Happy Monday all! A busy week ahead: the Sprott Natural Resource Symposium is in Vancouver this week, so I will spend a fair bit of time down there catching up with companies and listening to talks. Subscribers will also get a new recommendation this week; I’m just finishing the writeup. And I am busy assessing my portfolio with the goal of arriving at summer’s end prepared to take advantage of the opportunities I think will surface through the fall.
That was the focus of last week’s editorial: going through the Maven portfolio to be aware of financing free trade dates and to assess relative appreciation potential. That potential is key – we are still in the early stages of a mining bull market, which means new opportunities with very significant upside are still emerging. It is important to go through your holdings and determine what upside you see each stock offering and over what timeframe. Compare that to new opportunities and make sure you act accordingly, even if that means selling stocks you still quite like.
With that, on to this week’s Maven Letter snippet. I start with a quick look at one of the projects I visited while
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Precious metals are the only option for security and value in our world of ultra-low or negative real interest rates, currency market volatility, and impotent central banks.
More and more investors are reaching this conclusion. That’s why gold is already up almost 30% this year – but it is also why I expect to keep inching up all summer and into the fall.
The gold chart supports my contention. It is developing a clear pattern of higher highs and higher lows. And the price is getting very close to conquering its downtrend line from the 2011 high.
It is roughed in on this chart, but the crosspoint is US$1,377 per oz. A bit of a step up from here and a momentous achievement it would be, but I’m betting it happens before the end of summer.
Also significant: if anything were to have pushed gold down, it would have been a strong US jobs report. And that is precisely what we got nine days ago: payrolls in America increased by 287,000 jobs in June, the largest gain since October. Gold did drop on the news…for 5 minutes. It fell from US$1,360 to US$1,335 per oz. in
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Yellen did not raise rates. Gold jumped, then settled, popped, slumped, and recovered – though those are sort of strong words to use for price moves of 2% or less.
Last week’s editorial was penned the day of the Federal Reserve announcement. Gold equities have been pretty even since. And so I generally expect for the rest of summer: gold demonstrating its strength and resilience whatever challenges may come its way (Brexit, Fed decisions, US elections, terror attacks) and miners leveraging gold’s slight gains into slow but sustained movement up.
With that as my foundation, I continue to scour the sector for stocks to add to the portfolio. Right now I’m assessing two gold mine restart stocks, of very different sizes and in very different parts of the world. Subscribers will hear about at least one of them soon! If you’d like to try the Maven Letter on for size, sign up for a free trial subscription.
On The Macro: No Raise
The wait is finally over! The Federal Reserve maintained the federal funds rate at ¼ to ½ percent. Janet Yellen said slowing gains in the labour market, soft fixed business investment, and weak inflation countered increasing economic
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Gold closed today at US$1,283 per oz., putting the yellow metal almost back where it was before the May ‘correction’. I couch that word because it wasn’t much of a slide: gold gave up a max of 7% after gaining 20% and has now rebounded in very short order. Add in that gold equities levered the decline only two-fold, versus the four or five-fold leverage they showed on the way up, and you have a pretty tepid correction! I went through this with my subscribers in last week’s Maven Letter and the macro article is below.
First, though, two In The News items: a comment on Lundin Gold’s feasibility study for Fruta del Norte and a look at Paul Matysek’s latest success, the sale of Goldrock Mines to Fortuna Silver Mines.
As always, if you like these snippets consider a free trial subscription to the Maven Letter. To sign up, click here.
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In The News
In this section I discuss interesting and important news from the mining sector. Companies mentioned are not necessarily in the portfolio and coverage does not represent a recommendation.
What Grade Giveth, Royalties Can Take Away
Fruta del Norte is
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Gold did not have a great last week. The worst day was Tuesday when, following news that new home sales in the United States increased 16% month-over-month, gold declined as much as 1.7% in intraday trading before regaining some ground to close down 0.7% at US$1,237 per oz.
New home sales should not pack that much punch. New homes make up only 10% of the housing market and new homes sales is notoriously revised, with a margin of error almost as large as the number itself.
But the market is rate-obsessed and so any data suggesting economic strength sends traders running to the dollar, while signs of weakness boost gold.
The overall market’s response – a gain of 1.2% for the S&P – is a bit more confusing. Yes, economic strength is good for the market, but in recent years any data suggesting the Federal Reserve should tighten would have sent QE-dependent markets down. The fact that they gained yesterday supports my hypothesis that stimulus, while still important, is no longer the only factor driving market movements.
Also very interesting is what went on the next day. Gold was pretty flat on Wednesday: it slid to start the day
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Ah gold. Today’s US housing numbers strengthen the case for a rate hike in June. New home sales posted their strongest month in eight years, up 16.6% month over month, even while prices climbed to a record level.
How much does it matter? Tough to say. Very low mortgage rates are certainly encouraging families to enter the housing market, something they would not likely do without stable employment and good wages. On the flip side, newly built homes make up just 10% of all home purchases and the data is often revised significantly. And the market, while improving, remains below pre-recession levels with respect to construction and sales. As for employment and wages…that’s a debate for another day.
Gold certainly dropped on the news, while the US dollar and US stocks jumped. It all fits with the broad pattern I have been predicting for this month, which I outline in today’s article, taken from last week’s Maven Letter.
As always, if you enjoy these snippets consider a free trial subscription to the Maven Letter, my weekly newsletter on what I am buying, selling, and thinking in terms of metals and mining.
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On The Macro:
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One last plug for the Metals Investor Forum: If you will be near Vancouver on the weekend, come down to the Hotel Georgia for two days of mining and exploration talk, investment ideas, and face time with management teams. I’ll be there alongside Eric Coffin, Brent Cook, Brien Lundin, Jay Taylor, and Jordan Roy-Byrne – and a strong group of companies selected from our portfolios.
You have to pre-register: click HERE to reserve your ticket!
And now for something slightly different. Usually Maven Mondays are a snippet from my subscriber letter, with some added commentary. This week I’m instead providing an article I wrote on Friday that hasn’t yet been published elsewhere. It’s about why there are some incredible opportunities in our sector right now – but beware, because there are also a lot of bad ideas out there masquerading as opportunities.
I hope you enjoy. As always, if you’d like to hear more from me – and know what stock I’m buying and selling – sign up for a free trial subscription to The Maven Letter.
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“It’s the inherent inefficiencies of the capital market system that create these opportunities.”
That’s a
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What a week it’s been for gold. The Federal Reserve on Wednesday did nothing, other than emit a slightly more hawkish tone. Gold slipped a touch as a result, but only a touch. Then on Thursday the Bank of Japan surprised traders by not providing further stimulus.
Against an expectation that rates were going to go even more negative, the Bank’s decision to leave rates unchanged was about as hawkish as can be. The market reacted as though Japan had raised rates: the Yen, which had been sitting on the brink of a steep decline, shot up, gaining more than 3% in a day.
Yes, in a world where currencies rarely move more than a tenth of a percent a day, the Yen gained more than 3%. In response the US dollar fell 0.73%.
US stocks also fell, which is what happens every time a major central bank threatens to cut off the supply of free money.
Gold soared.
The move remains significant even when you zoom out to the six-month chart.
Gold’s moves continue to validate my perspective, which can be summed up as:
Gold and gold stocks may correct over
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The New Orleans Investment Conference was once again a fantastic event. The conference offers a packed schedule of interesting speakers and companies, in a city that seems to always be celebrating.
I get three things out of shows like this. First, I get to spend time with investors and subscribers. Those conversations help me identify current concerns, interests, and curiosities among the resource-investing crowd. I also just get great pleasure in meeting subscribers.
Second, I get a chance to learn new stories and update on companies that I know are doing interesting things. Much as I try, it’s impossible to keep up with every company and to be aware of every new venture, but walking the floor of a good conference is a wonderfully efficient way to catch up. Chatting with folks at the show – geologists, executives, analysts, investors, and the like – is also really useful, as we all notice and track different stories so we all benefit by sharing what we know and like.
Third, good conferences have good speakers so I always walk away with at least a few new ideas. This time around I did not get to attend many talks – Brien
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This isn’t a story about a piece of news, but about an idea. The company in question isWestern Copper & Gold (TSX: WRN). I wrote about WRN and its Casino project in the July 18 letter, after visiting the project. I will repeat a chunk of that July article below to set the stage.
Casino is a massive deposit: resources total 18 million oz. gold and 11 billion lbs. copper, hosted in a porphyry that has a gold oxide cap, a supergene copper blanket, and a hypogene sulphide body.
About half the resources are defined to reserve levels, which back a feasibility study outlining a mine churning through 124,000 tonnes of ore a day to produce 171 million lbs. copper and 266,000 oz. gold annually for 22 years.
If those numbers seem big – they are. This is a huge mine, which is why building it would cost US$2.4 billion. Almost US$1 billion of that is just to build the mill; it simply costs a lot to build a facility of that size. The mine would also need a liquefied natural gas power plant – the mine would need as much power as the entire Yukon currently uses
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