HomeResearchGoldEvery “Failsafe” Rule in this Sector is Broken

Every “Failsafe” Rule in this Sector is Broken

This editorial contains material disseminated on behalf of GoldMining Inc (GLDG:NYSE).

Dear Reader,

Gold is supposed to have a few ironclad correlations—rules that it has followed almost without fail for decades.

But none of those are safe any longer. Every golden rule has been broken.

And investors who don’t understand why—or the new rules for gold—stand to miss out on a completely new, exploding market.

Let me give you an example.

Traditionally, gold has been tracked with the total ETF holdings of gold bullion. But in late 2022, the two decided to part ways.

ETFs saw the largest net outflows of gold in a decade—and gold continued to rise.

The Broken Treasury Rule

The higher real yields are, the higher the opportunity cost is for owning gold.

So, there has long been a near-perfect inverse correlation between gold and real interest rates.

Last time real rates were this high, gold was under $1,000.

Gold should be at death’s door.

But again, starting in mid-2022, the “rule” broke.

Or consider the USD-gold correlation. The USD is the strongest it has been since 2002, which should mean extraordinarily weak gold.

As you can see from the chart above, that ended in 2023.

But surely investors are using gold as the traditional safe haven from a highly volatile stock market, right?

Wrong: Gold ETF VIX is sitting near its long-term low.

Ten years ago, the Chairman of the Shanghai Gold Exchange explained, “When China has the right to speak in the international gold market, the true price of gold will be revealed.”

The new correlation with gold is with China, not the U.S.A. or EU.

And China is speaking—starting with the Chinese people.

Longjiang Bridge Is Falling Down

Chinese investors who accumulated savings during the pandemic have limited options where to put that cash:

  • Housing prices are in crisis, having dropped for ten months in a row;
  • Saving accounts pay little, with the government urging banks to further cut rates;
  • Money can’t be offshored due to strict government control; and
  • Equities lose money, with the Chinese stock market down nearly $5 trillion in the last three years.

In that environment—complemented by disinflation and income uncertainty—gold is one of the few good options.

But it’s not just about finding a place to deposit savings.

In April 2022—right when the golden rules started to break—the Chinese Consumer Confidence Index plummeted.

It was a far bigger drop even than when COVID hit.

And it marked the beginning of the Chinese gold rush: Chinese people started to funnel their wealth outside the fiat system.

While Western investors are profit-taking and ETFs are shedding gold, Easterners are buying into the surge:

“Chinese speculators have really grabbed gold by the throat.”
– World Gold Council chief market strategist John Read

It’s not just retail Chinese investors. Traders and speculators are getting in on the action, too—in far greater numbers than their Western counterparts.

  • Gold positions held on the Shanghai Futures Exchange hit an all-time high in April 2024.

And that 175-tonne (5.6 million ounces) rise is almost exactly the same as the dip in U.S.-based ETFs.

Are you following this yet?

Speculative money in an emerging market like China can now dramatically move the price of gold.

And that’s just retail investors. The real heavyweight, and the place Chinese investors are taking their cues from, is the Central Bank of China.

China Is the Captain Now

It’s no secret that central banks in developing markets are buying up gold at a record pace—more than 1,000 tonnes (32 Million ounces) per year.

But the leader in those purchases by far is the Central Bank of the People’s Republic of China.

China added 225 tonnes (7.2 Million ounces) of gold, worth over $16 billion, to its reserves in 2023. It’s the highest annual increase in China’s gold holdings in the last half-century.

And it means that the Chinese government is buying ~8% of gold production every year.

China’s total gold reserves stand at 2,235 tonnes (71,520,000 ounces of gold)—or 40% more than all gold ETFs combined. That is over $164 Billion worth at today’s gold prices.

Let me be clear: This isn’t an investment play.

This is China shifting away from USD assets and into gold.

The uptick in buying began shortly after the United States weaponized the USD against Russia.

The use of the USD as a geopolitical instrument stunned China—and they are reacting decisively to reduce their vulnerability.

This is China fighting back. And China’s weapon against the USD is gold.

Gold is not subject to sanctions or confiscation risk. And it’s in high demand by any developed country. It’s the ultimate asset.

The move has created a brand new golden rule:

China now has pricing power over gold.

And they’re exercising it as we speak.

In fact, there’s a near-perfect correlation between one of the most important Chinese financial instruments – and gold.

Understanding the new gold market requires throwing out every rule you’ve heard.

Because this time is different.

GoldMining Inc (GOLD:NYSE)

LEGAL NOTE: Please read important disclaimers at the end of this email.

CEO Alastair Still says “It’s Harvesting Time…”

GoldMining Inc. (GLDG: NYSE) has quietly spent more than 10 years acquiring over a dozen Gold assets with opportunistic timing…

✔ Two IPO’s launched from the portfolio in the last 3 years.

 Sold another project for equity consideration and contingent payments totaling 1,400% what it paid based on share prices at the time of closing.

✔ Holds around USD$119M in cash and equity holdings. No debt.

✔ Contain a cumulative total of 12.5 million gold-equivalent ounces measured and indicated and 9.7 million gold-equivalent ounces inferred.

Here’s why all this is important:

Just ONE of these projects – La Mina in Colombia – has a Preliminary Economic Assessment (PEA), that included an estimate of pre-tax net present value (NPV) of $447.3 Million using a 5% discount rate using a $1,750 gold price. (based on a 2023 technical report).

The gold price today is above $2,300 per ounce.

La Mina is just 1 of 12 projects, at varying stages of exploration, owned by GoldMining.


The KR Special Situations Team



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