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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Coming up we’ll hear an interview with Money Metals president Stefan Gleason, who was a featured guest during the recent 360 Gold Summit. Stefan addressed the fundamental question of “why precious metals” and also gave some helpful tips on how to avoid making big mistakes when investing in gold and silver. Don’t miss this foundational and enlightening conversation coming up after this week’s market update.
The gold market rallied earlier this week to record slight new multi-year highs before giving back some of those gains late Wednesday and into Thursday. As of this Friday recording, gold trades at $1,769 an ounce and currently posts a 0.9% advance on the week.
Turning to silver, prices are oscillating within a trading range and currently come in at $17.69 per ounce – essentially flat for the week. Bulls are anticipating an eventual breakout above the $19 level to establish new multi-year highs, but more backing and filling may have to take place first.
The other white metals are lagging this week, with platinum off 2.2% to trade at $808 – and palladium lower by 2.6% to bring spot prices to $1,932 an ounce.
Concerns about rising COVID-19 infections weighed on industrial commodities and stocks. New York and Texas announced they would suspend further reopening plans, while a spike in cases in Arizona raised alarms among public health officials.
However, other data shows that death rates continue to decline – evidence that the novel coronavirus is far less lethal than previously thought. And the rebound in infections is coming primarily from the ongoing increase in testing and reporting.
At the same time, expectations are building for another round of stimulus from Washington. White House economic advisor Larry Kudlow confirmed this week that more stimulus checks are on the table – as are a host of other spending priorities for the Trump administration and the Democrat controlled Congress.
The U.S. Treasury Department has already committed $3 trillion in aid through the CARES Act. But well over 30 million Americans remain jobless, with many parts of the economy still largely shut down.
Meanwhile, mobs of rioters, looters, and thugs continue to rampage through cities. As crime surges and law enforcement pulls back under political pressure from left-wing activists, the economies of some of these urban communities will suffer even more. Few businesses will want to invest capital in areas under the grip of anarcho-tyranny, and more and more residents will want to flee to more orderly suburban or rural areas.
The revolutionaries who want to overturn capitalism, abolish the police, and tear down American history won’t be placated by system reforms. But politicians are still giving into the mob’s demands right and left.
The angry agitators are demanding cash payments including racial reparations. It appears that more federal funds will be headed their way. And perhaps some will also go to the millions of ordinary Americans who are just trying to make ends meet for their families.
Businessman and economic commentator and a past guest here on our podcast Steve Forbes weighed in on the likelihood of another stimulus package that could include payroll tax relief:
Steve Forbes: Well, the political season is heating up and guess what? There will be a new stimulus bill. The White House is coming up with its ideas. Congressional ideas are floating around. So, what’s likely to be in it? One is if the White House pushes hard, there will be that payroll tax holiday that means somebody making $40,000 a year will get the equivalent of an annual raise of $3,000.
Now, what will the Democrats want? They want bailout money for states to help cover their COVID expenses and some other things. Republicans don’t like that idea, but they will go along. There will be a lot of heavy negotiation. There’ll be a lot of storming out of the rooms, but a new bill is coming and after Labor Day, you can look forward to another treasury check.
Right now, the only question that is being asked about all of these proposals is: What’s politically feasible? Well, in an election year, just about anything that is popular with constituents or powerful special interests can make its way into a stimulus package.
Nobody in Washington is asking how it will all be paid. It will simply be added to the national debt, of course. And the Federal Reserve will buy up government bonds in unlimited quantities to keep a lid on interest rates.
Few politicians have any concerns about the longer-term consequences of running up an unprecedented budget deficit enabled by an exploding central bank balance sheet. One big risk, though, is a rapid decline in the value of the Federal Reserve Note.
The buck traded in a volatile fashion versus foreign fiat currencies this spring, first spiking higher, then lower during the turmoil in financial markets. The U.S. Dollar Index has since settled back down to about where it began the year.
If and when the USDX embarks another leg lower, that should provide fuel for an upside breakout in gold to a new record high. At that point, mainstream investors will start paying attention to precious metals. Opportunistic bargain hunters will see that silver has a lot of catching up to do.
Well now, without further delay, let’s get to this week’s featured interview between Money Metals president Stefan Gleason and Pete Fetig during a recent summit on all things precious metals.
Stefan Gleason: You want be careful about who you are doing business with, you want to do a little research. Probably start small with that dealer and see how it goes. See how the service is. See how the delivery is. Another place to acquire precious metals would be from a local dealer. Money Metals Exchange is a national dealer. There is other several other good national dealers.
Local dealers are a little bit more sort of unknown. Some are very good. Some are not. One of the problems though buying locally is that you are often faced with sales taxes. Many states, I think it is about 20 states, actually force dealers who sell inside of their states to collect sales taxes, which are significant. Especially, when you consider that an ounce of gold might cost 5, 6, 7% over spot. Well if you add a 7% sale sales tax to that, that’s a huge, huge markup in the context of the numbers you normally see in precious metals. So that is a disadvantage that many local dealers have when compared to a national dealer. But the advantage perhaps, especially if you are very nervous about dealing with somebody from a long distance, is that presumably you can walk out that day with your metals after having paid, instead of having to wait a couple days in the mail for it to arrive. On the other hand, they may not be as well-equipped locally to detect fakes, which are not a big problem, but they are out there. And there may less of an education component involved, but look at your options. Obviously, our customers are buying from us. Many of them bought locally and then changed to us.
Pete Fetig: That is a really interesting observation with the sales tax. When you think about it, you are actually exchanging one form of currency for real money. You are not buying anything. You are not selling. You are exchanging.
Stefan Gleason: Right. That is an extremely concerning subject. As you pointed out, you are changing one form of money, paper U.S. dollars or coins for another form of money that is recognized by our Constitution as money. Article 1 section 10 of the Constitution sets up gold and silver as the only money that is supposed to be accepted in the States. We have also obviously got away from that. The idea that you would have to pay sales taxes as though it some sort of good as opposed to money. Could imagine if you went to the bank and had to pay sales tax to break a $10 bill into a roll of quarters? I mean that is basically the equivalent. Gold and silver is disfavored by the sales tax laws in many states. And then at the federal level, you have to pay capital gains taxes when your gold and silver goes up in dollar terms, but it may not have really gone up in the context of purchasing power. What happened was the dollar went down. So it’s kind of an example of the inflation tax. You are being taxed essentially through the capital gains tax on the inflation that the government is creating.
And so these are the public policies that we are working to spotlight and hopefully change over time. That is to repeal the sales tax laws that are discriminatory against people for exchanging one form of money for a better, more trusted form of money. And then of course, the discriminatory capital gains tax and, unfortunately, it is even at a higher rate than say a stock. A long-term capital gain on gold bullion is taxed at 28% and not 15% like you would with a gain in a stock. So there are definitely some problems. We can get into this in a minute. That is one of the advantages of holding precious metals in your IRA, is that you can buy and sell without having to pay those gains every time.
Pete Fetig: Is there anything more important than choosing the right product and getting it for a low price?
Stefan Gleason: The most important thing is getting delivery. And that means getting your metal. I would say that in some cases the lowest price can be a red flag. If somebody is selling gold and silver for below its actual value, there is probably something wrong. We recently ran across somebody who had bought some gold from a Bitcoin exchange and he bought it at a discount, a discount to its market price. Well, that is kind of a red flag. Gold and silver is not at a discount to the spot price, particularly on the buy side. So the lowest price is not necessarily the best, safest place to go. Obviously, there is some very good low-cost dealers, including Money Metals Exchange, but there’s also been horror stories of low-cost dealers. I will mention one that went out of business, Tulving Company. They were super low, no service, almost kind of mean to their customers, if you dealt with them. Eventually, at one point about 2 years ago, 100s of people stopped getting delivery. Something like $20 million worth of gold and silver was never delivered. So getting a low price is no good at all, if you are not actually getting your metal. The most important thing is working with somebody and getting what you paid for.
Pete Fetig: Very true. How does the average person trust a dealer or an organization that supplies the coin or bullion?
Stefan Gleason: Well, the first thing is doing a little research. You should always do that with any purchase. You should know who you’re dealing with. When it comes to precious metal dealers, the first thing I think look them up on the BBB. See if there are complaints. See how they have handled those complaints. Everybody probably can have a complaint, but how they dealt with those, how many they have, what kind of rating they have, that is one way of doing the research.
There is another site called Bullion Directory, which has reviewed 100s of companies across the globe. We were honored to have been named precious metals dealer of the year in the United States last year by that ratings group, international ratings group. Those are two things you can do research, the BBB and Bullion.Directory.
The other thing is size them up. Look at their website. Look at the content that they have. If they have an email list, get on your email list. And start small. If you are worried about it, you’re not 100% sure, buy a small amount and see how it goes. See how good the communication is. See if they provide you with transparent pricing and fast delivery. Do they confirm that they got your payment? Was their invoice exactly what you expected? Was it packaged well? Was there pride put into the way they handled everything with their customer? If you have a good experience, that is a really good sign. Obviously, it is not a guarantee, but you really need to pay attention to the people you are doing business with. And that’s just as much, if not more the case, when it comes to precious metals.
Pete Fetig: What sort of considerations are important to make before and after acquiring?
Stefan Gleason: I would say that there are a couple things that I would emphasize. One is what are you going to do with it when you get it? Where are you going to put it? How are you going to store it? Most of our customers probably keep it somewhere in their house. A few will put it in their bank safe deposit box. Some will stored in a depository or at a Brink’s facility. Some will put it in their home safe, but some will hide it in other unpredictable places. So if you have a lot of precious metals, you probably want to have some of it stored remotely because that is a lot to have in your house. I do think that everybody should have the ability to get their hands on their gold and silver, at least some of it, very quickly if they need to. So storage is one consideration. Some people are reluctant – and I can understand why – to store it in their bank safe deposit box. In fact, the banks are part of this war on cash and even war on precious metals. Some banks are saying you cannot hold gold and silver or cash in your bank safe deposit box. You may be banking with one of those banks.
But there are also concerns from back in the 1930s. FDR issued an executive order banning private gold ownership in America. Some people felt like the gold that they had in the safe deposit box was being disclosed and potentially seized. That never actually happened, but most people turned it involuntarily, or many people did. But there’s less privacy perhaps, if you hold it in the bank. I think people, rightly, are little reluctant to do that.
The other thing is, in addition to figure how you are going to store it and where you are going to put it, is really to think about the responsibility that you have as a precious metals owner or as a person, to keep your financial business to yourself. A trusted person or a spouse, certainly should be aware, if something happens to you, but you should not be talking about how you bought all this gold and silver. Bringing out your collection and showing it to everybody that comes and visits. There’s been, unfortunately, some really horrific situations where people have not kept her mouth shut. Had been talking way too much about what they own and found themselves with a home invasion or a robbery. So that’s the other thing. Figure out how you are going to store it and also discipline yourself to keep your financial business as private as possible.
Pete Fetig: Very good points. How can the average person best understand appreciation of his holdings or the upside value?
Stefan Gleason: The first reason to own gold and silver is not necessarily for these spectacular gains. Although, I think you are going to see those, at least in dollar terms. The first reason is to own it as insurance and as a hedge. But, particularly with silver, probably also with gold, there is a huge potential upside, even real terms. Right now, we are seeing negative interest rates emerge in Europe. We are seeing 0% interest rates here in the U.S. One of the big knocks on gold and silver is, “It does not pay any interest.” Well, neither does the dollar now and then on top of that you have the devaluation of the principal when you own dollars. So gold and silver are becoming very attractive assets. That is particularly been evidenced in the last few months. Gold and silver have done extremely well. So there’s definitely some real potential upside to gold and silver.
In terms of when to get out, I think that you probably want to be owning gold and silver forever, a certain amount. But if you’re more of a speculator and you have larger amounts, than you probably do want to be looking for opportunities to sell over time. But I would say right now is a buying opportunity. Down the road, you could see silver at $100 an ounce or even higher. Gold could be several thousand dollars an ounce before this is all over, particularly if the devaluation continues and maybe you’ll want to lighten your holdings. Right now, I think you are wise to be in the accumulation mode. Unless, you need the money because you need to liquidate for other reasons.
Pete Fetig: That makes sense. I guess related would be, when might an average person consider liquidating his holdings? Are there any solid event types that might precipitate liquidating all of what you have versus only some of what you have?
Stefan Gleason: If you see the U.S. government live within its means and the debt goes from $18 trillion down to 0, that might be a good time to seriously lighten up on precious metals. I personally don’t see that happening. I do not think most people do. I think we are locked on a path here. So I think there is always going to be a significant role for precious metals in your portfolio regardless. But perhaps, if you saw an outbreak of sanity in Washington DC and around the world, and peace emerging, and all these geopolitical things simmering down, and terrorism going away, I think it might be time to seriously consider selling a fair amount of your gold and silver, but we’re not in that situation.
The way to approach this is to not try to pick a bottom or a top. It would be accumulate over time in smaller amounts. Don’t go all in and don’t sell all at once. I would look at this as a way of getting on a plan and slowly and steadily increasing the number of ounces you own. And then, if we get down the road, and you do see things changing, and 40% of the American people are talking about … You’re getting your shoes shined and the guy is talking about owning gold and silver, maybe that is the time to start selling. But we are nowhere near that situation and most people are dangerously exposed in not owning any. So I would get on a monthly plan and accumulate. Now is the time to accumulate. Down the road would be a time to potentially disgorge some your holdings or if you have a need for it… if you’re in retirement or you have some big expenses. Obviously, you do not want to lock up all of your available cash in precious metals. Just do what you can over time to accumulate and I think you will be rewarded for it.
Pete Fetig: And somewhat related in terms of best place to get it. What about best places to liquidate it? Is there a type of list that would-be investors might consider comparing against or going to?
Stefan Gleason: Well, usually, and certainly it’s the case with Money Metals Exchange, you can sell to the same people that you buy from. We’ll buy anybody’s gold or silver coins, bars and rounds. We obviously check it and ensure that it is what it is. We make sure we have it in our facility before we pay the customer, once we verify it. But we buy back and we would love to buy back. Unfortunately for us, most of our customers are just buying from us and very few are selling to us. So we actually have to buy from mints and wholesalers and the U.S. Mint and so forth. We’d love to buy more of our inventory from our customers because obviously we are buying from a middleman. We do make a market. Probably only about 5 to 10% of our inventory is sourced from our customers. We are eager to buy and we offer probably the highest, or among the highest, buyback prices of any of our competitors. We are as eager to buy from our customers as we are to sell to our customers. And that’s probably the case with most dealers. We are not retailers. We are dealers and that means that we both and sell.
You probably would go back to where you bought it, but you do not have to. We buy stuff from people that they bought elsewhere all the time and are happy to do so. The items that we deal in are very standard. Recognizable. Liquid. Some people may want to sell to their local dealer and that’s fine too. They want to walk out with the cash. They may not get as good a price, but it depends on what your priorities are. There is no problem selling your precious metals. But that’s a very good question because a lot of times people say, “How do I sell? What do I do with it?” It is really about as easy to sell it as it is to buy it. You contact a dealer or walk into a dealer shop. They offer you a price. You give them the metal and they pay you. It’s that simple. It is about the same process in reverse as when you buy from us.
Pete Fetig: I’m going to switch gears just a little bit here. How about other precious metals, like platinum, palladium, etc.? Are there times when an investor should be considering acquiring those precious metals or vice versa? Or liquidating, if they are already held?
Stefan Gleason: Platinum and palladiums are the other two major precious metals. There’s rhodium, for example, which is even less considered an investment asset. Platinum and palladium are still a very small part of the precious metals market. There’s less of it, I should mention, but it is not as big of an investment asset. It is more of an industrial asset. Platinum and palladium are used for catalytic converters, diesel and gasoline catalytic converters. With automotive demand, for example, platinum and palladium can go up and down based on what is happening in the automotive market. It is also a financial asset. There are ETFs now. Of course, there are physical bars and rounds and coins, of all of these, including platinum and palladium. But I would definitely not get into those until you have already got a significant or at least a reasonable holding of gold and silver. Those are the two that you want to start with. Platinum and palladium is a little bit more for down the road.
In terms of the upside, again, a lot of it is driven by industrial demand, but they are also undervalued versus gold. As I discussed earlier, silver is way undervalued versus gold historically, both in recent history as well as the longer-term history. But platinum and palladium are undervalued. Platinum is way below the price of 1 ounce of gold and it’s typically 1.5 to 2 times the price of gold over time. Platinum is way undervalued versus gold. But again, that is really not something to jump into until after you already have a meaningful holding of gold and silver.
Pete Fetig: It also sounds like something that you probably would not do until you better understood the market and price swings and so forth of the precious metals in general. What about owning precious metals in your IRA. How does that work? Should you own the only physical metal? Or shares of metal backed by ETF?
Stefan Gleason: ETFs again, if you want to trade and you want to do in your stock account, it is convenient, but there these precious metals backed ETFs. They’re really a proxy. You don’t own direct title to the metal. You own shares of a trust that supposedly owns the metal and then there is a whole series of custodians and sub custodians and sub sub custodians involved in that kind of instrument. So if you’re buying gold and silver as insurance, then why introduce counterparty risk into something that is supposed to be your safe asset? There are reasons people want to buy that. Certainly, it is convenient, but it’s not necessarily cheaper than owning it and storing it and paying the storage fees yourself. There’s still fees involved in the ETFs. I don’t think that’s really something people should be doing. They should be buying physical gold and silver that they have direct title to.
Pete Fetig: What sort of things or education can the average person do for themselves to be better prepared to consider precious metals investing?
Stefan Gleason: This is something our company, Money Metals Exchanges, is really big on and that is education and content. We want our customers to be well-informed and we want to keep them updated. There are lots of websites out there, but a great place is to go to MoneyMetals.com and get on our email list. We send out 2 or 3 informative articles about the markets each week. Pay attention. Get a little gold and silver in your hand. Start thinking about it. Start thinking about what it means. Compare it to paper money. It’s interesting, the first time I had gold and silver my hand 20 years ago, it really got the wheels turning. What is this fiat money? What is this Federal Reserve note? Why does it have value? Why do people accept it? And compare that to this beautiful, timeless metal of gold and silver and it really gets the wheels turning. And that opened up an education process for me. And I think it does a lot of people. And we think the best customers are the best informed. And that’s certainly what we strive for.
I want to get back to precious metals IRAs. That’s one thing that is an area where people might be best able to put money into precious metals because they have IRA accounts. There something called a self-directed IRA . You can set up an account with a self-directed IRA company and then work with a dealer like us and with a depository, you can directly hold title, your IRA can directly hold title to physical metal inside of your IRAs. That’s another way of getting into this market that we definitely encourage people to look at.
Pete Fetig: A lot safer than to be speculating in the stock market. That is for sure. Is there any method to the madness in how the average person might approach what he considers owner or holding? When I say that, for example, is there any sort of 80/20 type of rule or rules of ratio for gold to silver holdings.
Stefan Gleason: I would say that the more likely you are to need to access the gold and silver and turn it into cash or liquidate out of it… the more likely that that’s the case, probably the higher percentage that you want to have in gold. Gold tends to be a little more consistent. It’s rising, but it’s less of a roller coaster. Silver can be quite volatile when priced in dollars. And of course, some of that is just the volatility of the dollar itself. But I would say if you’re looking at a 3 to 5 year horizon, then definitely favor silver. If you’re only going to own gold and silver for a year or 2 and think you might need to liquidate out of it, then perhaps you should favor gold and have a majority of your funds in gold. But this isn’t something that you should be buying and selling like stock. This is something you should be accumulating and not necessarily looking to liquidate it any time soon. It’s there if you need it. Do not necessarily plan on buying gold and silver, if you think you are going to need the money in 6 months. There are some transaction costs involved. Not significant, if you go to the right places, but that is a something to keep in mind.
Going back to you what I said earlier. Silver is definitely the more potentially explosive upside metal. As long as you not looking very short-term, I would definitely have a majority of your funds in silver, but make sure you get some gold.
Pete Fetig: Very good. Well we’re running up against a time constraint here. I wanted to thank you for joining us and offering all of your just excellent insights and observations and answers to all the questions that we have thrown at you today. Before we leave though, I would like to offer you the opportunity to let people know how to reach you and to contact you at Money Metal Exchange.
Stefan Gleason: Thank you so much for the opportunity. And hopefully, I’ve shown education is a big part of what we do at Money Metals. I think when compared to other dealers that’s one of our very strongest differentiating factors. Go to MoneyMetals.com. Look at the products. Most importantly, get on our email list and let us continue to educate you about the market. We also have a monthly savings plan, which you can get into, where you set up a certain amount each month where we debit your bank account or whatever your instructions are, and send you on a steady schedule gold and silver. And that’s a great way to accumulate, kind of put it on auto pilot. So that’s available at MoneyMetals.com as well. But I certainly really appreciated the opportunity to talk about this important subject and also about a company.
Pete Fetig: Well thank you for joining us today. And folks, thanks for listening in and we hope you guys have a great day.
Mike Gleason: You’ve just heard the conclusion of Stefan’s interview with Pete Fetig during the recent 360 Gold Summit, we hope you enjoyed it. If you happened to miss the first half of the interview be sure to check it out, either on the MoneyMetals.com website, or by downloading it on iTunes.
Well that will do it for this week, please 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: Streetwise Reports 06/25/2020
Ralph Aldis, portfolio manager at U.S. Global Investors, in this interview with Streetwise Reports, looks at precious metals during the global downturn, and discusses M&A in the industry as well as companies he sees as undervalued.
Streetwise Reports: Ralph, thanks for joining us today. Let’s start with gold, which has seen a steep rise in the last few months amid the global pandemic and moves by central banks to shore up the economy and the markets. What do you think is ahead for the metal?
Ralph Aldis: I think that the backdrop of government spending and monetary intervention by the Federal Reserve to keep interest rates low provides a solid foundation for gold to still move higher. You throw in a potential change in leadership in the White House in November and maybe we will see gold take out its previous high. In 2016, gold rallied pretty hard for the first nine months but lost its momentum with the election of President Trump and the focus on wealth creation and the stock market. All the uncertainty risk that tariffs and other unexpected policies have created have really raised the foundation for higher gold prices. I think that’s why we’ve seen it steadily march higher over these last three years despite the focus on the stock market.
SWR: Gold has long been outperforming silver, and the ratio is around 100 right now, after coming down a little bit. What do you see ahead for the relationship between the two metals?
RA: There has been a lot of excitement about the gold-silver ratio recently. The last time it was at 80 roughly was back in September 2019, but with this first wave of COVID coming through, the ratio blew out as far as 124:1. It’s now tightened back to about 100:1. But we know what was driving that was low industry demand for silver with the lockdown and increased investment demand for gold going up at the same time. That’s what really drove it so far out there.
Perhaps a good indicator of where it could go next would be again to look back at July of 2016 when we had that last rally. The ratio at that point compressed down to 66:1, so that was quite a bit of contraction. We’re at 100:1 right now. A 60:1 move would be great. But should this gold market really get a new round of buyers as we head into 2021, I think silver will be recognized as a cheaper entry point into the precious metals trade.
SWR: Do you feel at this point people should be investing in the physical metal, mining stocks or both?
RA: We typically recommend a 10% allocation to precious metals and mining stocks as a prudent allocation. Investors now have an easier access to bullion price moves through exchange-traded proxies, but the capital gains tax rate is still 28% for collectibles versus 15% for most other investments. So that really favors the mining stocks. And the leverage to rising metal prices is best captured through owning mining stocks, which offer more upside. But holding bullion can be less volatile than owning the market. There are periods when bullion outperforms the mining stocks and vice versa. But traditionally, you typically get 3 to 1 leverage out of the mining stocks versus the bullion, and so that’s probably an attractive place to start to have exposure.
SWR: You run the Gold and Precious Metals Fund (USERX) and the World Precious Minerals Fund (UNWPX). What are some of the trends that you’re seeing with mining stocks?
RA: Much of the focus on price action in the gold space up until now has been concentrated on new leadership teams at Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) and Newmont Corp. (NEM:NYSE), and they deserve the attention. The returns on invested capital for both companies have been rising in each of the last three quarters. Their asset sales have largely been completed, and now there are even some investments being made by these companies in the junior space. Barrick bought into Reunion Gold Corp. (RGD:TSX.V) last year, and Newmont made a strategic investment in GT Gold Corp. (GTT:TSX.V), which has an exciting discovery. So I think the fear of doing a transaction in the gold space is now behind us.
For our Gold and Precious Metals Fund, consolidation is good as we tend to be more positioned in the midtier precious miners and that’s where consolidation tends to play out. The larger cap miners have had their valuations lifted with the money flows into the exchange traded funds (ETFs), and many analysts are now suggesting that investors look downcap for smaller companies that have lagged. We’re starting to see more deals materialize in the midtier space, too, and we can talk about that here in a little bit.
I would say for our World Precious Minerals Fund, the tune of underperformance may be changing. For instance, coming off the bottom of the COVID-19 low on March 18, the fund is up 96.32%, while the VanEck Vectors Gold Miners ETF (GDX:NYSE.Arca) and the VanEck Vectors Junior Gold Miners ETF (GDXJ:NYSE.Arca) gained 76.52% and 87.36%, respectively. This is a short time window, but we’ve outpaced them coming out of the bottom, so I find that to be very encouraging. Over the last few years, we’ve had an investment mania in cannabis and Bitcoin. They were really competing for the speculative dollars, and mining was not really doing that much. Now those trades have largely faded away, and investors are beginning to sniff out the value proposition that these junior miners and exploration development companies present.
For World Precious Minerals, there is not an ETF available for exposure to these companies, and no other mutual fund has more junior miners and exploration exposure as a percentage of the fund than World Precious Minerals. The seniors, they’ve touched a toe on some of these stocks, and we’re also seeing some activity with the midtiers: Alamos Gold Inc. (AGI:TSX; AGI:NYSE) has been taking investment positions in the exploration space with GFG Resources Inc. (GFG:TSX.V; GFGSF:OTCQB) and then Red Pine Exploration Inc. (RPX:TSX.V; RDEXF:OTCMKTS) along with a couple of others. So the miners see the deep value in the space, and they are now buying these names. What we haven’t seen is the retail buyer show up yet, so I think that is where the opportunity is. If the seniors and the midtiers are buying the juniors, I think it won’t be too long before the retail space wakes up and starts paying attention to these names and tries to get a position.
SWR: What are some of the resource companies on your Buy list?
RA: TriStar Gold Inc. (TSG:TSX.V) would be one of my top ones. It has a real geological science team of professionals creating value through the drill bit. TriStar’s last resource update increased its ounces by a factor of seven. It mainly was because prior to that there was no money being allocated to drilling budgets for exploration. But once it got some money, the resource grows sevenfold. Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) has also provided TriStar some money, so it is continuing to work. It has cash; it is not going to go bankrupt. And this deposit is a Tarkwa/Jacobina-style deposit, but there are modern day analogs of these deposits of this type of genesis right now forming off the coast of Nome, Alaska, and off the coast of New Zealand. The exploration markers for finding more gold in this type of system are pretty well understood now. I was at the site in Brazil in February and got to see a lot of it firsthand. It was a great site visit, and this is, I think, a name that’s going to be a big mine at some point in the future.
Another company that I think actually offers a lot of opportunity right now is Roxgold Inc. (ROXG:TSX). When we look at companies and model them, we look at the resource base and we look at the quality of that resource base, whether it’s grade, the covariance of the resource and the science and the statistics behind it. We try to assess what an equivalent asset trades for in the market. For Roxgold, we see the company as being 60% undervalued relative to other operating assets that have equivalent type ounces and grades. The returns on invested capital have fallen with the average grades coming down, but Roxgold did an acquisition from Newcrest Mining Ltd. (NCM:ASX), Séguéla, in the Ivory Coast, and that looks to be a very prospective land package. Roxgold has conserved its capital, and it has made a very good capital allocation decision on this property. I think it is going to be a game-changer for it.
Another one that is in both of our funds and is a top position is K92 Mining Inc. (KNT:TSX.V). We see that one right now 31% underpriced relative to other operating assets, and it has a lot of exploration potential yet to be fully recognized. So there may be still a lot in there.
So those are my Top 3 buys right now.
SWR: You alluded to M&A activity, and there has been a fair amount recently. We have Argonaut Gold Inc. (AR:TSX) and Alio Gold Inc. (ALO:TSX; ALO:NYSE.American); Silvercorp Metals Inc. (SVM:TSX; SVM:NYSE)/Gran Colombia/Zijin Mining bidding for Guyana Goldfields Inc. (GUY:TSX); Wallbridge Mining Co. Ltd. (WM:TSX; WLBMF:OTCMKTS) and Balmoral Resources Ltd. (BAR:TSX; BALMF:OTCQX) and, most recently, Evrim Resources Corp. (EVM:TSX.V) and Renaissance Minerals Ltd. (RNS:ASX). What trends are you seeing with these mergers? Do you expect to see more deals?
RA: Yes. The seniors, for two or three years there, it is like they were petrified to do an acquisition because they figured they’d get taken out to the woodshed and shot because some of the capital allocation decisions historically have been guided by net asset value models, investment bankers and so on, and not based on where real assets are actually trading and what they should be valued at. But I think the companies’ capital allocations are much better now, and they are willing to do transactions.
Argonaut brings a wealth of knowledge to Alio on improving the productivity of that asset. I think Silvercorp’s bid for Guyana Goldfields was opportunistic, meaning, if it got it, great, but obviously it was willing to walk away at a price. Then Wallbridge and Balmoral, they basically brought a lot of synergies together with a good mineral property and the mill that they can actually work with, too. So I think the M&A is on. Right now, we’re just at the beginning of the game.
SWR: If we’re at the beginning of the game, what companies would you put on your list that you expect to see as merger candidates?
RA: Well, I worked on this last night and the serendipity of the way it happened is that this company had a takeover offer today, a second one. I think the key thing right now is that single asset companies that have shovel ready projects could be at the top of the list. And the example I was using is Cardinal Resources Ltd. (CDV:ASX). It certainly fits that description. And the government of Ghana is totally backing the project with its purchase of the debt that Sprott Resource Lending had with the Ghana Infrastructure Investment Fund, a Ghana-owned investment vehicle, buying the debt. It looks like in taking that out, that may have been one of the catalysts.
But all of the major gold mining companies have operations in Ghana. So where are you going to go to replace a potential steep depletion rate with a new mine when the country has your back? So I think the government is certainly behind this. I wrote this last night, and when I came in this morning I found out that Shandong Gold Mining Co. (600547:SHA; 1787:HK) has made an all-cash bid for Cardinal, topping the bid made by Nordgold by 31%. I think this is a real question right now: Will there be a counterbid or a new interloper entering the mix? We will see. But I think the bidding is on for assets. As I review recent filings, both MM Asset Management Inc. and Macquarie Bank Limited have lodged reports showing they raised their exposure to Cardinal since the Shandong offer was announced.
There are other companies, too. Just think about single asset companies. Any single asset company is probably a target, but also a single asset company could be looking at another project to combine with it to get some synergies. So I think the game is on right now.
SWR: Is there anything else that you’d like our readers to know?
RA: I recommend investors stick to a sound asset allocation plan. Don’t put all of your wealth into gold by any means. A small part will give you good benefits in terms of reducing your overall portfolio volatility. When we look at the economy right now, there’s a lot of push to keep interest rates as low as possible. The Fed has some bullets, but it’s tough right now. I think the bigger issue also that we’re dealing with is social reforms are coming. That may imply higher taxes, but a lot of those things have been sorely underinvested. If you’re not investing in people, then you don’t really have a business or a country if you don’t really take care of the population and give people opportunity, and not just a few people, but lots of people.
SWR: Thanks for your insights, Ralph.
Ralph Aldis, CFA, portfolio manager of U.S. Global Investors, is responsible for analyzing gold and precious metals stocks for the World Precious Minerals Fund (UNWPX) and the Gold and Precious Metals Fund (USERX). In addition, Aldis serves as co-portfolio manager for the Global Resources Fund (PSPFX), Holmes Macro Trends Fund (MEGAX), All American Equity Fund (GBTFX), Emerging Europe Fund (EUROX), Near-Term Tax Free Fund (NEARX), U.S. Government Securities Ultra-Short Bond Fund (UGSDX), the China Region Fund (USCOX), and the U.S. Global Jets ETF (JETS). In 2011, and again in 2015, Aldis was named a U.S. Metals and Mining “TopGun” by Brendan Wood International. In 2016, he and Frank Holmes were named Best Americas-Based Fund Manager by the Mining Journal. Aldis received a master’s degree in energy and mineral resources from the University of Texas at Austin in 1988 and a Bachelor of Science in Geology, cum laude, in 1981, from Stephen F. Austin University. Aldis is a member of the CFA Society of San Antonio.
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Disclosure:
1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this interview 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) Ralph Aldis: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: N/A. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: N/A. My company has a financial relationship with the following companies mentioned in this interview: N/A. Funds controlled by U.S. Global Investors hold securities of the following companies mentioned in this article: Barrick Gold Corp, Newmont Corp., Reunion Gold Corp., GT Gold Corp., TriStar Gold Inc., Royal Gold Inc., Roxgold Inc., K92 Mining Inc., Argonaut Gold Inc., Alio Gold Inc., Silvercorp Metals Inc., Gran Colombia Gold Corp., Cardinal Resources Ltd., Balmoral Resources Ltd. I determined which companies would be included in this article based on my research and understanding of the sector. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) The interview 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 interview or the decision to write an article until three business days after the publication of the interview or 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 Newmont, GFG Resources and Evrim Resources, companies mentioned in this article.
( Companies Mentioned: ABX:TSX; GOLD:NYSE,
CDV:ASX,
KNT:TSX.V,
NEM:NYSE,
ROXG:TSX,
TSG:TSX.V,
)
Source: Streetwise Reports 06/25/2020
A Cormark Securities report highlights that recent exploration by Troilus Gold yields one of the best holes ever drilled on the property.
In an April 22 research note, Cormark Securities analyst Richard Gray reported that Troilus Gold Corp.’s (TLG:TSX; CHXMF:OTCQB) “Southwest zone is starting to bring the heat,” and the company recently drilled one of the best holes ever on the property.
The Southwest zone is part of its Troilus gold project in Quebec and is located about 3.5 kilometers (3.5 km) from the main mineralized zone at Z87. Southwest and the main mineralized zone share similar geology.
Gray relayed that the highlight hole, TLG-ZSW20-189, drilled in Troilus’ Southwest zone, returned 2.05 grams per ton (2.05 g/t) gold equivalent (Au eq) over 48 meters (48m) within a larger intercept of 1.56 g/t Au eq over 73m. The grade is more than double the average grade of the existing resource of 0.95 g/t Au eq.
Results of another highlighted hole that Troilus reported along with this one, TLG-ZSW20-185, showed 1.02 g/t Au eq over 15m.
“These drill results further demonstrate the potential of the Southwest zone to add to the current mineral inventory of 6,470,000 ounces of Au eq at the Troilus project,” Gray noted.
Currently, Southwest, defined by the Main and West zones, extends for 1 km along strike and ranges from 10–70m in width. An initial resource estimate for Troilus is expected later this year.
“Troilus could be a breakout explorer name in 2020,” Gray stated.
“The project has the size and scope to garner a significant re-rating as the company achieves further de-risking catalysts over the next 12-18 months, or become an attractive acquisition target for senior and midtier producers looking for large and undervalued resources in what is one of the safest jurisdictions in the world,” Gray concluded.
Cormark has a Buy recommendation and a CA$3.65 per share target price on Troilus Gold. The stock is trading now at about CA$0.98 per share.
Read what other experts are saying about:
- Troilus Gold Corp.
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Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Troilus Gold. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The 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 interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Disclosures from Cormark Securities, Troilus Gold Corp., Morning Meeting Notes, April 22, 2020
Analyst Certification: We, Richard Gray and Nicolas Dion, hereby certify that the views expressed in this research report accurately reflect our personal views about the subject company(ies) and its (their) securities. We also certify that we have not been, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report.
The Disclosure Statement Chart for Troilus Gold can be found on the website.
( Companies Mentioned: TLG:TSX; CHXMF:OTCQB,
)
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