Caution warranted in a sea of optimism

Mining Stock Monkey VIP

Bulletin #92

September 16, 2025

Lately, almost every stock in our portfolio has been soaring higher and sentiment in the precious metals and mining stock space is exceedingly bullish.

Yesterday, many stocks were up 5-10% and some juniors were up 20-30% on no news.

Whenever you start to feel really smart in regards to your investment choices, it's a good idea to be more cautious.

I'm not saying the bull market is over by any means, but I don't think this is the time to be aggressive.

Could mining stocks continue screaming higher?

Yes, I can see a situation in which inflation goes much higher, taking commodities along for the ride. For example, right now in the USA we see the labor market weakening. If the Fed decides "heck to inflation, our focus is on propping up the labor market", we could very well see a situation in which the dollar price of almost everything continues going higher, including all of our stocks.

Note: I'm using "inflation" in the way it's currently used by most, not the old definition of an expanding money supply.

In a situation like this, I would be happy to be fully invested in the stocks. However...

Could mining stocks crash?

Yes, I can also see a situation in which this happens. If the Fed decides that they want to do whatever they can to keep inflation low, we could see a deflationary recession where the price of almost everything comes down, including the price of our stocks.

We could even see a recession like this regardless of what the Fed does. Throughout history, there have always been recessions and I think we are overdue for one. The last real recession we faced was around 2008, or about 17 years ago. That is a much longer than is typical. While the Federal Reserve has an impact on the economy, market forces are more powerful than this institution.

Note: I'm not counting the 2020 because governments shut down the economy. Of course the economy is going to contract if the government makes it illegal to work. 2020 was not a normal recession and therefore I don't think it counts.

If we were to face a real recession, we could see big declines in our stock prices.

In a situation like this, I'd be very glad to hold some cash to take advantage of these lower prices.

"But gold stocks tend to do well in a recession, so we win either way!"

Let's remember what happened in the mid 1970s...

The 1970s are remembered as the "decade of inflation" and it's a decade in which gold performed extraordinarily well.

By the end of 1974, gold had gone from $35/oz all the way up to $200/oz in just a few short years. Investors were incredibly bullish on the metal.

Over the next ~20 months, however, the gold price fell by ~50%, down to about $100/oz.

Do you know what would happen to the gold stocks in our portfolio if gold fell by 50% over the next 20 months?

If gold fell from $3,700 to $1,850, the price of the gold mining stocks would get destroyed.

The new market darling, Equinox Gold, for example would likely be around $1 per share, instead of today's price of $10.85. Yes, I believe the stock price would fall ~90% because most of their mines would be losing money and there'd be warranted fears of Equinox defaulting on their debt.

The precious metals royalty stocks would fare much better but would still see ~50% declines.

I remind you of these things to say:

Don't let recency bias make you think that the precious metals will only go up in price. Nothing goes straight up. There have always been painful pullbacks in bull markets, so you should expect it this time as well.

Those who had the cash and courage to take advantage of that 2-year drop in '74-'76 did extremely well over the next 4 years as gold soared to $850/oz.

With that said, if gold fell to $1,850/oz in 2026 or 2027, I'm afraid that most investors would get scared out of their gold stocks at a time when they should be doubling down.

I normally don't go much into the macro in my newsletters but I wanted to share with you a sobering reminder of what happened in the middle of that glorious commodity bull run of the 1970s.

In today's newsletter I have a couple of company updates to tell you about and I'll share with you if I think there are any good buys in our portfolio today.

All prices are in USD unless specified otherwise.