Month: December 2020

Gold and silver exchange-traded funds (ETFs), a measure of large investor interest, are experiencing outflows as opposed to an almost interrupted inflow over the last few months.

Mining stocks which either look for or produce these metals have been moving sideways, testing the “mettle” of even perma-bulls.

Many investors see these as negative signs. But I view it as a Mr. Market’s last big effort to “shake the tree,” causing as many people as possible to fall off the galloping bull and head for cover.

As David Morgan has so aptly – and during times like this, often said, “A precious metals’ bull run (especially that of silver) will either wear you out our scare you out!

These gold and silver ETF outflows should be viewed like an almost parallel universe compared to the continuing robust physical demand for these metals on the part of investors – both large and small.

Buy When Others Are Selling

ETF in/outflows represent “hot money.” But you are an “investor” not a speculator.

Buy value (physical silver and gold) in tranches (portions) and hold it for insurance, liquidity, and price protection against your other assets. And along the way, there’s a good chance that you’ll turn a profit too.

Now with the central banks’ moving toward digital currencies, you have – in your hand, to which no one else has a claim – what has for 5,000 years served humankind as honest money.

With it, you retain flexibility (liquidity), privacy, and diversification, because its price tends to move in a non-correlated way to most other assets.

And it gives you peace of mind, because you know that in either inflation or deflation, there will always be a finite amount of metal available. Unlike fiat (paper currency) which can and will be “printed” in unlimited amounts as governments attempt to solve their mistakes in monetary policy by increasing the quantity in circulation (either digitally or physically) to infinity.

An Anecdote from One of the Best “Trend Turn Callers” in the Business

Bob Moriarty of 321gold.com has on multiple occasions, demonstrated an unerring sense of timing in regard to intermediate turns in the metals, especially silver.

Understanding that the people who buy and sell them probably have a better finger on the pulse of supply/demand factors than most analysts, he has an open order with one dealer, saying “Somebody’s going to want to sell something soon. When they do, call me and I’ll be a buyer…

“And sure enough I got a call from a dealer saying “Somebody just sold us some big silver bars; are you a buyer?” And I said ‘Yes.’ This has happened to me several times over the years and every time, it has marked the low within a few days.”

Bob demonstrates he’s able to remove his bias and emotions by taking an additional step away from market noise, letting another person’s fear alert him that it’s time to add to his own holdings.

It’s watching the antics of herd-behavior without allowing yourself to become consumed by it. And by the way, these occurrences are repetitive – going much farther back than the infamous South Sea Bubble – and will remain operative and predictable just as far into the future.

Silver’s Eventual Trajectory May Be Similar to Bitcoin

This year BTC rose from its cyclical low around $3,500 to $12,000 and then $14,000, where the “experts” expected it to be stopped by strong chart resistance. Instead, in just a few weeks, it powered higher to challenge the all-time high of $20,000 each.

On a smaller scale, silver did something similar when it rose above $20, and instead of spending months backing and filling between $18 and $21, it shot up to just under $30/ounce.

When silver finally decides to begin its next powerful impulse leg to the upside, expect it to keep confounding the technicians as it tears through chart “resistance” levels, just as BTC has been doing.

As one metals’ dealer recently stated publicly, “As the paper price of silver falls, even though it is somewhat if not totally counterintuitive to what we would expect, the physical demand is stronger and stronger, as the price falls more and more.”

Furthermore, he said recently, “On the COMEX, we’re seeing as much silver being pulled off the exchange by the subsection called “Others” – sovereign nations, businesses, and wealthy people – during every recent delivery month as is usually the case in a typical year.” (Typically, the categories involved in this activity would be the Speculators (hedge funds) vs. the Commercial Banks.)

Another eventual similarity? Now that BTC seems to be going mainstream, it has been announced that between PayPal and Square alone, all of the bitcoin “mined” in 2020 has been spoken for. Thus, anyone else who desires to own even a fractional “coin” must purchase it from someone who already owns it.

If bitcoin can rise and stay above $20,000, every current owner will be holding at a profit, with few being willing to part with their holdings until much higher prices are reached.

Now imagine this scenario for silver.

At some point going forward, investor demand, along with a few big industrial users – think EV manufacturers, electronics or solar panel producers – decide to “lay in” large quantities, or even buy outright a mining producer as Tesla has been looking to do with nickel.

What do you think might happen to silver prices – and premiums – if “all of the silver mined globally in a year has been spoken for”?

Source: Peter Krauth for Streetwise Reports   11/30/2020

Peter Krauth explains why the fundamentals point higher for gold, while the technicals suggest we could well see a little more near-term weakness.

Since peaking at $2,067 in August, gold is down by $250.

Does that mean its bull market is over, or is gold a Cyber Monday Deal?

In this correction, gold has already given back 15%, leading some to conclude that the gold bull market it finished.

After all, there are already three promising vaccines near approval. They will be rolled out over the next few weeks and months, and life will start getting back to normal.

Or will it?

We’re still in a major second wave.

Many places are setting record numbers of daily Covid-19 cases. Lockdowns are ramping up.

And the effects of Thanksgiving reunions, followed by Christmas gatherings, are likely to boost restrictions further as cases soar even higher.

Businesses will feel even more strains, and unemployment could go through its own second wave.

Here’s why gold’s bull is still in its infancy…

Four Gold Forces

Although the news of several effective vaccines is highly encouraging, it will take some time to produce, distribute and administer to billions of people.

We are at best months, but more likely a year, before some semblance of normalcy in our daily lives. The effects of this pandemic will be far reaching on society and business for a long time.

That’s why, in my view, there are at least four major forces that will support gold in both the near and medium/long terms that investors need to understand.

Gold force #1. The pandemic’s damage is not over, and that will lead to more stimulus. If you think we’ve seen the end of money printing, think again. Airlines, tourism, restaurants, commercial landlords and small retailers, to name a few, are struggling. Many have borrowed heavily, and many others have already gone bankrupt. They will continue to face challenges for many more months. And calls for help will endure.

Gold force #2. The U.S. dollar continues to weaken. After peaking at 103 in march, the U.S. Dollar Index has been falling steadily. At 92, the index is back to levels last seen over two and a half years ago. There’s little doubt that massive money printing, and the prospects of plenty more from Biden, could continue to pressure the dollar, helping to support gold in the process.

Gold force #3. Negative real interest rates are here, and they’re likely to remain well into the future.

This chart pretty much says it all. Gold’s price (red line) is clearly negatively correlated with real interest rates (blue line). And with a Fed committed to (at least) zero rates until well into 2023, and inflation likely to rise from mega-stimulus programs, expect more of the same trends this chart demonstrates.

Gold force #4. Yellen, the dove, is back. Joe Biden’s pick for Treasury Secretary is none other than former Fed Chair Janet Yellen. Her tenure ran from February 2014 to February 2018, while Biden was vice president. During that time, the Fed’s balance sheet grew by over $500 billion. Today, that sounds like chump change. But even just a few years ago that was still big money. The point is Yellen will be in charge of the purse strings, while her former deputy, Jerome Powell, runs the Fed. For all intents and purposes, lines between the Treasury and Fed will start to blur.

Where’s Gold Headed Next?

Now that gold has broken below is 200-day moving average of $1,800, it looks likely to reach for $1,750, and possibly $1,700 next. Both the RSI and MACD momentum indicators are trending lower, confirming this move.

According to the most recent Commitments of Traders (CoT) reports, “smart money” gold hedgers are still relatively bearish, net short almost 300,000 gold futures contracts.

This also suggests more downside is possible before a reversal.

And as for gold stocks, the Gold Miners Bullish Percent Index also portends a bit more downside action first.

The index typically generates its best buy signals once it dips below 30 and then turns upwards. We’re closing in on that sort of setup, but we’re not quite there yet.

So as I see it, all the fundamentals point higher for gold, while the technicals suggest we could well see a little more near-term weakness.

That just means right now gold is on sale, and the discounts may last a little longer.

Cyber Monday has been extended. It’s time to pick up your golden bargain.

–Peter Krauth

Peter Krauth is a former portfolio adviser and a 20-year veteran of the resource market, with special expertise in energy, metals and mining stocks. He has been editor of a widely circulated resource newsletter, and contributed numerous articles to Kitco.com, BNN Bloomberg and the Financial Post. Krauth holds a Master of Business Administration from McGill University and is headquartered in resource-rich Canada.

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Disclosure:
1) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation. The author was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Source: Adrian Day for Streetwise Reports   11/30/2020

Money manager Adrian Day takes a look at several of his favorite gold companies, noting that while they are “quite apart in size,” each has “great management, solid balance sheets and deep pipelines.”

First, we have a word on gold. Gold closed under $1,800/ounce on Friday for the first time since mid-July. How did it happen? Gold had declined sharply for the past week, but on Friday, just before the U.S. open, it dropped below its 200-day moving average (dma), setting off a series of stops. Many traders watch this level and place stop losses just below the 200-dma. Happening on a thin, post-holiday trading day, ahead of a weekend, made it worse. This certainly does not necessarily presage further declines.

The last time gold violated its 200-dma were a coin toss as to what happened next. It bounced back within three to five days on as many occasions as it was down for months after. So, as a predictor for more than a couple of days, it’s useless.

A confluence of factors provoked gold’s recent declines: COVID vaccines; the lack of stimulus; a turn-up in the broad market (and a little more certainly on the election?)—all of which are negative for gold. But we had all of them at a time when gold was already soft, and at a seasonally weak period (end October/November) making the downturn worse.

Will Congress cut back its spending? Will the Fed stop “printing money”?
However, for me the central questions going forward are these: Is Congress going to continue spending, and is the Fed going to continue accommodating unfunded spending?

We may not see a multi-trillion dollar “green new deal,” but there will be plenty of spending ahead: cancellation of student debt; bailout of bankrupt states; support for people about to get evicted, etc. A Citibank analyst notes, “The vaccine can kill the virus, but it can’t kill the mountain of debt.” With Yellen at the Treasury and Powell at the Fed, we have a duo that supports Modern Monetary Theory, in practice if not in theory. This is wildly positive for gold.

As for the stocks, as many were up on Friday as down, notwithstanding the sharp drop in the gold price, suggesting investors are seeing good value in the equities after three weeks of declining prices. Gold stocks typically bottom, after a weak October and November, in early or mid-December. That stocks rose Friday while gold fell is one more indication that the gold market declines may not last long.

Record Results from Franco as It Builds Its War Chest

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE, US$131.09) reported record revenues and cash flow in the third quarter, beating estimates (and this despite a strike at one of its larger streams). Sales just shy of 135,000 ounces of gold equivalent, though short of the last quarter of 2019 record, are back up to first quarter levels. As all mines come back to full operations after the COVID shutdowns, we should see record sales again. Franco expects to be at the top end of its 2020 guidance for the full year, assuming Candelaria (where the strike ended Friday) ramps back up soon. Franco was also aided by some Net Profit Interest royalties, which performed well (mostly) in the higher price environment this year. Oil and gas revenues were up as well.

Franco has continued to add assets, though small ones, mostly buying higher optionality exploration royalties. These include a package of 24 royalties from Freeport-McMoRan Inc. (FCX:NYSE) for $30 million, the most attractive of which is a 1% royalty on Wallbridge’s Fenelon property in the Detour Lake trend.

Cash builds on strong cash flow and lack of large transactions
With the lack of major purchases, the cash is building back up. It recently paid off the debt it took on for payments on the large Cobre Panama stream, and now has working capital of $449 million (mostly cash). It raised a modest $21 million in its ATM program (at an average cost of $148); it not intending utilizing this program again for now, given strong cash-flow generation and current stock prices. The company also has a $1.1 billion facility, giving it the firepower to complete a large transaction.

Right now is not the most favorable environment for royalty companies to complete large transactions. Most of the royalties inside the larger mining companies have been sold (Pan American, Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE), Barrick Gold Corp. (ABX:TSX; GOLD:NYSE), Coeur Mining Inc. (CDE:NYSE) spring to mind); better equity markets mean companies can raise funds; and the base metals miners are in strong financial shape, unlike five or six years ago when they undertook large streaming deals to repair balance sheets. But we have been at this stage before, and things do change.

There is still the opportunity to be part of a multifaceted financing package for a large development or merger and acquisition transaction. I suspect some of these have been in the works, with completion delayed due to travel restrictions postponing due diligence.

High valuations, though deserved, a little rich right now
Franco (and other large royalty companies) have traditionally traded at higher multiples than miners, and for sound reasons. The business model mitigates risk and provides visibility on future revenues. Now, however, Franco is trading at the high end of its historical valuations, with price-to-cash flow at 31 times, and a price-to-book of 4.76 times, the highest ever (apart from an anomalous Q2). The stock, however, has come well off its highs of over $160/share in early August, and over $150/share just a few weeks ago.

Franco is a core holding, providing broad exposure to multiple gold and other mines, with strong management and a rock-solid balance sheet. Those who do not own it can take an initial position here, or add if significantly underweight. But we may find that initially, as the gold price moves back up, even if Franco’s share price moves up, it may lag and those valuation levels will decline. So we are not adding here to what, for most readers, are presumably already significant positions.

Activity on Multiple Fronts, Including an Alliance with a Major

Midland Exploration Inc. (MD:TSX.V, 0.85–0.91) is on a roll—the company, if not the stock—adding properties, advancing projects and concluding new partnerships. This divergence between what the company has been doing and the stock price will eventually close and presents a great buying opportunity.

Prime among its recent new partnerships is a deal with BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK), which last year bought 5% of the shares in an above-market financing. Now the companies have signed a multimillion-dollar strategic alliance to look for nickel, copper and cobalt in the Nunavik territory in northern Quebec. In the first phase, BHP will fund 100% up to CA$2.8 million over two years to generate projects and advance them to the drill-ready stage. BHP can then select projects to be tested over a CA$4 million, four-year program, to earn initially 70% of the designated projects. Given the need for all three minerals for growing electrification of both vehicles and energy sources, this is an exciting partnership with one of the world’s largest mining companies.

Earlier in the spring, Midland completed two joint ventures with Probe Metals Inc. (PRB:TSX.V) and Wallbridge Mining Co. Ltd. (WM:TSX), and we suspect there are more in the works as Midland emphasizes its prospect-generation/joint-venture roots.

Drilling completed and more to come
In addition to new transactions, the company has been busy with the drill bit, as well as earlier-stage exploration work, completing several programs in the Abitibi region, on the Detour Lake belt and the Cadillac Break. Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) resumed drilling on the Cadillac Break, with two deep holes, while Midland conducted a second drill program at its 100%-owned Samson project to follow up on a new gold discovery made in the summer. Assays on all the drill programs are expected in early December.

Extensive exploration work has been conducted by both Probe and Wallbridge on their new earn-in projects, with drilling expected this coming winter. (The Wallbridge property is just south of its Fenelon project, on which Franco just acquired a royalty; see above.) A minimum of 5,000 meters of drilling is expected on various drill programs by both Midland and its partners.

In addition, Midland has continued to pick up new property, including land south of the Wallbridge joint property, where it has already identified some new targets. Midland has been building a significant property portfolio in the Detour Belt, with seven properties east of the prolific Detour Mine.

Midland is well funded, with about CA$12 million in the treasury (as of September); it just raised another CA$2.4 million, most of it in an above-market flow-through deal. Well-funded, with strong management, an active season ahead, and a deep pipeline, Midland offers multiple opportunities for discovery. The company has been extremely active recently, activity not yet reflected in the stock price, which has simply been treading water. Take this opportunity to buy one of the top exploration companies now, before the stock price catches up.

A Mixed Quarter for Royal, Though Improvements on Key Metrics

Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX, US$109.97) had a somewhat mixed quarter, with revenues and operating cash flow increasing, though less than expected. The balance sheet improved significantly; this was the second quarter of net cash, jumping from under $10 million to $138.1 million. The robust cash flow helped to boost Royal Gold’s cash position, as did the $61 million in proceeds from the sale of its Peak Gold Ltd. (PIK:TSX.V) joint-venture (JV) interest and its shares in the its JV partner. (Royal retains its 28% net smelter return royalty on silver produced at Peak Gold, though 50% of it can be bought back by Peak.) If not as strong as Franco’s, the balance sheet is strong and the company has firepower for additional acquisitions.

Production remains disappointing. Though gold-equivalent sales increased to 76,900 ounces, nearly 10% compared higher than the weak second quarter, they remain down almost 11% from the first quarter of the year, and remain lower than any quarter since 2015. (Royal’s fiscal year ends in June; I am referring to calendar quarters.) The production decline is attributable primarily to Mt. Milligan, as well as Andacollo, two of its largest royalties and streams. Mt. Milligan remains a little over one-quarter of the company’s revenues, the decline in percentage being attributable both to increases elsewhere and a decline at Mt. Milligan itself. At quarter end, Royal held inventories of nearly 26,000 ounces, up from nearly 19,000 at the end of last quarter.

Future growth and better valuations make Royal attractive again
Two major contributors to future growth are progressing well. The Khoemacau mine in Botswana is 70% constructed, with first shipments expected in the third quarter of next year. Royal paid another $44 million in advance payments under the silver stream arrangement. Barrick continues on its mine expansion at Pueblo Viejo. Royal’s revenues are currently 79% from gold; it is well diversified, with 88 properties in 12 countries, though its concentration of producing assets is far higher than that of Franco.

As the stock price has declined since August (from a peak of $145/share) and revenues have increased, valuation has improved. At a little over 3 times book, it is lower than its peers, though still at a 10-year high. But on a cash flow metric, at 20 times, it is near the low end of its historical range and well below its peers. With an improved balance sheet, and growth over the next couple of years, Royal is now a buy again. There is no need to chase the stock price, and if the gold price declines further, there is risk in Royal’s price down to the $90 level. Nonetheless, if you are underinvested, it can be bought again.

Originally posted on November 29, 2020.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”

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Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Franco-Nevada, Midland Exploration, Royal Gold, Barrick. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Franco-Nevada, Midland Exploration, Royal Gold, Barrick. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Franco-Nevada, Midland Exploration, Royal Gold, companies mentioned in this article.

Adrian Day’s Global Analyst disclosures: Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2020.

( Companies Mentioned: FNV:TSX; FNV:NYSE,
MD:TSX.V,
RGLD:NASDAQ; RGL:TSX,
)

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