Lawrence Williams
Summary
- The rise of no-commission, simple-to-use, brokerage platforms could have an enormous impact on the much more thinly traded precious metals equities.
- Robinhooders and their ilk may be the principal reason U.S. equities have been performing so well in the face of some of the worst quarterly figures ever.
- There is evidence that Robinhood investors, and others using the no-commission platforms, are beginning to find their way into precious metals stocks and ETFs.
- Given the relatively small size of the precious metals equities markets, this could have a huge impact on prices moving forwards.
Perhaps the biggest phenomenon of the massive U.S. equity investing scene has been the rise of small investors using the robinhood.com no-commission investment brokerage and similar platforms like eToro. Indeed, sites like Robinhood are probably the principal reason that U.S. equities have been performing so well amidst the worst recession the U.S. has probably ever seen.
If one looks at the listing of the most popular Robinhood-sourced equity holdings over the year to date as recorded by independent website Robintrack.net, these are dominated by tech stocks - thus perhaps largely accounting for the rise in the NASDAQ index - and also on what are seen as risky recovery stocks with investors buying on massive dips - particularly noticeable on surges of investment in companies announcing bankruptcy like Hertz (HTZ) and other companies seen as recovery counters most affected by the coronavirus like the major airlines and motor manufacturers.
The latter investments are probably a license to lose money - unless one is prepared to invest for the really long term, which is probably not in the psyche of the average Robinhood investor.
There are, however, some interesting signs that perhaps the Robinhooders are beginning to become a little more sophisticated in their investment choices. Or maybe the commission-free brokerage platform community is broadening to incorporate more experienced investors.
While hugely over-hyped companies like Tesla (TSLA) and the FAANG stocks may continue to attract undue attention, it is noticeable of late that there has been a substantial growth among Robinhood users in precious metals stocks and ETFs, and if this accelerates it could be a real game changer in these relatively small sectors.
The apparent surge in interest in precious metals-related stocks and ETFs has been driven by the growing realization that many of these will likely see real growth in the months ahead, rather than the more dubious earnings prospects of some of the other new investor favorites, and the downside risk is, in most cases, considerably more limited.
The numbers are yet small in comparison with the most popular Robinhood investments. But then so is the precious metals universe and with investment in some gold and silver stocks and ETFs growing vertically this multiplicity of small investors, if it continues, could drive these stocks, ETFs and the metal prices themselves, through flows into the bullion ETFs, to new heights.
If one looks down the listing of Robinhood stock favorites, as listed on July 24th, they are led by Ford Motor (F) and GE (GE), followed by American Airlines (AAL), Disney (DIS) and Delta Air Lines (DAL), all of which are seen as stocks with recovery potential.
And then follow the big tech stocks - Apple (AAPL), Microsoft (MSFT), the over-hyped (in our opinion) Tesla with Carnival (CCL) - another big recovery stock - and another tech stock, GoPro (GPRO), making up the rest of the top 10. The next batch includes some other tech favorites like Amazon (AMZN), Snap (SNAP) and Fitbit (FIT),
When we start looking at the precious metals sector, the top stock listed is Yamana Gold (AUY) coming in at 131, the Direxion Junior Gold Miners ETF (JNUG) - a highly complex ETF which should probably be shunned by inexperienced investors and has proved to be a major money loser of late - at 188 and Barrick Gold (GOLD) at 201.
The world's biggest gold miner, Newmont (NEM) only makes No. 571 on the list so far! Agnico Eagle (AEM) another gold/silver major, is so far languishing at No.1873 but is just beginning to garner some attention. The SPDR Gold Trust ETF (GLD) is at 213 while the big silver ETF (SLV) is at 274 - but followed by the top silver mining stock to show, Hecla Mining (HL), at 307.
Other mining stocks to feature high up the listings include Kinross Gold (NYSE:KGC) at 360. New Gold (NGD) at 380, while the top junior we could find was Northern Dynasty (NAK) which came in at 171. Why Northern Dynasty should rank so high defeats us, but the Robinhood investment effect has almost certainly been at least partly responsible for the big increase in the company's stock price since April.
What could well be the effect of investment platforms like robinhood.com? They do distort the market and in relatively thin market sectors like precious metals ETFs and stocks a realization that these might well be a better bet than general equities in the current economic climate could have a knock-on effect.
While junior miners might prove attractive to the gambling element among Robinhooders, U.S.-quoted juniors are relatively few and far between and we suspect the more serious investors, to whom the sector may appeal, will likely confine their investments to the big precious metals ETFs (GLD and SLV) and the major mining gold and silver mining companies like NEM, GOLD and KGC, where they see the downside risk as far more limited and these stocks also pay dividends which enhances their investment suitability.
The more speculative element may well go for mining stock ETFs like the GDX and the more risky GDXJ - an ETF concentrating on selected junior miners - respectively No.s 414 and 1039 on the robinhood.com stock popularity list.
We'd also suggest the safer royalty companies like Franco-Nevada (FNV) and Royal Gold (RGLD) - No.s 1768 and 2687, respectively, on robinhood.com, which obviously have not yet gained investment adherents on the site, but do seem to be beginning to build a following. The more silver oriented Wheaton Precious Metals (WPM) at 783 is already building up well, given the specific investment interest in silver at the moment.
As gold has reached a new all-time high in the mid-$1,900s as I write, while general equities continue to look vulnerable to further falls, ever-increasing media attention to gold and silver in particular is going to filter through to the small investor.
The sector had largely been ignored by the retail investor, but ever-increasing mainstream media coverage, particularly if the gold price does breach its all-time high of $1,922, will surely highlight the potential gains to be made while the U.S. economy remains bogged down by the COVID-19 crisis.
The precious metals mining stocks should offer leverage over the gold and silver prices - almost all should be registering strong earnings at current precious metals prices and many pay decent dividends. Thus the next few weeks, if gold and silver continue to perform positively as they seem poised to do, the Robinhood effect could give a nice boost to precious metals related equity prices.
We would recommend the following as worth an investment: GLD and SLV among the precious metals ETFs, NEM, GOLD, KGC, AUY, NGD and AEM among the gold miners, HL and PAAS as silver counters, FNV, RGLD and WPM as royalty/streaming companies - and GDX and GDXJ for more risky gold and gold junior stock ETFs.
That's a pretty comprehensive listing. All would seem to offer relatively low downside risk and good upside potential as gold and silver seem poised for further advances with the prospect of a supercharged boost from the Robinhooders, and other new retail investors using commission-free investment platforms.
This assumes they grow to recognize the relatively safe potential of precious metals related stocks and ETFs as an alternative to what we see as excessively risky general equities as the U.S. potentially sinks ever deeper into recession.
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