Over Easter weekend I sent my subscribers a report outlining how I see things right now and what it means for the stocks in the Maven portfolio.
While I am not going to reveal the portfolio, here’s a run through of the rest.
Bottom line: it’s a complicated world out there right now. Rather than supply and demand, metal prices and mining investment dollars are responding to macroeconomic issues: interest rates, inflation versus deflation, bond yields, dollar strength, earnings-per-share projections for US large caps, unemployment and payroll numbers, and the like.
The data weave themselves into a web almost too dense to penetrate – but through the fabric I am see signs that the US markets are near their top.
And that matters, because the mining rebound depends on weaker US markets for two reasons.
As I wrote on the weekend…
“First, generalist investors have had no reason to invest outside of US large caps for the last five years. Why would they put any money into high-risk equities when giants like Amazon, Google, Bank of America, and Walmart have offered share price gains plus dividends for five years?
Now investors will not step away from the US
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Last week was a great one for gold. After an eight-week decline pulled the price back 11.5% to a closing low of $1,147.25 per oz. on Mar. 18th, gold jumped back to close above $1,200 on Mar. 26th.
The question everyone is asking now: where will it go from here?
The long answer is the gold is looking good in the short term based on US dollar weakness, US economic softening in general, the phenomenon that a long list of government bonds are offering negative yields, and geopolitical events. The fact that commercial futures traders have winnowed their short positions to very low levels adds extra support to a bullish short-term outlook for the yellow metal.
I’ll go through each of those factors in turn.
Greenbacks and Gold
The easiest way for gold to gain would be for the US dollar to stop rallying. That, in turn, depends on a raft of US economic factors as well as global geopolitical events.
But there is good reason to believe the dollar’s ascent will take a real breather here, if for no other reason than its run to date:
As my friend Brien Lundin put it: No tree
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Commodities are about as low as they can go, valuations are at rock bottom, and big picture forces are slowing turning to support metals and miners again.
It will still take time for the rebound to establish. Blame for that goes to the US dollar and US markets that keep climbing, contrasted against a resource sector that screwed up the last bull run so badly that generalist investors completely abandoned the space.
But time is not necessarily a bad thing.
Right now, mining’s movers and shakers are using this time to their advantage. They are making deals, buying properties, setting up new resource vehicles, and outlining the potential in their new assets so they are ready. And they are working hard and fast, in expectation that the window of opportunity is closing.
I hear about it every day. And it’s awesome. We may still be in the bear-bull lull, but look at some of the highly intriguing exploration and development deals emerging from this big bad bear market and you can see the bull is coming.
Opportunities Under Development
I don’t expect gold, and the metals and mining markets in general, to make a sustained move upwards
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I spent today in Toronto, at an editor’s forum hosted by Sprott. Great event: an opportunity to talk about metals and the markets with people like John Embry, Rick Rule, Eric Sprott, and a dozen fellow newsletter writers.
In this hour-long break before dinner, here is a quick rundown of the day’s takeaways.
There is a growing sense that value-seeking US investors are starting to test the mining waters. I had been hearing talk of this of late and it was reinforced today, when it came up in several conversations before Sprott CEO Peter Grosskopf pointedly noted that Sprott is fielding investment interest from groups who have never before owned gold. Endowments, for example, are looking at gold and gold equities as they search for value in a market where everything else is overpriced. Pension funds too.
These value-seeking investors are coming in at a good level. The unknown is timeframe. John Embry has been investing and managing funds for five decades, of which the last two he spent focused on precious metals. His quote of the day: “This is the best opportunity I’ve ever seen.”
It’s a notion that a room full of resource investors embraces. But then
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The strange relationship between rates and the market, between policy and performance, has turned us all into double talkers.
Or triple. Sometimes quadruple.
The latest US jobs report is a perfect example. Out came the numbers, showing an OK level of August job creation but the lowest unemployment rate since the recession.
That’s good, right? Nope: markets fell, with the Dow losing 1.7% and the S&P down 1.5%.
Double talk: good news about the US economy increased the odds of a rate raise, which is bad for equities. Good means bad.
China’s stimulus announcement last week provided another good example. Beijing promised to boost infrastructure spending, further ease monetary policy, reform state-owned enterprises for faster decisions, and boost bond swaps to alleviate regional debt pressures.
The news lifted Asian markets notably, with Shanghai adding 2.3% on Wednesday and the Nikkei 225 rising 7.7%.
Easier money and more spending = good, right?
Not so quick. The S&P jumped almost a percent on the open, but then started to fall. It ended the day down 2.3%. The Dow moved similarly, as did the TSX.
That’s because stimulus is not actually a good thing. It means the Chinese economy needs help. Asian
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The most active junior explorer on the Venture exchange just got a major endorsement: Eldorado Gold (TSX: ELD) is buying 15% of Integra Gold (TSXV: ICG) through a private placement that will put $14.6 million into ICG’s bank account.
The financing will leave Integra with $27 million on hand, a solid stack of cash to continue exploring its Lamaque project in Quebec. The company has five drills turning already but will boost that to ten rigs for a fall/winter program, with the aim of completing 100,000 metres of drilling this year.
I cannot think of another junior company doing 100,000 metres of drilling. Then again, I can’t think of another junior that has convinced a major miner to pick up a stack of shares at a premium to market recently.
But being distinctive is part of Integra’s plan.
The company has raised $47 million since 2012, through the throes of a bear market. It has drilled more than 90,000 metres in the last 18 months, while so many explorers pulled back on spending. Sliding markets or not, Integra inked a key deal to buy an adjacent and permitted mill and tailings facility. It launched a crowd-sourcing challenge,
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The Venture index is now down almost 2,000 points from its March 2011 high, a 75% slide fueled by gold’s 40% haircut, copper’s 45% decline, silver’s 66% cut, platinum’s 50% fall…
That was bad. Then China devalued the yuan and things got even worse. Copper sank to a six-year low, zinc fell to a two-year low, and aluminum sank to a six-year bottom.
At the same time, there was positive news from an outlier metal: uranium.
At long last, Japan has restarted a nuclear reactor. It happened yesterday, at 10:30am local time. By today the reactor should have reached criticality. By Friday it will be contributing power to the grid. By early September it will be at full capacity.
Kyushu Electric has spent 25 months navigating the Nuclear Regulation Authority’s (NRA) new approval process. The NRA has now conditionally signed off on five reactor restarts (including yesterday’s Kendai 1 and next month’s Kendai 2). Another 20 applications are in progress.
Japanese reactor restarts have been imminent for ages, so why does this long-expected moment even matter?
First, actually turning reactors on is very different from expecting or hoping for restarts. Operating reactors mean uranium being consumed. That is what
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An environmental assessment green light. A first gold pour. Drilling results. A takeover aimed at an in-development U.S gold mine. The sale of half a massive copper mine for a billion dollars.
Things are still happening in the metals and mining sector. Sure, there are bad news announcements too – Goldcorp cutting its dividend, miners announcing quarterly losses, record short gold bets, and the like – but the situation is not dire.
There are good companies doing promising work. Yes, the news flow is slower than in better markets, but that doesn’t mean it’s crickets out there.
Pretium Resources got a green light from the Feds on the environmental assessment (EA) for its Brucejack project in west-central British Columbia. Officially, the assessment determined that Brucejack is not likely to cause significant adverse environmental effects. The actual permit for development follows this decision, but a positive EA outcome bodes very well for Brucejack’s odds of permitting success.
I certainly want to see Pretium succeed. Brucejack is a great project. Previous owners discovered the West zone, which has good gold and silver grades but wasn’t enough alone to make a mine. Then Pretium discovered Valley of the Kings,
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I spent Monday reading and writing.
The reading was the usual – a run through of analyst reports and mining commentators and emails and articles. After last week’s metals smackdown, the tone was tense.
The writing was a pair of lists: Reasons for Optimism and Reasons for Caution. I’m a list person. Lists keep me organized and help me feel accomplished. They can also help me figure out a jumble of thoughts.
And the thinking out there certainly is jumbled. The mainstream media is certain gold is dead. That is usually a strong buy signal…but it is hard to find near-term reasons for gold to gain. Copper’s slide has many convinced that Chinese growth is all but over. That would indeed be very bad for mining…but China is not done growing. An interest rate hike might be coming, or not, and it might be bad for gold, or good. US markets are showing some topping warning signs, but such signs have come and gone over the last six months.
The whole situation – from the state of global economies and currencies to the outlooks for specific metals and mining equities – is a mess of details and predictions and
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Gold fell below its mid-November low of US$1,142 per oz. on Friday, sinking to US$1129.80 before rebounding slightly to close at US$1,133.30. This morning a bear raid in Asia slammed the price down to $1,088 for a short time. It is currently hovering just above $1,100.
So I was wrong. Mid-November was not the bottom.
But I am not awash in tears. In fact, buying off that November bottom and then managing risk by selling parts of positions when the price performed means the Maven portfolio was still up 11% as of today’s open.
(Portfolio performance calculated as simple average of gains and losses to date of active holdings. All equities are given equal weighting except those where partial sells lowered the average cost base (ACB). For those, contribution to overall portfolio performance is reduced proportionate to the amount of holding sold; if a third was sold, the gain on the ACB is reduced by a third for portfolio performance calculations.)
Couple things I like about that.
- A gain is a gain. Sure, it’s not guaranteed. But that fact that Maven could sell everything now and walk away with 11% means there are gains available. Bottoms last an
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