Gold to $8K (Uncut) 03-07-2025

Gold to $8K: Hathaway’s Prediction & the Mag 7 Meltdown

The stock market bubble and these AI stocks, Magnificent Seven, is starting to pop. Very clearly, if you look at how those, Microsoft, NVIDIA, I can’t remember all of them, but if you look at those charts, they’re pretty darn scary and you know they’re over-owned. So, I think one reason that gold would have a new bid from individual investors and institutions would be that the strategy of the Mag Seven, which is obviously a hugely important factor in why the S&P has done what it’s done, if that starts to, I guess, I always like to say things in a hyperbolic way, if it does a face plant, you’re going to see people scratching their head to say, geez, we need something else to do.

And that, I think, gold will be one of the answers. Greetings and welcome to our show. My name is Trey Reich of Bristol Gold Group.

And today we’re here with John Hathaway, who I regard as the Dean of Gold Fund Managers. We’ve known each other for 25 years and currently John is running a billion dollar Sprott Gold Equity Fund, among his other tasks. And I really appreciate your being here with us today.

John, how are you doing? I’m good. Thanks for having me on. I should also mention, in addition to the Sprott Gold Fund, we have just launched an actively managed ETF.

The ticker is GBUG. One of the best tickers I’ve ever heard of. It’s a great ticker.

There’s no question about what it’s about. And I would be happy to have your listeners and viewers look into it. It’s, you know, it’s our best ideas.

So I spent the morning reading your special report on that. I have a couple of questions for you, which we’ll get to. But I think the timing of our conversation insofar as the BMO conference concluded last week is especially fortuitous because we have the Dean of Gold Fund Managers and I think probably coming back from the best run investment conference I’ve ever attended.

I have always been amazed by the professionalism and the intensity and the attendance and, you know, the idea flow that comes from BMO. So I’m going to put you on the spot. How was the mood? How was the attendance? You know, what were the themes? I, to be honest, Trey, I was not there because of my knee surgery.

Oh, okay. But I have reports from our team that went. We had Justin Tolman and Maria Smirnova were there and I got a lot of feedback from them.

The tone was, you know, to me, and again, this is a little bit secondhand, considering that gold is knocking on the door of 3000, you would think there would have been a little more upbeat mood in terms of the presentations. And I would say that was missing. I’m not sure what to make of it.

I think one of the issues with gold stocks is that the CEOs that we talk to, and of course, we talked to other levels of management too, they really are not enthused about what the price of what is essentially the key thing for their fundamentals, the earnings and cash flow and, you know, the things that I think are important from a stock point of view. There are very few CEOs that are conversant and then enthusiastic about the prospects for the gold price. Now, you know, they’re miners, you know, they can’t multitask and get into the sort of macro depth that I think is important on the gold price, but they really don’t even devote any resources, I’m speaking very generally, to that subject matter.

So they fall into the trap of believing these sell-side analysts who look at valuation based on net present value, NPV, and then comparing the enterprise value to NPV, which is a very, very negative analytical template for evaluating that for arriving at a value. That’s a rant that I’ve had recently. And, you know, it’s probably not maybe what you wanted to hear, but yeah, the meetings, Maria and Justin probably between them had 100 meetings in three days, it’s heavy duty.

Normally I would do that, I wasn’t able to because of my recent knee surgery. But you basically have a conference where it’s a kind of a speed dating thing. You have about 25 minutes and then you have to go to the next meeting.

So it’s all highlights, elevator speeches and that sort of thing. At the end of the day, we came away thinking that we’re very well positioned in the holdings that we have. I would say the resulting trading that we would do from the information we got is marginal.

It’s not like we own things and we’ve said, oh my God, this is just terrible. And so, you know, we’re not going to do a whole lot. I think we’re very well positioned in the things that we own.

And maybe there’s some new ideas that we could invest in. But anyway, that’s the purpose of the conference is basically to, it’s a reality check on what we already thought going into it. And, you know, this year, the conclusion was by and large, we’re well positioned.

I’m sorry for going on such a rant. Way off the reservation. No, not at all.

But you did bring up that, you know, the gold executive teams, I guess, are trained not to really take the gold price into account when scheduling capital expenditures, et cetera, for the upcoming year or two. And we understand that you got to, you know, Mark Briscoe is famous for stress testing all of his mines, the thousand dollar gold. But just backing up from that, if you look back at 2024 and you’ve been doing this for a while, you had the S&P up 25%, you know, second year in a row up 20 plus, you had 10 year yields firming 18% over the year from sort of 388 to 460.

And you have the dollar at two year highs, yet gold beat everything up 27.2%. So, you know, what do you think that’s telling us? Well, I mean, the gold price is up, I think, for multiple reasons. Obviously, you have a lot of central bank buying, which is a big part of the bid for gold. Why are they buying? Because they’re diversifying away from the U.S. dollar.

Why are they diversifying away from the U.S. dollar? Well, two things. One, treasuries are no longer a safe asset because of the dire fiscal issues facing the United States. And maybe Doge can fix it, but I have reasons to think otherwise.

And the other one is that it goes back to the confiscation of Russian reserve assets. They were held outside of Russia. So, you know, once the dollar has been politicized, it’s not the safe asset that it was in the past.

So definitely you have central banks positioning gold, and they’re not essentially price sensitive buyers. They just say to themselves, well, we need to have X amount of gold as a percentage of our reserves. You know, go, you know, go execute the trades.

So that’s been a big factor. You know, you have geopolitical issues that, frankly, you know, we don’t even have the time and we shouldn’t spend time on that. And then more recently, I think it’s worth thinking about the idea that the current administration, the new administration may revalue gold, which is held, which is valued at $42 to spot.

If they did that, that would inject $800 million, roughly, into the TGA, the Treasury, the Treasury General Account, and would reduce the amount of stress on refinancing this trillions of dollars that are rolling over in U.S. treasuries this year. It’s kind of a gimmicky quick fix, but it might be something that Besson, the Treasury Secretary, thinks would make sense. But I think all of these things, and I’m probably forgetting a couple of other things that I can mention, but the reasons that gold is doing as well as it has is there are multiple things.

And one of the things that has, I’m going to go off on another tangent here, but when the talk of tariffs on importing whatever started to gain a lot of currency, there arose among risk margin clerks, compliance risk managers at bullion banks, a thought that, gee, maybe we should lighten up on these rehypothecated paper trades in gold, and we need to get square. We need to have physical gold here in the U.S. so that we can settle these trades. What that revealed, and it was similar to what happened under COVID when there was this panicky move to get physical metal back to the U.S., is that the float that underlies paper trading, which is centered really in London, and I guess Comex, those two would be the big ones, the float of physical metal backing it relative to the notional amount of trades outstanding is tiny.

And there’s a huge amount of risk if there’s a run on that bank. So I think anything that, and so connecting that with the idea that we may, as a country, as the U.S., may revalue gold, may upgrade its status as a monetary asset, cause this panic to cover shorts, is very telling. And in my mind, it suggests that there’s much more upside if there’s better price, anything that diminishes the paper gold trade, in my mind, will lead to price discovery, better price discovery, and in my mind, much higher gold prices than where we are today.

Got it. So not to interrupt, but the central bank buying of gold has certainly been a big factor in the past three years, really. And I think we all have a tendency to explain gold price movements.

We tend to focus on the easiest things there are to follow, and central bank gold buying’s definitely very transparent, or some of it is very transparent. But at the interest of challenging that concept a bit, in 23 and 22, central bank gold buying was over a thousand tons in each of those years, which was 100% higher than the average in the prior 10 years. But gold didn’t break out of that $400 trading range where 2000 was sort of the top limit.

And then last year, we actually had a slight decline in the annual amount of central bank gold buying, but gold shot up 27%. So I’m sort of a fan of the concept that finally, after all the work that we put into the gold trade for the past two decades, there’s certainly the possibility that it’s rising for the right reasons, which would be that global investment grade capital is seeking refuge from anti-dollar sentiment and US deficit and fading Fed credibility. Do you think I’m dreaming or do you think some of that’s happening here in 24 and 25? No, I think that is happening.

Central bank buying is, as I said, it’s a component. It’s one of the easier things to point to, to say, gee, the trust in the US dollar is shifting and that’s exhibited by central bank purchasing. But as to what else could be a factor, I think it’s very important that this move in gold has been without a lot of capital flows from Western investors.

Gold is still very under-owned. And you can see that in the AUMs of GLD and gold-backed ETFs in general. If you go back three or four years, maybe go back to COVID, they’ve actually declined.

The value of looking at GLD has gone up because the gold price has gone up. But if you look at the ounces that are in GLD, they’ve actually declined. I don’t have a number, but it is.

And recently there has been a little bit of an uptick. But if you take a five-year look at that, it’s gone down. So just imagine what would happen if Western capital, which has been dormant and disinterested in what we’ve talked about, if people suddenly said to their financial advisors that pick any one of the big firms today, that I want to have more gold in my account.

Just a shift of that sort, maybe I’m adding from maybe 1%, which is where we are, to 2% or 3%. That would drive tremendous demand for physical gold because these ETFs are backed by physical gold. As I said, price discovery, I think you could easily tack on another couple of thousand dollars on the gold price.

And then you have to ask and say, why would people do that? And in my mind, I have two reasons. Number one is that the stock market bubble and these AI stocks, Magnificent Seven, is starting to pop. Very clearly, if you look at Microsoft, Nvidia, I can’t remember all of them, but if you look at those charts, they’re pretty darn scary and you know they’re over-owned.

So I think one reason that gold would have a new bid from individual investors and institutions would be that the strategy of the Mag Seven, which is obviously a hugely important factor in why the S&P has done what it’s done. If that starts to, I guess, I always like to say things in a hyperbolic way, if it does a face plant, you’re going to see people scratching their heads to say, geez, we need something else to do. And that I think gold will be one of the answers.

The other thing that I think is about to happen is that crypto, which has been a huge fad and a very successful investment for many people, and a big, actually crypto-backed ETFs, equal now gold-backed ETFs. It’s incredible. I think the number is something off the top of my head, but it’s like, it’s in the trillions.

Anyway, that means there’s a lot of money stacked away in these crypto and crypto-related investments. And of crypto, which to me is very much part of the investment bubble in these markets generally. I could talk about credit spreads if we had time.

So in your January letter, picking up on that, you mentioned both of those risks and you also threw in bond market risk and dollar devaluation risk. But I must admit, having known you for about a quarter of a century, you mentioned in there that Western capital flows from these potential occurrences, bear market risk, crypto risk, bond market risk, and dollar depreciation might double or triple metal prices. And all the time I’ve known you, I’ve never heard you mention $8,400 gold.

Is that a misprint or a shadow editor? I think the point is that you have to go back to the idea that paper gold price is one thing. The real gold price, which underlies it, is something else. And paper trading essentially has prevented price discovery.

And so if there were flows into, and I think ETFs are the best example where physical metal makes a difference. This is not future trades or anything like that. This is real metal that has to be owned by these ETFs.

And if you look at how little float there is, how little availability there is of physical gold, and you think back to, let’s go back to when GLD was launched, 2004. The flows into GLD then were, and I’m doing this from memory, something like 38, I think it was the equation. It was equivalent to 38 million ounces, I think.

That led to a tripling of the gold price over a couple of years. And I’m thinking that if you saw just a repeat of that, it’s not that much. And it wouldn’t represent a huge change in the percentage allocation to physical gold by FAs, financial advisors in Western capital markets.

To me, it’s not hard at all to think about a step change in the slope of where the gold price is going. And I think it could happen fairly quickly if the bubble deflates in max seven stocks, if crypto does a face plant, if the economy goes into recession, if there’s disappointment in Trump, there are all these things that could happen that would shift interest into gold. And I don’t think it’s a linear kind of thing.

I think it’s geometric in terms of what could happen. So, you know, 8400, if I actually said that, or maybe you just transposed it. It’s just you said two to three times.

So I talked about the price multiplied by three, and I tried to picture you actually saying that number. Yeah, no, and I would stand by it. I mean, I would just say the thinking is linear.

It should be geometric because so many things are potential there to the potential for so many things to interact. You know, I mentioned a bunch of them just in my last little rant. But, you know, they’re interactive and they can happen together.

And I think you get that kind of reaction in the metal price. And then you have to, you haven’t asked me yet, but I know you’re going to do it. So we’re going to switch to gold stocks now.

So for 25 years, you and I have followed, you know, basically 85 companies. So like over 25 years, you get to know that many companies pretty well. And, you know, from 2000 to 2012, gold went up 12 years in a row, which should never happen really with anything.

And it bred incredible management error and capital misallocation. And we’re all familiar with what happened from 2011 to 2015. And I think just about everybody’s portfolio had about an 85% drawdown.

And I always tell people it’s tough when you have an 85% drawdown to build a long term constituency. But here we are. Don’t, you know, I can talk about this generally, and then we’ll look at it more specifically.

But do you think the gold mining industry generally deserves a reset in investors’ minds? Well, I think it’ll be impossible for that not to happen if the gold price, God forbid, you know, does anything like what I’ve talked about. Or even if it just stabilizes around these levels, which it might do, just technically, maybe you need sort of a check back in the price. But let’s look at that.

So if you go back to August 20, right, the gold price peaked at 2075. And since then, we’re up sort of 40%, and the GDX is down. And even last year, if you look at the quarterly average spot gold price in the first quarter, it was, you know, 2000.

In the second quarter, 2300, 2400, 2660. And now we’re at 2800. And yet we just can’t seem to book the leverage in the gold miners.

So, you know, I understand we’ve had a lot of input cost inflation, but what’s holding back that leverage, that beta to bullion leverage, do you think? You know, there are a lot of things, but let’s first recognize that GDX is heavily weighted to Barrick, Newmont, Franco Nevada. And Agnico was, you know, in the top four or five, representing maybe 30 odd percent. So I think GDX gives a false impression that gold stocks have not performed well.

There have, you know, for example, last year, Agnico, I think was up 70%. Right. You know, we have many holdings in our portfolio that were up substantially more than the gold price.

So I was going to get to this. You had a banner year last year. Your fund was up 20.5%, which was double the GDX.

And you stole my thunder a bit. I have this theory called negative survivorship bias. And I actually did the research.

And in the GDM, the top 10 gold miners by market cap are 68%, believe it or not, of the market cap. And those same 10 companies in your portfolio were just 13%, which I was pretty amazed when I did the math. And in the top 10 market cap gold miners, you have a holding of zero shares and half of that.

So you only have four. I think Agnico Eagle, we can agree, is the exception. That’s the best, you know, one of the best run companies on the planet, much less a gold company.

But I was going to ask you, but you brought it on earlier, you know, why that dispersion? Can you talk a little bit about the negative survivorship bias in this industry? I could. Yeah, it’s another soapbox speech I have. First of all, it’s important.

This isn’t directly to your question, but stock picking actually works. But it’s a small space. So the market cap of the entire gold mining space is maybe 200 or 300 billion, sort of about the amount of Home Depot or whatever.

So for generalists, it’s hard to access liquidity, even though the valuations are so compelling. Mm hmm. I think that will eventually be solved because valuation is compelling and money will flow.

And I guess I can say that it has flowed into the small handful of gold mining stocks that deserve it. But talking more generally about, you know, why is Barrick trading near a five year low with a gold price having done what it’s done? It’s just incredible to say that. Or Newmont, which is not quite near a five year low, but it’s been a dog.

And I think there are a lot of things that go with that. I think in the case of Barrick, they have a CEO, Mark Bristow, who’s tone deaf to political risk, building a mine in Pakistan on the border of Afghanistan. It may have great economics, but what valuation are they going to get? That’s a copper mine too, right? And it’s heavily, that’s another thing.

Both Newmont and Barrick are, I think that they’ve gotten away from what they were, which is championing the idea of gold, articulating the case for gold. You have to go back probably two decades to find CEOs that were capable of doing that. And I wouldn’t say that’s true of each and every gold mining management, but it is very much absent in the conversation.

And it’s so much more about just the nitty gritty, which is, there’s nothing wrong with the nitty gritty of oil and sustaining costs, the ore grades, location, logistics, all the things that go into actually producing the metal. That is very important. We do a lot of that day in, day out in our daily conversations with our gold team.

But what’s missing, in my opinion, is more excitement about the fact that, geez, the gold prices here, almost 3000. We’re making tons of money. You don’t hear enough of that.

What are you going to do with it? Well, a lot of it is a lot of the better companies are buying back stock as a way to return capital to shareholders. Maybe they’re inching up dividends, which is also helpful. But they’re not talking enough about return on capital, ROIC.

And the discipline of shares outstanding, connection of the share to the actual physical metal is an exception to the rule. I think this year Alamos had slides on that and Ken Ross may have. But again, sort of a jumbled answer, but you don’t have company management leadership championing the gold price, showing excitement about the gold price.

And I think that’s a factor. And the other factor is basically you mentioned earlier, they treat gold as if it were just another metal along with copper. I think this is true of Barrick and maybe Newmont.

They’re getting a base metal multiple, which is not the same as a gold mining multiple. That’s all fixable. And I think what’s going to happen is that, and we’re doing our darndest to, I guess the best word for it is to educate, encourage gold mining management to think this way, that gold is different than copper.

It’s different than zinc. It’s different than lead. It is a scarce and valuable metal that has a different story than just sort of ho-hum supply and demand kinds of models that you would come up with for lead, zinc and so forth.

Because it’s a monetary metal and as a monetary metal, gold is special. And mining companies that are producing it should get a different multiple than a base metal company. And you can’t help the fact that if you’re mining gold as a large mine, you’re probably getting copper along with it.

But the fact that gold is special is something that needs to be more talked about. And again, we’re doing everything we can to kind of change the message, the dialogue, what is communicated to investors along those lines. So I think it’ll happen.

I think it’s a transition. When we went through this nuclear winter, you and I put more years on than the time would have justified. Facial tics to show.

We have scars on our back. But I think then you had this sort of transition in the way the management’s thought and they had this bunker mentality and were afraid to stick their necks out and say, geez, here’s our slide deck. We know the gold prices today is 2,800.

But if the gold price were 3,500, here’s what we could be earning. And here’s what we could be cash flowing. I don’t think we’re certainly not there yet, but I think we could be on the cusp of that beginning to happen because you can’t ignore it.

I mean, these companies are just gushing cash and their returns on capital are going up. And they’re at least being very selective about new capital investments and new mines because investors are holding their feet to the fire on that. So this whole narrative that gold mining stocks have lost their connection to the gold price, I think that’s kind of yesterday’s news.

And I think there are things that are in place and could be in place where there could be excitement, even from these brain-dead sell-side analysts who are stuck in their models and their NPV thinking. And maybe we’ll have investors championing gold stocks as they should be because they’re so under-owned, they’re so under-priced, and they have so much upside potential. And you’re getting this free call on higher gold prices that isn’t even priced into them.

So I think it’s, again, we’re stock pickers. We’re seeing it in individual companies, but it’s more because there’s been M&A that’s worked out or success in terms of bringing new assets into production. But if you combine all of that with any kind of excitement on the investment side, money flows into gold stocks because the reason you own a gold stock is because you think the gold price is going to go up.

And once you start to see more of that, I think the gold stocks will regain the performance that’s been missing, the connection to the gold price that’s been generally missing with important exceptions over the last 10 years. So along those lines, I try to think of different ways to point out how undervalued gold stocks are. It’s more difficult than most industries for lots of different reasons.

There’s so many variables, there’s so many assumptions. But if you were to point to one or two metrics that, in your experience, sort of prove that gold stocks are undervalued, what would those one or two favored metrics be? You can look at enterprise value to cash flow metrics. You can look at free cash flow generation, which is commonplace now.

Even though this is a capital intensive industry, you’re beginning to see a breakout in free cash flow. And I think that’s one thing we focus on. I also think that we’re going to see ROIC become very competitive across the board, looking at S&P segments.

I think you’re going to see this industry’s profitability on the capital they’ve invested start to really become extremely respectable. And again, we’re pounding the table on these companies to talk about it, which they’re loathe to do or just haven’t done it. So those are three things I can point to, Trey.

Mm-hmm. And when I look at your portfolio, I believe, if I did my math correct, you have about a 17 or 18 percent position in bullion and about a 17 or 18 percent position in companies that would be associated with silver predominantly, even though most silver companies are probably half gold anyway. But as investors look at the Sprott Fund or try to do this on their own, can you just give us a couple of comments on why it’s important to have exposure in bullion itself and the silver part of the space? Sure.

Well, physical metal, again, when we launched the fund back in 1998, we thought that having physical gold as part of our exposure to the thesis that, I won’t say it again because it’ll take up too much time, of the secular decline in the value of paper money. A very good way to express that would be have a component of physical gold, which we had. And that hasn’t changed.

It’s kind of bedrock. And, you know, frankly, gold has outperformed, you know, in the last 10 years or so, it’s outperformed the stock. So it’s been a very good allocation in that sense.

And silver, Maria, my colleague, could wax much more eloquent than I can on silver, but silver is a monetary metal. It’s, in some ways, the metal that attracts speculative interest, you know, when monetary issues come to the forefront. And silver has lagged tremendously, the advance in the gold price, the gold silver ratio is historically high.

So we would argue that silver is underpriced relative we would argue that gold is underpriced and silver is underpriced relative to gold. So we think there’s tremendous torque in silver stocks. And frankly, they’re hard to find.

There are very few companies that you can really call true silver companies anymore. So when the blood starts to rise on this whole subject matter of monetary degradation, and maybe the bubble pops in a couple of other areas and people start to drift into this thesis, silver is going to have tremendous performance potential. It’s been just lying in the weeds.

But I think there, as much as I think there’s upside in the gold price, I think you can say even more so in silver. Interesting. And then just sort of my last thought, you know, you and I have been in the same, you know, realm for 25 years.

And when we started this in 2000, 2001, 2002, you know, gold was 250. And a lot of the performance in that 2000 to 2011 period obviously had to do with, you know, starting from pretty low bases, both on gold and the stocks themselves. And today we’re at 2850.

And we’re still focusing, you know, our careers on gold equities and silver equities, et cetera. Do you think that there’s still the potential for leverage in terms of the gold miners? Or do you think we’re up against just too large of a base price in terms of the gold price? No, I do think that just pure valuation tells me that there’s upside, just independent, as a stock picker, I look at valuations, they say, this is too cheap. And I think you can just start from that.

You get in the whole package, you get a call on a long dated call on the gold price, which nobody even thinks about, but it’s there, it’s embedded in the shares. And so I kind of think we have to look at the capital markets, how they’re positioned, what the sort of commonplace thought process is, and say, if that’s upended, will there be excitement over gold stocks? And I think there will be. I think they are becoming more deserving of generalist interest because one of their valuations, two, because I think they’re doing a better job of managing capital allocation in most cases.

And so I think when people start to look, which they’re just barely starting to do, the capacity of the space to absorb new flows is limited, which translates into outsized price performance. So long-winded answer, but I think, yes, I think there will be a reversion to the mean in terms of valuation, which could be two or three X, what the gold price has done. Totally agree.

Of course, I do admit to my wife on occasion that choosing gold stocks as a specialty for the past 25 years has certainly been an interesting career choice. It’s had its ups and its downs, but I know it’s a real character builder. You and I are both here, which is testament to the fact that we have so much invested in this, that we’re expecting a big payoff here in the next, I would say, one year, two years.

I think our years of slogging along, lugging this investment thesis will have some vindication. Excellent. Well, I look forward to sharing it with you and I also look forward to positive reports about your knee.

Sorry, I wasn’t fully aware of what you’ve been going through, but hopefully you’re feeling better and you’re going to be back on the golf course. Is it a golf injury, can you admit? Because you’ve played a lot of golf in your life. Well, it’s just like body parts wear out after a certain time.

The good news is in this day and age, you can get replacement parts and you get another five or 10 years. So I’ll be out on the dance floor showing my John Travolta moves before you know it. Well, I look forward to being on the links with you sometime soon and we’ll check in shortly.

John, thanks for your time. Okay, Trey, all the best. Have a great day.

Thanks. Bye-bye.