Streaming Or Not In 2020?

June 7, 2020

In this article we will study the streaming company of precious metals as compared to the mining company.  These two classes of mining companies have a different approach to the business model.  The streaming company can be liken to a bank investing in mining companies in need of funds of development or exploration of precious metal mines.  In return, the streamers demand a percentage of mining outputs in gold or silver, and not in fiat currencies.

Over the last 20 years, since the gold price has risen a great deal.  The following chart showed the results of the streamers versus the miners for the last 10 years, from 2007 to 2017.  Clearly the streamers had out-performed the miners (300% versus -30%).

Chart 1 – The Streamers Out-performing the Miners

In the following sections, we will show that the streamers will continue to out-performers the miners in the future. 

Analyzing Silver Streamers and Miners

Wheaton Precious Metals Corporation versus Silver Miners SIL ETF

We first compare WPM and the silver miner SIL ETF.   Since 2016, WPM has out-performed SIL.  There are 2 red lines of demarcation:  2016 line when the gold and silver price started to rise; and 2019 line when Convid-19 pandemic started to spread from Wuhan, China.

Chart 2 – Compare WPM and SIL Performance

The rate of out-performance of the streamer (WPM) over the miner (SIL) will accelerate with time.

Analyzing Gold Streamers and Miners

Franco-Nevada Corporation versus Gold Miners GDX ETF

The same behavior of the gold streamer (FNV) over the gold miner (GDX) holds true in this sector.

Chart 3 – Compare FNV and GDX Performance

Compare Gold Streamers and Silver Streamers

Our final third comparison is between WPM and FNV.  Both are top streamers in the respective silver and gold sectors.

Wheaton Precious Metals Corporation versus Franco-Nevada Corporation

Chart 4 – FNV versus WPM

While FNV seems to have an edge right, we fully expect WPM to out-perform FNV very soon and for years to come.   The underlying reason is the very abnormal Gold-to-Silver Ratio (GSR) in recent years.

Market Implication of Gold-to-Silver Ratio (GSR) for Streamers

The historical high value of GSR should be viewed in two aspects.  On the broad aspect, high GSR generally reflected crisis and recessions.  On a narrower aspect, with GSR ratio returning to normal mean, we expect the silver streamers will out-perform the gold streamers.

Chart 5– Gold-to-Silver Ratio (GSR) and Forecasts

According to the above chart, GSR will first drop to 60 as a normal mean, and then to 30.

Summary

Our analysis showed that the streamers and the miners will both rise substantially in the future, even though the government’s unlimited currency printing may sustain temporary falling of the equity markets Dow or Nasdaq indices.  Furthermore, we anticipate that the silver streamers will out-perform the gold streamers.

All of us will try our best effort while we are on earth.  This is like the streams flowing into the vast sea.  The important question we need to examine ourselves is:  what can we leave for the future generations?

“All streams run to the sea, but the sea is not full; to the place where the streams flow, there they flow again.”

We are not certified or qualified financial advisors.  Please consult your certified financial advisors for actual trading and investing.

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F.T. Dao is a private investor and recently left the corporate world for technical analysis of stock markets.  He holds a PhD degree in physics and has done technical analysis of the market on the side for many years.  He welcomes constructive discussion and can be reached at:  [email protected]  , [email protected]

China has only 2% of its Total Foreign Reserves in gold.

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