Month: June 2021

As Investors Become More Eco-Conscious, Gold Miners Go Green  ETF Trends

1. Gold settles lower, as dollar strength pulls prices to the lowest finish in over a week  MarketWatch
2. Gold price stuck at a ‘speed bump’ on its path to $2000 – analysts  Kitco NEWS
3. Gold edges higher after U.S. inflation data  CNBC
4. PRECIOUS-Gold hovers near $1,900/oz as dollar, yields dip after U.S. data  Reuters
5. Gold Erases Losses After U.S. Inflation Data, ECB Decision  Yahoo Finance
6. View Full Coverage on Google News

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

As inflation continues to heat up, gold and silver markets are once again on the verge of breaking out.

On Thursday, the Bureau of Labor Statistics released its much-anticipated Consumer Price Index data. The CPI came in at a full 5.0% year-over-year through May.

The so-called “core” rate, which excludes food and energy, showed an annual increase of 3.8%. That represents the biggest jump since all the way back in 1992.

Meanwhile, Federal Reserve officials continue to downplay the inflation threat. They insist the recent surge is transitory and doesn’t reflect a major trend to come.

But as Denver’s local 9NEWS reported, not all economists are echoing the Fed’s messaging on inflation.

News Report: We are again, talking about inflation. That’s when prices rise for all sorts of goods and services, therefore our money buys less. It is happening now. Although many economists think it’s only temporary and will stabilize once supply disruptions and other effects of the pandemic wear off. But the chief economist for Deutsche Bank disagrees saying that the aggressive stimulus and economic changes in the U.S. will cause inflation to get worse for the next several years.

Investors seem unconcerned about the prospects for future high inflation – at least judging by the market’s response to yesterday’s CPI headline. The S&P 500 crept up to a slight new record high while bond yields actually moved lower by the end of the day.

As for precious metals markets, gold and silver each advanced slightly toward the tops of their recent trading ranges.

Gold managed to close back above the $1,900 level on Thursday. Here on this Friday recording, the monetary metal has dropped back below that threshold and currently trades at $1,887 an ounce and registers a slight weekly loss of 0.6%.

Turning to the white metals, silver is up 1.2% this week to bring spot prices to $28.23 an ounce. Platinum prices are down 1.3% to trade at $1,164. And finally, palladium checks in at $2,811 per ounce after dropping 2.3% for the week.

Metals markets stand to benefit from rising inflation expectations. And interest rate sensitive markets including bonds stand to suffer.

Given an inflation rate of 5%, bondholders and cash savers stuck in low-yielding instruments are already suffering significant real purchasing power losses. Yields would have to move markedly higher in order to generate positive after-inflation returns.

But the last thing the U.S. Treasury wants is to have to pay more interest on its ballooning debt. Key to keeping the government afloat financially is making sure rates stay suppressed at the same time as the Fed pursues policies of higher inflation that knock down the real value of debt.

The scheme works as long as the public can be convinced that high inflation is transitory. And that when the official measures of inflation come in relatively tame, they actually capture the full extent of price levels in the economy. The Fed’s preferred “core” rate of inflation excludes food and energy and fails to track actual home prices – some of the biggest real-world costs for consumers.

When the public stops believing the propaganda about inflation and starts seeking protection from it, we could see a massive flight from bonds and cash into quality assets.

In an inflationary environment, quality assets are those that can retain or gain value in real terms.

Some stock market sectors may fare relatively well. The natural resource sector in particular has the potential to generate gains amid rising inflation.

In general, companies that have pricing power and the ability to raise their dividends would be considered high quality.

At the end of the day, though, stocks are financial assets and are vulnerable to selling off in the event of broader market instability.

Although no asset is impervious to losing value over any given day, week, or month, real money itself has an unparalleled track record for retaining value over time.

Real money isn’t represented by U.S. Federal Reserve Notes or other fiat currencies. Real money is represented by gold and silver.

Unlike financial assets, physical precious metals carry no counterparty risk and are not dependent on third-party promises to pay. The value of gold and silver is the metal itself.

An argument can be made that precious metals are the highest quality assets an investor can own. Gold, in fact, is considered by the Bank for International Settlements to be a “Tier 1” asset within the banking system.

Even central banks around the world, despite refusing to redeem their fiat currencies in gold, continue to hold and accumulate gold in their own reserves. They evidently don’t consider a portfolio consisting entirely of paper promises to be prudent!

A flight to quality may be coming. It will be to investors’ advantage to accumulate quality assets including physical precious metals before the herd sends their prices much higher.

In other news, one of our top allies in Washington DC – Alex Mooney, a Republican U.S. Congressman from West Virginia – is asking the Treasury Department to come clean on some if its secretive gold activities.

Mooney sent a stiff letter this week to Treasury Secretary Janet Yellen, asking for information on how much U.S.-owned gold has been delegated to the Federal Reserve Bank – and for what purposes.

Mooney also wants to know about the gold the United States has pledged to the International Monetary Fund – including where it’s stored, whether it’s been audited, and for what specific purposes it’s being used. We’ll see if Yellen is actually willing to provide any meaningful answers to these and the other questions he posed. If she isn’t, that itself will be telling.

Mooney’s inquiry comes shortly after he introduced H.R. 3526 to require the Comptroller General to immediately conduct a full assay, inventory, and audit of the United States’ gold reserves and repeat the process every five years.

Most Money Metals readers know there is at least some evidence the U.S. Treasury may have sold, swapped, leased, or otherwise placed encumbrances upon some of America’s gold over time.

However, federal government officials have strongly resisted disclosure of these activities for decades.

To address these concerns, H.R. 3526 also requires a full accounting of any and all sales, purchases, disbursements, or receipts, a full accounting of any and all encumbrances, including due to lease, swap, or similar transactions presently in existence or entered into in the past 15 years, and an analysis of the sufficiency of the measures taken to ensure the physical security of such reserves.

To fulfill its obligations under the Gold Reserve Transparency Act, Government Accountability Office auditors would gain access to any depository or other public or private depositories where reserves are kept as well as related records.

To help push this important legislation forward, we ask all gold and silver investors to reach out to their congressional representatives as soon as possible – and ask them to cosponsor and seek roll call votes on H.R. 3526.

Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.

Source: Adrian Day for Streetwise Reports   06/10/2021

Money manager Adrian Day looks at two factors that have been moving gold, and provides updates on several resource companies he believes are progressing in this strong market, with some “strong buys” among the group.

The recent jump in the Consumer Price Index (CPI) generated a lot of attention, with consumers noticing a wide range of price increases while the Federal Reserve and its apologists insist it is only “transitory.” This in itself is rather peculiar, given that the Fed has been seeking higher inflation for sometime: Should they not have taken a victory lap?

The arguments for April’s CPI jump being short-lived are two: One, that last April’s was abnormally low, given it was at the start of lockdown in many states, so the year-to-year comparison would inevitably be higher (the “base effect”); and two, that with many states now opening up, there is pent-up demand not yet met by increased demand.

Are higher prices only “transitory?”

The first is, in theory, absolutely true, but in the case of CPI numbers patently false, given that the absolute CPI level is well above (over 4%) that of several months before any COVID lockdowns. The second has more validity, but it may be a few months before we see if it is, in fact, true in reality. Different conditions are affecting different sectors and regions differently. Pent-up demand is evidenced in, for example, hotel room rates, while restaurants, for example, are slower to come back to full re-opening (whether because of lingering capacity restrictions or that many simply went out of business over the past year).

But commodity input prices are up across the board, more than the Producer Price Index, which, in turn, is up more than consumer prices, suggesting that there are higher prices ahead as these earlier-stage prices work their way through the supply chain.

Fed policy suggests inflation will move higher

One major factor suggests that inflation will be long-lasting, and that is Federal Reserve policy. The money supply is up at a 21% rate in the last three months—higher than the six-month rate—and nothing suggests that will change any time soon. The Biden Administration has various spending plans—COVID relief, infrastructure, fighting racism etc.—totaling $10–12 trillion. Much of this additional spending will come from the “Magical Money Tree,” as the Federal Reserve indicates its willingness to monetize the debt. At the same time, there is no indication that the Fed will tighten meaningfully to fight the inflation it both wants and believes is only temporary. On the contrary, many Fed members have stated flatly that the Fed will not be too hasty fighting a temporary increases in prices.

Inflation is positive for gold, but even more positive is an inflation that the Fed refuses to acknowledge and will not fight.

Here comes Basel

Another major factor potentially contributing to higher gold prices the last few months has been buying from banks ahead of the implementation of the Basel III rules. We do not need to go into all the details of the new Net Stable Funding Requirement (NSFR) rules under Basel III, which come into force in Europe and the U.S. at the end of June (and the U.K. Jan. 1). In essence, the rules make changes to what assets are included in both the asset and liability side of the ledger. Physical gold moves to a Tier 1 asset, counted at 100% of value in calculating reserves. In and of itself, that would be a positive since banks could hold gold without a disadvantage over Treasuries and other assets.

Paper gold, as well as unallocated gold, now have a zero value, meaning that they cannot be used as a source of bank funding. Thus, the difference in valuation for physical and paper gold has been widened substantially, giving banks an incentive to buy physical. (Moving unallocated gold to allocated does not help the banks, since allocated gold is not a bank asset.)

Banks have likely been buying

The implementation of these rules is bullish for gold, though many commentators have, in my view, wildly exaggerated the potential impact. Banks will have other ways to come into compliance than converting all their paper gold to physical. Most banks have excess liquidity in any event, and they can increase their acceptable funding in other ways. But there will be some buying, and in all likelihood already has been.

Any bank buying ahead of the rules is time sensitive but not price sensitive, which could help explain why gold has moved up for three months with no meaningful pullback; there has been no more than two consecutive down days for gold over that period.

Since banks have until the end of the year to come into full compliance, this buying could continue, and once this bullion is purchased, it will not be readily sold. So this is a bullish factor, even if not quite as wildly bullish as some commentators are suggesting.

London’s bullion forward market is at risk

The changes have a particular impact of the futures market, particularly the banks that are members of the London Billion Market Association (LBMA). Other members of the LBMA are producers and refiners, who want to hedge positions. At present, forward buy contracts are offset by forward sell contracts, and bullion banks have positions on both sides, netting out. The new rules require one side of the balance sheet to have contracts valued with a 15% discount, but excluded from the other side of the balance sheet.

It is unrealistic for bullion banks to buy physical to cover their contracts. Theoretically, this could stop most trading of forwards in bullion, leaving only a handful of large commercial banks. At the minimum, it would drastically shrink the market, including the swaps done with the COMEX futures market. The LBMA is seeking to be excluded from the new requirements. There is a possibility that the U.K. may grant that exemption, though the rules for other banks will not be extended again.

Nevada continues to hold promise for Barrick and Newmont

Barrick Gold Corp. (ABX:TSX; GOLD:NYSE, US$23.46) said it expects Nevada Gold Mines (NGM), which it owns jointly with Newmont Corp. (NEM:NYSE, 71.45) 61.5%/38.5% and of which it is the operator, to produce around 3.5 million ounces annually for the next 10 years. This year and next, production is expected to decline, followed by a boost in 2023 and fairly stable projection after that.

The Nevada operations consist of 10 underground and 12 open-pit mines, and 18 processing facilities. Reserves are 45million ounces, and NGM expects to replace reserves over the 10-year period. Nevada still has significant exploration potential, both in near-term extensions at North Leeville, Goldrush and Turquoise Ridge, longer-term exploration projects. On a standalone basis, NGM would be the third largest gold miner in the world, after Barrick and Newmont themselves. It represents 31% of the net asset value (NAV) for Barrick, 19% for Newmont. Barrick is a buy; Newmont a hold.

Implementation of Osisko’s strategy moves stock

Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE, US$14.71) is on track to meet full-year guidance of around 80,000 ounces, with cash balance increasing to $119 million as of quarter end. (Cash at Osisko Development of around $186 million is consolidated on the balance sheet, but our number excludes that.) With several projects on which it holds royalties being advanced(Hermosa, by South 32, as well as Cariboo, San Antonio, and Windfall from other companies in the Osisko family), the company has a good pipeline.

New CEO Sandeep Singh is doing a fine job repositioning the company and explaining the strategy. Although he took over at a time when royalties were already expensive to acquire and they have become only more so, Osisko has the huge advantage of embedded royalties from Osisko Development, Mining, and O3. Some of these projects will take time, but they are all now being developed and financed separately. The ongoing large majority ownership of Osisko Development continues to hurt the stock, but the approach to reduce ownership has been well articulated, and the market has been responding as it is implemented. Already, OR’s stake has been cut from 88% at initial public offering (IPO) a year ago to 75%.

After an almost 50% move since the beginning of March, the stock is no longer particularly undervalued on cash flow metrics, though at 0.8x NAV, and with a strong near- and medium-term growth profile, it remains attractive and we are definitely holding.

Fortuna recovers from acquisition selloff

Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE, US$6.83) has rebounded nicely from the initial selloff following the announcement of its plan to buy Roxgold Inc. (ROXG:TSX), a West African producer (see Bulletin #773). The proxies have been mailed to shareholders. In addition to growing support for the transaction, as Fortuna explains the detail to shareholders, the company also had a good quarter, more than tripling its gold output as its new Argentinian mine ramps up. Silver output also increased, from a soft year-ago quarter.

Fortuna also announced some progress in the battle over disputed back royalties owed the Mexican Geological Service from the San Jose mine. The mines ministry ended its bid to cancel the concession, though the underlying dispute remains. With one of its three mines in Peru, we expect the stock to react negatively if the Marxist-oriented Castillo wins the presidential runoff, though he does not have sufficient control of the congress to push through his program without compromise. As we write, the outcome is not known. We are holding.

Midland resumes drilling at prospective Mythril

Midland Exploration Inc. (MD:TSX.V, 0.72) has resumed drilling on its large, 100%-owned Mythril project, focusing on newly identified copper-gold targets. Midland discovered Mythril by prospecting in late 2018. The new targets have been developed aftertime was spent better understanding the complex geology.

Midland has many prospective projects on the go, including a strategic alliance with BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) seeking copper and nickel. The alliance is reportedly going well, with a methodical approach initially securing a large land position and identifying interesting prospects within the position. Midland is well financed, with about $12 million cash. There are plans for about $10 million of exploration spending this year, $4.7 million from Midland and the balance from partners. The stock has been soft with the market waiting for good results. It is a very strong buy at this level.

Orogen continues to deal properties as cash flow nears

Orogen Royalties Inc. (OGN:TSX.V, 0.35) continues to deal projects, with optioning out one more Nevada project (to a private company), while acquiring by staking the Onjo copper-gold porphyry in British Columbia. These two transactions illustrate the strategy of optioning existing properties to get work done in exchange for royalties—the agreement has a minimum drill commitment, including in the first year—while continuing to generate new properties. Ermitano remains on track for production in early 2022 to become Orogen’s first cash-flowing project. Orogen is a buy.

More progress at Lara

Lara Exploration Ltd. (LRA:TSX.V, 0.69) continues to advance projects with partners and independently. Recently it announced that partner Hochschild returned more good results from the Corina project in southern Peru. Another 2,000 meters of drilling is planned.

Hochschild Mining Plc (HOC:LSE) has an option on the project in return for a royalty. Lara continues to work in a low-key methodical manner, but several projects are being advanced. The stock is a strong buy for patient investors.

Azucar continues to advance large El Cobre project

Azucar Minerals Ltd. (AMZ:TSX.V; AXDDF:OTXQX, US$0.14) has begun of new drill program at the El Cobre copper-gold porphyry project in Mexico. El Cobre is a large property which has seen extensive work over the years. Australia’s Newcrest Mining Ltd. (NCM:ASX) acquired just under 20% of the company as a way of funding and gaining exposure to the project, and has maintained its share ownership through top-up investments. An initial resource estimate on the Norte Zone shows 1.2 million ounces gold equivalent indicated. The new drill program plans one hole in each of three new zones. The company is certainly not expensive, with a market cap of around CA$10 million, though it takes money to explore and develop the large property. We are holding.

We are also holding associated company Almadex Minerals Ltd. (DEX:TSX.V, 0.245); both companies were ultimately spun out from Almaden Minerals Ltd. (AMM:TSX; AAU:NYSE). Almadex holds royalties of both El Cobre and on Almaden’s stalled Ixtaca, as well as a portfolio of properties in British Columbia, Nevada, and Mexico, some of which it has optioned out to third parties. It anticipates drilling on several of its properties this year. It is well financed, and holds a gold loan to Almaden. Patient investors can accumulate for exposure to the group.

Upcoming Conferences

This coming week (June 10–12), I’ll be in Orlando for the Money Show in-person conference, with three separate sessions (a class on gold investing; a debate on crypto; and a workshop on best places to invest now). And next month, July 21–24, is the FreedomFest conference, being held this year in South Dakota, with a range of speakers on economics, politics and more. I’ll be participating in another crypto debate, as well as a session on Modern Monetary Theory and its ramifications. I’ll also be participating in the virtual Natural Resource Symposium, July 15–17, hosted by Rick Rule, with leading mining companies and analysts.

The Things They Say

As Germany’s 10-year bond declined, the yield went to a negative 0.12%. President of the Kansas City Federal Reserve Bank talked about the German yield being “relatively lofty.” Even with the modifier, “lofty” is a peculiar choice of word for a negative yield. There is something very sad and troubling in London newspaper headlines proclaiming “Government to allow families to hug from next week.”

What’s good for the goose

Supreme Court Justice Neil Gorsuch, in his ruling against the government in a procedural immigration case, wrote that “words are how the law constrains power,” arguing the law requires the government provide a single statement of the nature of the proceedings against him. Homeland Security lawyers argued it would put too much of a burden on the government to comply with the law’s literal interpretation. Write Gorsuch: “If men must turn square corners when they deal with the government, it cannot be too much to expect the government to turn square corners when it deals with them.”

Originally published June 6, 2021.

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: Lara Exploration, Midland Exploration, Newmont Corp., Fortuna Silver Mines, Barrick, Osisko Gold Royalties and Orogen Royalties. 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: All. 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 Barrick Gold, Osisko Gold Royalties, Midland Exploration, Lara Exploration, Orogen Royalties and Fortuna Silver Mines, companies mentioned in this article.

Adrian Day’s Disclosures: Adrian Day’s Global Analyst is distributed by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. Publisher: Adrian Day. Owner: Investment Consultants International Ltd. 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. ©2021. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.

( Companies Mentioned: DEX:TSX.V,
AMZ:TSX.V; AXDDF:OTXQX,
ABX:TSX; GOLD:NYSE,
FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE,
LRA:TSX.V,
MD:TSX.V,
NEM:NYSE,
OGN:TSX.V,
OR:TSX; OR:NYSE,
)

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