think about them just as a direct play on gold. Though I confess I’ve got a soft spot for the Canadian “call of the wild” 99.999% coins.

And step two?

“Step 2 is also simple: You want to own stakes in some of the world’s most preeminent gold-producing properties.

“To do it, we’ve identified companies with tremendous track records of success (one has been operating for 100 years)…

“Collectively, these companies own — or own stakes in — hundreds of the best deposits across the globe…

“And perhaps most important, they tend to do extraordinarily well when gold prices rise.

“For example, from January 2001 to the peak of the bull market in September 2011, the price of gold went up roughly 570%.

“But these companies did far better.

“One soared 1,019%…

“Another soared 1,859%…

“And still another soared 2,698%.

“Keep in mind, these are some of the biggest players in the industry — with billion-dollar market caps.”

OK, so that’s basically “own the gold majors” — you can do that, and you can sift through the top 20 or so gold miners to decide which ones might be most appealing to you in a “gold mania” market… but frankly, I don’t see the point. If you want easy exposure to big, established gold mining companies I’d suggest just buying the index — either the Market Vectors Gold Miners ETF (GDX), which tracks the largest operating miners and ranks them by market cap, or the somewhat tweaked Sprott Gold Miners ETF (SGDM) ETF, which I prefer because it applies a quality screen to try to adjust for how much the companies would benefit from a rising gold price. Both are relatively inexpensive, with expense ratios around 0.58% per year, and both will give diversified exposure to big gold producers. Easy peasy, and you don’t have to worry that one big mine accident or government seizure will wipe out the favorite stock you selected.

And it’s worth noting that although the usual assumption is that miners will provide leveraged exposure to gold during upside moves, that’s not always true — at least not in any kind of dramatic fashion. Here’s what the GDX index of big miners did versus the gold price (the GLD ETF) during the last big run for gold, from 2008 through 2011:
So you can see the leverage in terms of volatility, that blue line of the GDX moves a lot more than the steadier orange gold price — but over that time of rising prices GDX went up 160% versus 107% for the gold price. That’s leverage, but it’s not very dramatic leverage. That’s why it might be worth picking the best performers — but it’s not necessarily easy, the biggest “name brand” gold miners like Barrick (ABX), Goldcorp (GG) and Newmont (NEM) all did worse than the GDX and, in some cases, worse than the gold price. And over the past five years, the metal itself has outperformed the average big miner by a substantial margin — so that leverage certainly also works on the downside.

Over a decade or so, gold has done better than the average big miner, and better than most of the ones you could easily name offhand — the most consistently strong big gold names during the last ten years have really been the royalty players, particularly Franco-Nevada (FNV), the pioneer in that business, but also Royal Gold (GRLD). Should gold soar higher, presumably that leverage would work on the upside and the producing miners would likely outperform gold. Perhaps Porter’s got an eye on some big miners that will be better than others, I don’t know, but the big guys do generally travel in a pack so it’s an analysis challenge to identify favorites.

(For full disclosure, I have positions in both those ETFs — I own some SGDM shares, and have call options on GDX.)

Porter’s going pretty big on this, recommending a stiff allocation to gold, and he seems to be listing these in order of importance — first bullion or collectible coins, second big miners…

“If you invest in nothing else, I urge you to put at least 20% of your overall portfolio in the recommendations we cover in Steps 1 & 2.”

And what, then, are steps three and four for those who want to go a bit further? “Gold banking” and “Junior Miners” — we’ll see what the hints are and try to name the investments for you….

“Step 3 is what I like to call ‘gold banking.’

“You may have heard us mention this technique before. We’ve also called it ‘buying gold in the ground’… or buying a ‘synthetic option on the price of gold.'”

That’s something we’ve gone over a few times — most recently when Nick Hodge was pushing his “golden loophole” earlier this week. Basically, it means buying gold deposits that have been discovered but aren’t yet mines — there’s a long continuum of possibilities there, from “gold banks” who have no intention of ever operating a mine and are just buying up properties from “distressed” sellers in hopes of another bull market in the future, to companies that have fully delineated a big resource and are fairly close to actually financing or building a mine.

So which one is Porter hinting at? Here are our clues:

“This involves buying stock in world-class companies with world-class deposits… that are not quite ready for production.

“These are companies that have gone through the extremely risky and expensive stage of actually exploring for gold. They’ve found it. And they’re ready to produce it.

“But because mining is still a risky and costly business, even after a company has discovered a worthwhile deposit, you can often buy this ‘gold in the ground’ at a huge discount to actual value on the open market.”

And he gives some specifics about one of the stocks in the Stansberry Gold Investor portfolio:

“For example, one company in our model portfolio has partnered with Barrick Gold to develop one of the largest, richest gold projects in the world.

“Just to give you an idea of this project’s potential, Seabridge Gold — the best-performing recommendation in the history of our company — owns a property called the Kerr-Sulphurets-Mitchell deposit or KSM.

“KSM has an average ‘grade’ of .55 grams per ton. That means for every ton of rock, they’re getting roughly 0.55 grams of gold.

“The ‘gold in the ground’ company I’d like to tell you about has a current grade of 2.2 grams per ton. That’s four times richer than Seabridge’s deposit.

“And today, you can own this ‘gold in the ground’ for just $81 an ounce — that’s a 93% discount to the current price of gold.”

That’s almost certainly a reference to the Donlin mine in Alaska, which is 50/50 owned by Barrick Gold (ABX) and the company Porter must be referring to here, Novagold Resources (NG). They also own half of the Galore Creek deposit in British Columbia, which is partnered with Teck Resources (TCK).

Novagold is indeed valued at about $80-90 per ounce for their half of the Donlin Gold reserves, depending on exactly which numbers you use — and that doesn’t include the Galore Creek copper mine. The current market cap of $1.75 billion, divided by their total reserves and resources of 19.5 million ounces (half of the 39 million ounces of proven and probable reserves plus measured and indicated resources, not including the “inferred” resources) and you get about $89. Close enough to be a match, particularly considering the stock has jumped almost 10% in just the past week as gold fever has taken hold a bit.

That doesn’t account for what the financing might cost to actually build the mine, but they’re probably at least a year or two away from that point and they have plenty of cash to get through permitting — they are currently in the environmental permitting process, near the end of the public comment period, and that process should be complete next year if all goes well (which it sometimes doesn’t). Building the mine once permitting is complete will take four years, Novagold says, and then they’ll be producing 1.5 million ounces of gold a year for the first five years — which, if gold is still at $1,200 an ounce then, would mean about $900 million in annual revenue for Novagold.

If Porter’s right about gold heading toward $10,000 an ounce, then that would obviously make things far rosier. If he’s wrong and gold drops to $800 an ounce in 2017 (just a hypothetical), financing would probably be much more expensive and the stock will probably be dropping, though the preliminary economic assessments filed for Donlin several years ago indicated that they could produce for at least a few years at a cash cost of well below $500 an ounce — though the construction would still require a capital investment of $7 billion to build the massive infrastructure required, including maybe a gas pipeline and a power plant, which means Barrick and Novagold need a pretty solid comfort with gold prices before they proceed (Barrick, which says it’s planning based on gold prices being about $1,100, notes that they’re also exploring a lower-cost plan to open incrementally instead of getting to full production right away).

They don’t seem to have the strong opposition that the Pebble Creek mine faced in Alaska a few years ago, but I have no idea whether they’ll get approval or not — I would guess the odds are pretty good, given Alaska’s general interest in developing projects that will support the economy (especially with oil prices low) and don’t obviously pose specific environmental risks… but that’s just a guess, I don’t know for sure whether or when the Donlin mine will be built. It is, when built, expected to be one of the biggest open pit gold mines in the world, and one of the highest-grade. You can see their latest investor presentation here to get a bit more of a picture if you like.

So that’s one — and it is a favorite of Wall Street folks and some well-known investors, Marc Faber is on the board, John Paulson’s hedge fund has a major position, as does Seth Karman’s Baupost.

Porter doesn’t hint at the other “gold bank” stocks they’re recommending, but if you’ve got some you’d like to suggest I’m sure we’re all ears. To find stocks of similar size, though not necessarily similar prospects, you could also poke around in the Market Vectors Junior Miners ETF (GDXJ), which has Novagold as one of its top ten holdings. Those aren’t the real “juniors” that most folks think of when they daydream about penny mining stocks hitting it big, I’d think of them as more “midsize” emerging gold stocks, some producing and some with large deposits that have a relatively clear path to possible production, the top ten holdings in that ETF are all, roughly speaking, billion-dollar companies.

So… speaking of “juniors” … how does Porter close us out with “Step 4?”

“Step 4: Junior gold stocks.

“As you probably know, junior gold stocks can absolutely soar during bull market… but also fall much farther during a bear.

“In other words, “They’re among the riskiest publicly traded stocks… but potentially far, far more profitable. Think of them like ‘golden lottery tickets.’

“If we’re going to see the kind of bull market in gold like I believe we are, investing even a small portion of your portfolio in these stocks could help to ensure you live a comfortable and carefree retirement.”

He gives some examples, like Golden Star Resources and Seabridge Gold, of stocks that had blistering returns in prior gold bull runs — so with this last, riskiest step he’s essentially looking for massive leverage to the gold price. Here’s what we get by way of some hints:

“… we’ve uncovered a select handful of stocks… each of which we believe has the potential to ultimately replace Seabridge at the top of our “Hall of Fame” list.

“One of these, in fact, is a tiny gold company with a major deposit right next door to Seabridge.

“Its CEO was once at the helm of a company called Silver Standard. When he took over Silver Standard in 1985, silver was trading for around $6 an ounce. And Silver Standard was worth about $2 million in the stock market.

“When he left, in 2010, the price of silver had gone up about 400%.

“But his company had grown exponentially… to $1.9 BILLION.

“That’s a growth of nearly 100,000%.

“Now that he’s at the helm of this tiny gold company, will he do it again?

“Of course, it’s impossible to say. I certainly wouldn’t bet against it.

“But even if this stock’s performance is only a fraction as good, you could make a killing.”

Well, this one won’t surprise many folks who follow mining stocks, or follow the discussions here at Stock Gumshoe (we have several readers who are enthusiastic about the stock) — and I suppose it’s technically a junior miner, but from my inexpert perspective it’s about as de-risked as junior miners get. They are building the Brucejack/Valley of the Kings mine in British Columbia, and that’s not an expression — it is permitted and under construction now, and they’re targeting commercial production in 2017. That probably means 18 months, at least, since something always happens with mining projects, but according to their updates they seem to be making fine progress.

The company? Pretium Resources (PVG). The CEO who led Silver Standard (SSRI) was Robert Quartermain, and it was Silver Standard who owned both the Brucejack deposit and Pretium’s other asset, the Snowfield deposit. Snowfield is more of a long-term “maybe” for Pretium, and the odds are pretty good that it will someday be combined with Seabridge’s neighboring KSM project and sold or developed together in some way — it’s a low-grade deposit and would probably entail a huge capital commitment to move it forward, so bigger is better.

Silver Standard sold Brucejack and Snowfield to Pretium in 2010, in exchange for a big slug of cash and partial ownership. Silver Standard has sold off some of its holdings in Pretium but is still a significant owner, as is the Chinese mining giant Zijin. And neither of them have made much money on their Pretium shares as of yet, with the stock essentially stuck in a range right around the current price for three years or so as they’ve continued with permitting and fundraising for the Brucejack mine. Now the mine construction appears to be well-financed, and it’s just a waiting game for production late next year.

How will it work out financially? Well, this is an extremely high-grade underground mine, but it’s also probably going to be relatively difficult to mine as they have to find and follow the rich seams. Their 2014 feasibility study, which is based on $1,100 gold, $17 silver and a US$0.92 Canadian dollar (other than silver, that has all moved in their favor so far — particularly the exchange rate, which will help with their Canadian expenses), has them producing 504,000 ounces of gold a year for the first eight years at average operating costs of about C$350 per ounce over the life of the mine (that’s not the “all in” cost — it’s the C$163/tonne operating costs combined with the 15.7 grams/tonne average grade — 15.7 grams is almost exactly half a troy ounce).

So that high grade gives them quite a bit of flexibility and a pretty low operating cost, though their non-operating costs might be pretty substantial (their interest costs on their latest financing will be over $25 million/year, and that $350 million loan matures in 2020 so they do have to make sure that the startup goes pretty well).

If they can produce 504,000 ounces, giving up about 40,000 of those ounces each year connected to their streaming deals, they would net about 460,000 ounces. Sell that at $1,200 an ounce and that’s a little over $550 million. The project capital cost is only about $750 million, most of which has been financed already, so as long as the mine startup goes pretty well and they’re not completely wrong about their operating costs, I can see how this would be a very solid business even though production is scheduled to drop by about 20% after the first few years. They estimate a pre-tax Internal Rate of Return of about 35% and payback of capital costs within three years, and a mine life (not including any exploration they could do to extend it in the future) of 18 years. You can see their other scenarios in their most recent investor presentation, which lead to a five-year payback even at $800 gold.

If this was a riskless operation, and gold was certain not to drop, this would be a no-brainer — but because it’s a single mine, and it is not necessarily a simple mine (since it’s not just an open pit, and the seams are narrow), there’s some reason to be cautious. The company calculates the after-tax Net Present Value (NPV) of the Brucejack project as being in the range of $723 million ($800 gold) to $3.6 billion ($1,400 gold), using a 5% discount rate. I don’t think that’s a high enough discount rate to use for a miner, but even with a higher discount rate it’s easy to see that the company should be far more valuable than the current trading price IF gold rises considerably and stays high.

So by those metrics it’s not nearly as discounted as many “junior” miners — but that’s because it’s just about fully funded for construction, the capital costs are not outlandishly high, and it’s roughly a year and a half away from pouring gold, and investors have some trust in management. So it’s not necessarily cheap — but I’d agree that odds are pretty good that it will be a very successful investment if gold rises in value… and, of course, if Porter’s right about gold going to $10,000 you can pretty much smile while holding any mining stock.

Pretium is relatively safe for a miner that hasn’t mined anything yet, but that safety means it’s not nearly as levered to a gold mania as a lousier mine would be — Pretium is already worth $800 million, according to the market, and the assumption is that they’ll generate a nice profit in a few years. The most leverage you’ll probably see to a gold mania (at much higher risk) is in the low-grade mines that no one wants to invest in today because they’re too expensive — if gold is at $10,000 in a few years, people will be excited about the huge, expensive, low-grade potential mines that are currently on life support (like Livengood in Alaska, owned by International Tower Hill Mines (THM), for example — that’s not a suggestion that you look at THM, it’s just an example of a large, high-cost potential mine that I came across in my reading).

So that’s a handful of the 15 or so gold ideas Porter says he’s recommending in his new Stansberry Gold Investor report — and he does hint at just one more idea…

“More than 2x the Return of Gold?

“Yes, I’ve been telling you that gold stocks are the best opportunity in the markets today.

“But that might not be true — not quite.

“Don’t get me wrong. I’m not taking back anything I’ve said about the insane revaluation plan… or Negative Interest Rates, or the major, long-term reversal we’re seeing in gold.

“Gold stocks are on the verge of an incredible move.

“But I believe that the move in silver stocks could just as big. Perhaps even bigger.”

OK, silver is often considered the “even more levered” junior cousin to gold when it comes to precious metals, though it’s a tougher metal to forecast because it’s got a history of being both an industrial metal and a precious metal and currency. Porter mentions the gold/silver ratio, which comes up a lot among precious metals enthusiasts — the chart he shows indicates that over he past 45 years gold has averaged out to be 56X as expensive as silver per ounce, though it has fluctuated from about 15X to 100X. Right now it would take about 80 ounces of silver to buy an ounce of gold, so we’re at the higher end of that historical relationship.

Does that mean anything? I don’t know. There’s no fundamental reason for most pricing of non-industrial metals, just as there’s no fundamental reason why gold should be priced higher than platinum, a far rarer and equally shiny metal (and an industrial metal as well). These numbers make sense in showing long-term relationships, but I would shy from reading causality into the correlations or guessing at the specific turning points. Then again, I’m not generally much of a chartist, so perhaps I’m just being cantankerous on that point.

What silver does Porter like? More from the ad:

“I wouldn’t be the least bit surprised to see a move up in certain silver stocks like the ones we saw during the last silver bull run from roughly late 2008 to mid-2011, when…

“Silvercorp Metals skyrocketed more than 800%…

“Pan American Silver shot up 254%…

“Hecla Mining exploded 444% higher…

“And one of the world’s largest silver miners, Fresnillo, shot up more than 1,000%…

“As a charter member, I’ll give you the full details on the number one silver investment I think you should make right now.

“During that same bull market, this stock soared 1,140%.”

So is that enough for the Thinkolator to ID this stock? Not with 100% certainty, but it’s very likely that he’s teasing Silver Wheaton (SLW), which did indeed have exactly that kind of return from 2008 to 2011, in comparison with the other major silver miners mentioned.

Silver Wheaton is probably a good first step into silver investing, but it’s not a miner — SLW was the world’s largest streaming/royalty company until fairly recently, when the crash in silver and some aggressive expansion right before the end of the commodities bull market put a big dent in the shares (Franco-Nevada, FNV, is now larger). And over the long term Silver Wheaton, which really pioneered the “streaming” model (where you finance a mine that’s near production in exchange for receiving a set percentage of their ounces in perpetuity at a below-market fixed price), has more or less tracked with the price of silver, though with more volatility — as this chart comparing SLW to the iShares Silver Trust ETF (SLV) indicates:


Though yes, for some periods the outperformance can be dramatic — like that 2008 lows – 2011 highs number that Porter cites:


What will all this mean? Your guess is probably as good as mine. I find many of the arguments of the gold enthusiasts to be quite compelling — I really do. That’s why it’s sometimes hard for me to be as skeptical as I want to be, and it’s also why I try to prevent myself from messing around with junior gold stocks very often.

Why do I find them compelling? Mostly because the history of paper currencies has been one of steady depreciation — and, over time, gold has been a good way to maintain some sort of purchasing power against that (usually gradual) devaluation of the dollar, the yen, whatever.

The rub, of course, is that “over time” might mean over decades or centuries — and gold has often provided no solace at all for many, many years at a time, or even done much worse than “cash” or other assets for a long time. Partly that’s because of shifting fashions and demographics, partly because of changing patterns of economic or political tumult that have driven people into or out of gold as a “safe haven” in the decades since gold ceased being the backstop for our currency… but regardless of the reason, the fact is that gold is real and shiny and humans have coveted it for millennia. That can change, as anything can change, but it seems unlikely.

I continue to hold some portion of my savings in gold, and to allocate some portion — around 10% right now — of my equity portfolio to commodities-related investments that have at least some exposure to precious metals, including those positions mentioned above in the big ETFs SGDM and GDX and my “hard asset” positions in Sandstorm Gold (SAND, SSL.TO), First Mining Finance (FF.V, FFMGF), Altius Minerals (ALS.TO, ATUSF), and a few dinky speculations on warrants or options (including those Brazil Resources Warrants I mentioned earlier in the week).

Those commodities positions have all generally been drags on my portfolio in recent years, but I think this kind of exposure is worth holding largely because of the potential for further currency devaluation — and, I suppose, because of the potential for something more abrupt and frightening like Porter describes in his ad. I don’t personally expect a gold standard to return, but there’s obviously a global financial imbalance that creates the potential for really worrisome events, particularly with countries both ramping up borrowing at absurdly low (or negative) rates and competitively devaluing their currencies in an attempt to boost exporters… and generally when worrisome events hit the currency markets, a lot of investors think that gold is a good place to be.

So far, the currency fretting around the world in recent years has sent folks to the dollar, driving the dollar up and gold down and boosting the relative standard of living in the United States (even as it gives some multinationals fits)… but I can see the logic that the next step might be for the dollar to drop in favor of gold, particularly if the US, the last major sovereign borrower in the world that’s paying a non-trivial interest rate to borrow, goes NIRP. When you can’t make money by lending to a safe borrower, or even in the bank, then gold as a “store of value” with some perceived safety is no longer at a competitive disadvantage… and the gold market is far, far smaller than the currency markets, particularly than the market in US Treasuries, so the impact of that kind of move could certainly be magnified.

Whether that turns into the kind of all-out chaos that Porter predicts, or leads to a genuine currency crisis with hyperinflation and a restoration of the gold standard that could send gold prices soaring, I don’t know. We don’t know what would happen with a sustained period of negative interest rates, because such a thing has never happened before. Porter pushes the assumptions out a few steps more than I’d be comfortable with, and it might mean underestimating the power of inertia and the status quo and the ability of governments and central bankers to continue manipulating currencies, but that doesn’t mean he’s wrong — just that his logic, persuasive though it is in ad form, does not mean there’s just one possible outcome.

I don’t know where to place the odds of such a cataclysmic currency event, or even of a more mundane gold bull market in a given time frame, so I try to keep a level of gold and precious metals exposure that’s meaningful in providing insurance and some speculative potential, but not large enough to be of material harm to my retirement prospects if gold is at $800 in ten years. My feeling tells me to have an above-average exposure to gold right now… but that’s a feeling, and I’ve never found that my feelings are particularly good at predicting market movements.

Gold tends to bring out strong opinions, so if you’ve got one to share I’d be delighted to hear it — have a forecast for what you think will happen with the shiny stuff in the next five or ten years? Favorite ways to invest in or speculate on gold? Let us know with a comment below.

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