Tim Plaehn recently made waves with an “crisis discussion” about the gold market, though it turned out to be more of a promotional push for his Income Investor newsletter, which costs $129 per year. As part of the pitch, he introduced what he’s calling his “Top Pick for Gold Dividend Investors in 2024”.
Given gold’s upward momentum, it’s surprising that we’ve not witnessed the usual hype around small-cap mining stocks, other high-risk gold plays—investments that tend to surge in a bull market. Maybe investors are more focused on crypto these days, or perhaps years of struggles have left junior miners too underfunded to actively pursue new gold discoveries.
Plaehn’s teased pick is a larger player in the industry, and his campaign has been making the rounds since mid-January, gaining momentum in early March. We’ll be keeping an eye out for more gold-related opportunities, but for now, let’s take a closer look at this one.
When it involves safety, he really emphasizes his point.
He kindly provides details about the company, claiming it’s the “top gold producer globally”, though there’s some debate over that.
He mentions notable figures such as Warren Buffet who admire the value created by this company for its shareholders…
Here are some additional points from the advertisement that strengthen his argument that his investment is more profitable than T-bills.
So, why does Plaehn see this as a bargain right now? According to him, it’s flying under the radar—not grabbing headlines like high-yield T-Bills and the AI boom. He argues that if interest rates start to decline, T-Bill yields will follow suit, making those “safe” investments far less attractive. And when that happens, investors may start looking elsewhere for solid returns—potentially turning their attention to this overlooked opportunity.
The general case for gold remains familiar—it’s a long-standing favorite among gold advocates and has been getting even more traction lately as prices climb. Plaehn frames it like this:
Gold prices often climb When borrowing costs decline since the metal doesn’t generate any income. This trend becomes even more pronounced when inflation concerns and skepticism about fiat currencies—especially the USD, which dominates global markets—come into play. Additionally, rising geopolitical tensions have spurred China to amass what could become The world’s top gold supplier reserves. Historically, gold has surged in the wake of economic turmoil and global conflicts, yet long-term investors have often lagged behind equity markets by focusing too heavily on gold.
Right now, the bullish momentum in gold is largely driven by expectations of lower interest rates. However, these expectations have tempered slightly in recent months due to persistent inflation.
The stock in focus here is Newmont, one of The world’s top gold supplier miners, solidified by the 2019 Goldcorp acquisition and the 2023 Newcrest purchase.
Newmont has long been known for its reliable dividend payments, although it has occasionally reduced its payouts. The company is now adjusting its strategy with a fresh “strategic capital distribution plan”. This strategy revolves around divesting from non-essential or high-cost mines, decrease its debt load, being more cautious with development investments, and launching a share buyback initiative worth $1 billion within the coming two years. To support these efforts, Newmont plans to fund them through asset sales, while also implementing a 38% cut to its base dividend, lowering it to $1 per share annually.
Newmont’s stock took a hit in late February following news of a dividend cut and planned the sale of assets, which are expected to result in decreased gold output for 2024. While the stock has regained some ground, it remains below pre-pandemic levels. To maintain its portfolio of “Tier One” assets, Newmont must sell six major mines and tighten cost controls. However, if gold, copper market values remain elevated, the company could draw investor interest and secure favorable deals for its asset sales.
In contrast, Freeport-McMoran generates over fifty percent of its income comes from copper, whereas roughly 80% of Newmont’s earnings come from gold. While NEM could perform performs strongly during a rising gold market, stagnant production and a reduced dividend could make it less attractive as a top gold stock pick for 2024.
Newmont’s present dividend return sits at approximately 2.7%, though dividend cuts are always a risk. It’s unclear if Plaehn still actively recommends the stock, but his promotional material continued circulating for several weeks after the dividend reduction. Among major mining companies, dividends are frequently seen but generally modest, meaning NEM still stands out as one of the higher-yielding names in the sector.
Plaehn also teases an alternative gold-based income opportunities.—hinting at a way to double down on returns…
I have a hunch that Plaehn is referring to a covered call fund, most likely Credit Suisse gold-backed covered call note. Despite being traded as an ETF, GLDI is actually a debt security issued form Credit Suisse. The fund’s strategy revolves around generating income through monthly interest payouts, which can vary widely depending on the premiums collected from writing options contracts in the SPDR (GLD). In essence, it’s a structured product designed to provide income rather than pure gold exposure. Here’s how the fund outlines its approach:
GLDI has faced challenges recently, as the covered calls written in previous months have been unprofitable due to gold’s strong rally. As a result, distributions have declined, with the current yield sitting at around 4% at a share price of $150. When comparing GLDI’s performance in the past ten years to that of GLD—the gold ETF which it writes covered calls—it’s evident that while the strategy provides a steady income stream, it may not be the best choice for maximizing overall returns.
Covered call strategies are often considered a conservative way to generate income, but they come with trade-offs. Prioritizing regular payouts over long-term capital appreciation can gradually reduce equity value. Historical data illustrates this dynamic: while GLDI has delivered sizable coupon payments—exceeding $20 (2022) and close to $11 (2023)—its share price has lagged behind.
For investors seeking similar income-focused gold strategies, there are alternatives beyond GLDI. The USG and the IGLD employ comparable approaches. USG provides quarterly distributions with a yield based on past performance of just under 8%, while IGLD offers similar returns. Though GLDI has the longest history, its performance during the last two years has closely mirrored that of USG and IGLD, with all three slightly underperforming gold itself.
From January 11 to March 18, gold climbed 9%, while GLDI returned 6%, and Newmont’s stock dipped by about 2%. This underscores a fundamental trade-off: selling covered calls can provide steady income but caps potential gains. For investors focused on cash flow rather than full exposure to gold’s price movements, this approach may be attractive. However, for those seeking long-term equity growth, royalty companies often present a stronger alternative, as the mining sector tends to struggle with capital inefficiencies and value erosion.
A closer look at the performance of major royalty companies reinforces this argument. A comparison of Royal Gold, Sandstorm Gold, Franco-Nevada, Wheaton Precious Metal, and Gold Mining Exchange-Traded Fund (ETF), with the S&P500 (GSPC) as a benchmark, reveals a clear trend: WPM has led the pack over the past few years. This further strengthens the case for royalty companies as a more efficient and resilient option compared to traditional miners.
This year, Franco-Nevada (FNV) has emerged as the top performer, gaining attention as the top-tier of royalty companies. However, its recent success is largely a rebound from a decline last year caused by the shutdown from the shutdown of Cobre Panama copper mine. The anticipated sensitivity to gold price movements, currently exceeding the performance of the S&P500.
Looking at the broader picture, even when gold prices see significant moves, the performance of mining stocks can be volatile. For instance, if we go back to 2015, when gold was at around $1000 per ounce, we see that mining stocks didn’t necessarily shine. While Newmont performed relatively well at times and the GDX ETF outperformed for a few years, it was Royal Gold, WPM that consistently outperformed the pack.
Had you invested in gold in 2014, when the price dropped from its 2011 peak of $1,800 to around $1,250, you would have seen strong returns over the next few years. During that period, no other investment performed better than the S&P500, while mining stocks lagged behind, with even Newmont not doubling its value in a decade.
Gold stocks can be lucrative, especially if a similar pattern plays out. However, history shows that gold royalty companies, such as Royal Gold and WPM, often offer a safer, more stable investment over the long term. These companies don’t deal with the complexities of operating mines or navigating regulatory hurdles. Instead, they profit from a small slice of the gross revenue of the gold miners, offering steady returns to shareholders.
In conclusion, for long-term investments, gold royalty companies like Royal Gold and WPM tend to be more reliable. They provide exposure to gold’s upside potential without the risks tied to operating expenses and the challenges of building new mines. Whether you prefer income-generating funds like Newmont or GLDI, or you wish to sidestep gold altogether, the choice ultimately comes down to your investment goals. What’s your strategy—do you prefer the stability of royalty companies, or are you looking to capitalize on gold price movements with mining stocks? Let us know what you think.
