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Avoiding Inflation

It is widely accepted that a diversified investment portfolio will have about 10% of its allocation in Gold. The yellow metal for the last 5000 years has been a store of wealth, a trusted currency, jewelry, and an inflation hedge. Protecting those that hold it against their government-issued fiat currency's ever-diminishing purchasing power.

Cash in circulation is soaring, as over 20% of all US dollars were created in 2020 alone. The USA is up to stimulus number 5, with talks of the Biden Administrations' new US Infrastructure Stimulus in the pipeline. This will add billions if not trillions more to the $6 trillion dollars already thrown at the year-long coronavirus pandemic. If you were worried about the purchasing power of the US dollar in 2019, you’re definitely going to be looking to other assets to store your wealth in the coming months.

Austrian economists are calling for a big reset and deleveraging and only see the added government intervention as causing a very big problem to be exacerbated. Keynesian economists are calling for us to spend our way out of the pandemic but even they are astonished at the sheer quantity of money being put into the system and are in disbelief that the government is going full Modern Monetary Theory (MMT) in their approach, with Universal Basic Income being deployed if not in name, in every other measure. The number of dollars in the system now has a real potential to be chasing not enough goods and services in the future, so there is a real worry that inflation could get out of control.

In the latest FOMC minutes, they acknowledge that the rising trend toward higher longer-term yields observed in recent months had started to accelerate and that the Treasury Inflation-Protected Securities (TIPS) had risen considerably. Fed Chair Powell is resolute that the rise in inflation will be transitory and as the year-on-year data drops the Spring 2020 figures, we will have a better idea of how transitory the inflation is. We will also have a better handle on continued supply chain disruptions and whether the input prices are being passed on to the consumer, or whether the consumer rejects these higher prices.

The real crisis of confidence is showing up in the banking data, where consumers are spending their stimulus cheques as seen in the retail figures, up 8.4% last week. However. with loans and leases flatlining, credit card debt reduced, and savings increasing the average consumer may use a stimulus to buy some things, but the data shows they also want to use that stimulus cheque to pay off some debt and save for a rainy day. Consumers clearly do not have confidence that they will have a secure job in the future, or for those with a job, the worry is that their wages won't increase sufficiently to pay off new credit card debt or mitigate the rising inflation and possible rate hikes.

Over the last 3 months, the price of gold dropped as the US dollar price appreciated in line with the rising US10 Year Treasury yields. The rise in the benchmark rates could have been driven by speculators, and depending on how transitory the inflation turns out to be, these speculators could unwind their position and yields could start coming down. Gold producers are overall short sellers in the futures markets, but the Commitment of Traders reports showed that they were reducing their shorts as the price of Gold came down and then increased their short positioning at the end of March. These actions could indicate that the trading range for gold is currently above $1670 and capped by $1880. If so this would be similar to the previous high trading range formed in late 2011 to 2012.

For those investors that are looking for a way to get into the precious metals as an inflation hedge and to start protecting their purchasing power, a better investment vehicle could be to invest in something that doesn’t succumb to short-term price fluctuations based on speculative inflation expectations. The Royalty and Streaming companies are the financiers to the miners and the base model for these companies is to have little to no debt and to put their capital to work with projects and producers that provide a steady revenue stream through profit share or to have an allocation of discounted product that when sold into the market has significant upside.

Vox Royalty is a precious metals royalty and streaming company with a portfolio of over 47 royalties and streams in safe mining jurisdictions. Established 7 years ago it went public in 2020, is listed on the TSX-V, and is now leveraging its intellectual property having built the largest proprietary royalty database. They are a technically focused transactional team and the fastest-growing company in the royalty sector with 19 deals completed in the last 2 years alone. Their business model is focused solely on the acquisition of existing royalties having backtested 600 royalty transactions which showed that this was the best business model for them. With their recent $16.85M funding round they have secured under Letter of Intent (LOI) additions to their portfolio and believe this year, investors will benefit from the exponential growth in revenue from the current 47 royalties and the attractive well-priced incoming deals.

The recent dip to CA$2.15 was met with strong buying pressure backed by some long-term only gold funds, with CA$3.00 the first level of significant technical resistance. The company's opening price last year was CA$3.35 when they were pre-revenue. These current price levels are offering significant upside potential as the company has a projected exponential growth from the current 5 production stage assets set to organically grow to north of 10 production stage assets in the next 12 months, which itself equates to revenue growth. In 2021 investors today are really getting in at the ground floor.


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