Valuations of gold mining stocks remain low, with long-term gold price expected to reach $12,000.
Daniel Oliver, founder of Myrmikan Capital, a hedge fund focused on micro-cap gold and silver mining companies, believes that the gold market is in the early stages of a major bull market, with long-term gold prices potentially rising to $12,000 per ounce. He points out that mining stocks remain undervalued even after significant rallies, while the allocation to gold among professional investors and domestic institutions remains extremely low.
In a recent client report, Oliver stated that the Federal Reserve will be caught in a money-printing trap, unable to simultaneously cut interest rates and reduce its balance sheet. He predicts that Kevin Warsh, Trump’s nominee for the next Fed chair, will be forced to adopt quantitative easing policies, despite Warsh’s prior criticism of the Fed’s bond holdings.
This view comes as gold prices hovered near the $5,000 mark on Tuesday. On Monday, prices repeatedly broke through, fell back below, and then re-broke above this level, with the rally largely reflecting waning confidence in the U.S. dollar and American assets.
Oliver’s analysis focuses on the fragility of the U.S. debt structure and its long-term impact on gold prices. He argues that private equity sits at the center of an impending dollar collapse, which will drive up financing costs and repel foreign capital.
The Federal Reserve Faces Monetary Policy Dilemma
Oliver noted that following the 2008 financial crisis, under Bernanke’s leadership, the Federal Reserve began large-scale bond purchases to push up bond prices, lower interest rates, and inject substantial reserves into the banking system. Since then, the Fed has been paying interest on bank reserves to maintain a floor on interest rates.
Currently, the interest rate paid by the Federal Reserve is far higher than the yield on the bonds it holds. According to Oliver, since 2022, the Fed has accumulated operating losses totaling $245 billion. “The entire mechanism requires accelerated money printing and deeper losses for the central bank, which issues the national currency,” he said.
Warsh will face $10 trillion worth of Treasury bonds maturing within the next 12 months, which the government will be forced to roll over. Oliver predicts that despite Warsh’s previous dissatisfaction with the Fed’s bond holdings, he will ultimately have no choice but to adopt quantitative easing.
Three Phases of the Gold Bull Market
Oliver divides the gold bull market into three phases. The first phase began in 2022 when the U.S. froze Russia’s dollar assets, attracting seasoned gold investors. He believes that international capital flows have left U.S. financial institutions “carrying insane levels of debt.”
The second phase has yet to begin, reflecting the market’s realization that the Federal Reserve is powerless to rescue private equity or control interest rates unless it buys the entire bond market.
The third phase will see a death spiral in government bonds: ‘The higher the interest rates, the larger the interest payments, the worse the deficit, the greater the supply of government bonds, and consequently, the higher the interest rates,’ he said. Oliver believes the ultimate outcome will either be a government default or an order for the central bank to purchase all government debt, thereby destroying the dollar.
He cited economic theory stating, ‘There is no way to avoid the eventual collapse of a boom caused by credit expansion. The only choice is whether the crisis arrives earlier as a result of the voluntary abandonment of further credit expansion or later as the ultimate and total catastrophe of the associated monetary system.’
Regarding the fair price of gold, Oliver explained that historically, markets have pressured central banks to maintain gold reserves at one-third to one-half of their balance sheets, implying that the price of gold should be between $8,395 and $12,595 per ounce. Due to the real value of long-term U.S. Treasury bonds being lower than the market price manipulated by the Federal Reserve, panic could temporarily push the proportion of gold reserves to 100%.
Investment Opportunities in Mining Stocks
Oliver emphasized that even after a strong rally, mining companies remain undervalued. He pointed out that despite the surge in mining stocks, inflows into gold mining exchange-traded funds remain insufficient. The number of shares outstanding in the VanEck Junior Gold Miners ETF declined by one-third between 2024 and 2026. ‘This lack of interest suggests we are in the very early stages of a bull market,’ he said.
The allocation of gold among professional investors and domestic institutions remains extremely low. Oliver stated, ‘Mining companies will continue to benefit from rising gold prices, but the real explosion will begin when the market starts re-pricing valuation multiples. As capital floods into the sector in panic, large miners will perform well. Junior miners should perform even better because their projects will become impossible to ignore.’
He noted that for the first time since the founding of Myrmikan, junior miners have begun rejecting financing deals, indicating an improvement in industry fundamentals.
Editor/Doris
