Buying GDX: Biggest Gold Lease Rate Surge Since Late 2008

Believe it or not, we may have reached one of the strongest buy signals ever seen in the gold asset market Lehman Brothers In September 2008, 15 years ago, the company was allowed to go bankrupt.an unusual A rare spike in the backwardation paid in the futures market is already generating real-world signals that a shortage of physical gold is spreading. In terms of 3-month pricing, the level of “implied” lease rates has jumped across the board to over 2% per annum and could reach as high as 3%, a reading roughly 3x higher than in September 2022. And, a large part of this uptick is due to what happened in the most recent week of trading!

Why Gold Investors Should Care About Lease Rates (or the Interest Buyers Are Willing to Pay Before Buying) Receive physical gold bar delivery on a specified future date)? This is the best read on whether central banks, billion-dollar hedge funds, brokerage firms, banks and other financial institutions have gold to sell into the direct market. If demand exceeds available supply, the premium for future physical delivery will rise faster than usual.

Last week, I wrote an article about Direxion Daily Gold Miners Index Bull 2x Equity ETF (NUGT). For gold fans, the outlook for the gold asset has turned more bullish over the past few sessions.

If you’re new to the gold market and especially gold miners, and you don’t want to (1) take on the additional leverage and risk of NUGT, or (2) delve into which miners are the best holdings for the next 6-12 months, I definitely recommend in VanEck Gold Miners ETF (NYSE: GDX). This offering features the largest and best value mining gear, giving you quick and diverse access.

It is also the largest gold miners ETF, with more liquid trading, $11.8 billion under management, and an annual management fee of 0.51%. GDX does pay a respectable dividend yield of 1.65%, which is slightly higher than the comparable S&P 500 index. I fully expect higher gold prices next year to lead to increased dividends on many of its holdings.

GDX’s top ten holdings include Newmont (No), barrick gold (gold), Franco – Nevada (FNV), Agnico Eagle (AEM), Wheaton Precious Metals (WPM), newcrest mining corp. (OTCPK:NCMGF) (OTCPK:NCMGY), Zijin Mining (OTCPK: ZIJMF) (OTCPK: ZIJMY), gold mining area (GFI), Polaris Resources (OTCPK:NESRF), and royal gold (RGLD). You are buying a piece of mining property located on every continent of the world except Antarctica, with ownership structures ranging from a percentage partnership to outright owned resource and production assets to a royalty financing company getting a share of future sales.

This article will review the performance of the GDX following similar spikes in gold lease rates over the past 15 years, which I believe to be most similar to our current financial market conditions in 2008.

Why it makes sense to be bullish on gold

Below we can view the relationship between the 15-year gold price and the change in the lease rate through GoldChartsRUS.com. I drew green arrows to point out the similarities between today and October-November 2008. Also, I’ve circled in green the next of kin that saw rental rates spike during late 2015, March-April 2019, and last fall.

Here’s how bullion quotes and GDX total return performance each occurred over the ensuing months and years. It’s an easy conclusion to draw: past spikes in rental rates have foreshadowed upcoming price increases, often substantially over time.

November 2008

2015-16

2019-20

2022 to present

final thoughts

Will a surge in lease rates lead to an immediate rise in gold prices? The answer is not necessarily. A bull market in gold can take weeks or months to emerge. That’s what the evidence from the past 15 years shows. However, if you buy now and close your eyes (ignoring daily volatility and news flow) for 6-12 months, I’m pretty confident that bullion and mine pricing will be significantly higher than it is today.

That’s exactly what the tight spot market landscape is signaling for the future. In order to find a better balance between the forces of supply and demand, higher offers appear to be necessary. Pushing the existing supply of above-ground gold to market through the profit motive is how capitalism works.

Part of the tightness in the physical bullion market is due to record gold accumulation by central banks around the world since early 2022. If they continue to buy gold, who knows how high the price of gold will rise on the back of mathematically unpayable national debt numbers in the face of an ever-depreciating dollar. Any crisis in dollar confidence could push gold prices above $3,000 an ounce without much warning. This target is close to my long-term “fair value” calculation for gold using 60 years of relative pricing of other asset classes and US money/debt creation trends. I have explained this fair value idea in previous gold/silver articles over the years.

And, if we were to head into a recession soon and the global financial system came under new stress, there would be another round of record quantitative easing buying treasury bonds (to keep credit markets from freezing up) and increasing the aggregate money supply (to prevent a debt default depression) Only fuels interest in the hedging properties of monetary metals (gold and silver).

My rating for VanEck Gold Miners is purchaseTend to strong buy, a 12-month outlook is used if the price does not increase immediately. Gold and related mining concerns have not received much active media attention, with the positioning of futures markets for non-commercial accounts highlighting the apparent lack of bullish interest in gold over the past year despite its 15% gain. This is a good thing, with plenty of fresh buying interest now on the sidelines as the precious metals cycle turns. We’ll have to wait and see if we enter a new gold rush of investment interest in 2024. It depends on the direction of the economy and how the Fed responds.

thanks for reading. Please consider this article as the first step in your due diligence process. It is recommended to consult a registered and experienced investment advisor before entering into any transaction.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.