For the last 10 months, I’ve been tracking Osisko Gold Royalties (NYSE:OR) as a “stock to watch” for 2021.
At first blush, Osisko seems relatively unremarkable — especially since it has gained only around 15% since June 11, 2019.
Despite this lackluster performance, however, the stock could still play catch-up to the rest of the gold sector as it also plays catch-up to the broad stock market.
Osisko May Still Be One of the Best Hedges to Own in the Midst of Uncertainty
Year to date, Osisko stock has lost about 14%. Gold itself hasn’t had a much better run, losing about 9% since Jan. 1.
Although it is impossible to cite a specific reason why the gold price has been drifting lower, the dollar’s recent uptrend is certainly part of the reason. After bottoming out at 89.20 on Jan. 6, the Dollar Index has advanced nearly 5%.
That’s a big move in the world of currencies. And since gold tends to move inversely with the dollar, the greenback’s recent winning ways have produced losing ways for the gold market.
But all is not doom and gloom for precious metals. In fact, one major developing trend could light a fire under the gold price once again… the U.S. federal deficit.
Typically, when the federal deficit is soaring, one of the best kinds of stocks to own is a gold stock. And at the moment, the deficit is not merely soaring — it is skyrocketing to multi-decade highs.
Recall what we talked about a week and a half ago in the column “Gold is Dead… Just Like Paul McCartney“:
“After topping $4 trillion last March, the 12-month federal deficit has declined to “just” $2.8 trillion — a number that is equal to 12.5% of U.S. GDP.
“That’s a big number.
“Meanwhile, the six-month average U.S. inflation rate is hitting its highest levels since Dances With Wolves won an Academy Award 30 years ago.
“Historically, great, big governments deficits, coupled with great, big inflation readings, trigger great, big gold rallies. Perhaps this time is different. But there’s a reason why many seasoned investors say that ‘this time is different’ is the most expensive phrase in finance.
“Because it is.”
Now, another reason why Osisko may begin inching higher is inflation. The Consumer Price Index readings of inflation are hitting their highest levels in 30 years.
Thus far, however, the precious metals are refusing to move higher. Neither gold nor gold stocks have been a 2021 story… at least not yet.
But I suspect this widespread complacency about government deficits and inflation will fade away over the coming months, to the benefit of the gold market broadly… and Osisko in particular.
Meanwhile, despite the challenging conditions in the gold market, Osisko has succeeded in boosting it gross earnings (EBITDA) for nine straight quarters.
Looking out to next year, the company is on track to grow EBITDA by about 20%, even without any potential help from a rising gold price.
But this company-specific success won’t count for much if the gold price continues to languish. On the other hand, if the gold market finally catches a tailwind, I would expect Osisko’s stock to outperform its peers by a wide margin.
So don’t be surprised if gold and stocks like Osisko suddenly awaken from their comas to score a big gain when investors least expect it…
Now, keep an eye on your inbox. Something big is coming soon, and while I can’t share any details yet, you’re going to want to be first in line to learn about it.
Stay tuned — I’ll tell you more on Thursday.
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On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.