Tuesday, 20 February 2024

By Brian Chu Editor, Gold Stock Pro and The Australian Gold Report

[9 min read]

Dear Reader,

In the last few months market participants have chased the rage in AI/tech stocks, cryptocurrencies and uranium stocks.

There seems to be no end to their relentless rise.

Momentum begets momentum.

These are the themes that financial pundits cover:

AI becoming part of our lives,

The Bitcoin ETF launch opening the door to turning cryptos mainstream,

and the increasing role that nuclear energy plays in the future of clean energy.

Meanwhile, something else has been rising steadily. And it’s been doing this for longer than all the top performers of 2023.

It’s not the S&P 500 Index [SPX] or central bank interest rates.

It’s gold.

Let’s have a look at how it’s performed since 2017:

And here’s a table summarising its performance each year:

Gold rose four out of the seven years. But each year it rose, it was up more than 10%. The three years when it fell, it was a small retreat.

This clearly shows gold’s strength.

You’d think that with this momentum, gold stocks would join the ranks of the hottest assets to buy.

Well, it’s not.

We’re seeing a major valuation gap form between gold and gold stocks (I’ll show you that in a short while).

Most investors are not paying attention to this important point.

It’s only a matter of time before the market wakes up.

When it does, this could be a bull market like no other.

Meanwhile insiders in the gold mining industry are already moving behind the scenes. And it’s picking up momentum. Clearly they’re onto something.

Will 2024 spark a ‘Gold Rush’?

The positive signals are building.

Let’s talk about this today and how you can take part by getting in BEFORE it potentially takes off!

Left behind — the big valuation gap between gold and gold stocks

Most mining stock investors know that they’re playing in a risky and volatile space.

The price of the underlying commodity can vary significantly due to market forces and seasonal effects.

But with mining companies, there’s the added layer of complexity.

These are businesses operating in a high-risk sector. Mining activity is affected by labour availability, weather, ground movements and legal restrictions.

In good years, mining companies can deliver handsome opportunities.

But in a bad year, losses can be crippling.

Good and bad times come in clusters, meaning management needs to make multiyear plans. To succeed, they need to stick to their strategy through thick and thin.

As for shareholders, they must ride the price cycles and may experience heady wins and punishing losses along the way.

It's for this reason that a valuation gap exists between mining stocks and their underlying commodity.

Those who understand this could be set to reap the benefits.

As you can see below, stocks have been undervalued relative to gold for over 18 months.

For a fair comparison, I have used gold in Australian dollar terms against the ASX Gold Index [ASX:XGD] that tracks the established gold producers and developers listed on the ASX:

Over the last three years, the valuation gap has widened. This jumped in 2022 when central banks raised rates quickly.

Gold retreated mildly in Australian dollar terms, partly offset by a weakening Australian dollar, but it sent gold stocks plunging.

Even though the ASX Gold Index started recovering last year, notice how this gap has increased once again in the last two months?

That’s something which has frustrated faithful gold stock investors who’ve been waiting almost three years for a breakout.

There are many reasons gold stocks trade at a steep discount to gold.

The first… global lockdowns and border restrictions.

This led to mining companies having to work with limited staff and equipment.

Meaning mines didn’t receive the regular maintenance or servicing to keep them in operating form.

That resulted in slower progress for exploration and production.

The end result… Companies didn’t grow in in line with gold’s rally.

Many companies are still reeling from these challenges.

The second point, the price of oil rose sharply from 2021–22, causing gold producers to spend more on their input as their machinery consumes a large amount of diesel.

An aggressive rate rise cycle held gold down and the oil price shock squeezed the profit margins of these companies. In 2023, oil fell back to US$60–80 a barrel which allowed profit margins to recover. But this has yet to bring market investors back into this space.

The third is the price of gold failing to break above and hold a new all-time high. Gold set a new record in August 2020 at US$2,080. This record held until 4 December 2023 when it traded an intra-day high of US$2,130.

What caused that move was the market pricing in an early rate cut in March this year.

In the 10 weeks following, the Federal Reserve Chair Jerome Powell talked down this prospect citing signs of an economic recovery. However, gold has drifted back below this level and excitement for gold to drop.

It’s for these reasons that gold stocks have disappointed and kept away investors seeking to turn around a quick profit.

It could be a few months before the trend turns around, as we look to how quickly management can iron out the problems they face.

Corporate activity reveals positive expectations

Thus far my article seems to suggest quiet optimism and an appeal to act cautiously with gold stocks.

But if you think that means you should look elsewhere for finding big opportunities, then I suggest you think again and read on.

A rational investor should perhaps look for ‘greener pastures’.

But an investor looking for big opportunities should start becoming greedy in this space.

Corporate insiders have been busy in this space running their ruler over their peers and their assets. Several have completed deals in the last 18 months, and there’s more to come.

I’ve written about many of these deals as they occurred including Newmont Corporation [NYSE:NEM] buying our biggest gold producer, Newcrest Mining, Ramelius Resources [ASX:RMS] buying Breaker Resources and Musgrave Minerals, Genesis Minerals [ASX:GMD] buying the Gwalia mine in Leonora and taking over Dacian Gold, and the recent agreement by Red 5 [ASX:RED] and Silver Lake Resources [ASX:SLR] to combine in a merger of equals (which I discussed in some detail in last week’s ‘What’s Not Price In’ video).

Just last week there was another announcement of a merger between two Western Australian explorers, Horizon Minerals [ASX:HRZ] and Greenstone Resources [ASX:GSR].

Look, they may all be talking their own book or drinking their Kool-Aid. But I wouldn’t be so sure of that.

After all, these people are closest to the scene and they’re the ones to cause ripples in the market that investors and speculators pick up after the fact.

Historically, corporate activity can increase at the bottom or the top of the market. This is because there’s either peak value or peak exuberance.

It’s clear that gold stocks aren’t at the top of the market so the odds are that we’re coming out of the lull.

The corporate insiders look like they’re positioning themselves for big benefits ahead.

I reckon that this is the right time for you to do the same.

Time to start loading up with The Australian Gold Report

Some of us have been in this for a while now and wondering whether to cut losses.

I’m not doing that and I would hope you’re not either. This is a critical time to stick to your guns.

And those who are wondering whether to come in, I believe now is a great time to act.

How big are the potential gains when things turn around?

Let’s have a look at history with the two recent gold stock bull markets:

If you want to find out more about how to get in early on this potentially rewarding opportunity, check out my precious metals investment newsletter, The Australian Gold Report.

This week, we’ve got an event Gold Fever where you can find out more about why I’m excited about the prospects of gold producers. You’ll also get my three recommendations to help you start your gold stock portfolio as well as a game plan to help you build a precious metals portfolio.

Your golden opportunity is right ahead, so act NOW!

God bless,

Brian Chu,
Editor, Gold Stock Pro and The Australian Gold Report

Brian Chu is one of Australia’s foremost independent authorities on gold and gold stocks, with a unique strategy for valuing big producers and highly speculative explorers. He established a private family fund that only invests in ASX-listed gold mining companies, possibly the only such fund in Australia, putting his strategy and research skills to the test under public scrutiny. He currently writes two gold-focused investment advisories.

In his Australian Gold Report, Brian shows you a strategy for building long-term wealth in physical gold, along with a select portfolio of hand-picked stocks, mainly producers with proven revenue streams, chosen for their balance of risk and reward.

In his more specialised Gold Stock Pro service, Brian helps readers trade some of the most exciting, speculative gold mining plays on the ASX. He uses his proprietary system — based on the famous Lassonde Curve model, which tracks the life cycle of mining stocks. His aim is to help you get ready to trade the next phase of gold and silver’s anticipated longer-term bull market for opportunities to benefit.

By Bill Bonner Editor, Fat Tail Daily

[3 min read]

Dear Reader,

From the sins of thought, word and deed,
From the lusts of the flesh
From the deceits of the world and the snares of the devil
…save us, good Lord

~ Prayer at Ash Wednesday service

Yesterday, the US president got an unexpected boost — from Vladimir Putin. The Financial Times:

Vladimir Putin has said Joe Biden would be a better US president for Russia than Donald Trump and dismissed concerns over his counterpart’s age and acuity for the role. …Putin suggested on Wednesday that concerns over Biden’s age and mental acuity were part of the US election campaign “getting more and more vicious” and said he had seen no evidence his counterpart was not fit for office. At their last meeting in Geneva in 2021, Putin recalled, “they were already saying Biden wasn’t competent [...] but I saw nothing of the sort. Yes, he looked at his notes, and to be honest, I looked at mine. No big deal. So he banged his head on the helicopter when he was getting out of it — who of us hasn’t banged their head on something?”

Against this assessment from a sober foreigner, we have a report from Biden’s own troops, telling the world that his mind isn’t working properly. Robert Hur, special counsel for the Justice Department, who oversaw Biden’s handling of classified documents:

In his interview with our office, Mr. Biden’s memory was worse. He did not remember when he was vice president, forgetting on the first day of the interview when his term ended (“if it was 2013, when did I stop being Vice President?”), and forgetting on the second day of the interview when his term began (“in 2009, am I still Vice president?”). He did not remember even within several years, when his son Beau died. And his memory appeared hazy when describing the Afghanistan debate that was once so important to him.”

All God’s Creatures

Poor Joe Biden. The whole world watches as he stumbles on steps and fumbles his speeches. Like all of God’s creatures, he is getting old.

But rather than slide gracefully into old age, he desperately clings to the deceits of the world — power…prestige…and status. He could be bouncing grandchildren on his knee…and, wearing a flannel shirt and a sweater with holes in the elbows; he could be working in his woodshop, making Christmas presents. And then occasionally, he could put on a tie and use his accumulated wisdom, such as it is, to guide his family…and himself…in the remaining years of his life, with gravity and poise. Consulting with local hospitals, advising school boards…and giving tips to pizza delivery boys and politicians — those are the proper jobs for a man his age.

‘Here is what you should do,’ he might say to a candidate for town counsel. ‘Pretend to be an American Indian, like that Pocahantas woman…what was her name…from up North somewhere…

‘…that’ll get you the ethnic vote. And I remember that advice I got when I ran for the senate: don’t get caught in bed with a dead girl or a live boy. Or was it the other way around…?

‘And did I tell you the joke about the Irishman and the Polack? I didn’t? Well an Irishman enters a bar. And…and…well, it was very funny.”

A Brief Miracle

We arrived at the ferry terminal at Rosslare, Ireland, on Ash Wednesday. It was so foggy that we could barely make out the dock even when we were tied up to it.

The officer at passport control had cinders on his forehead. He was marked as one of God’s own with the sign of the cross. From dust…to dust we go, happily celebrating that brief miracle that is life itself.

Nietszche referred to an “amor fati,” loosely translated as ‘the love of fate.’ As to the ‘whyfors’ and the ‘what’s nexts’ we are all fog-bound forever. All we can do is accept…with as much appetite as we can and muster…whatever God dishes out for us, and watch — for instruction as well as amusement — as the devil snares his own.

Joe Biden, for example. He could have retired with some residual dignity. Instead, he craved power so much he wouldn’t let it go. And now it won’t be too many years before he meets his maker; he’ll have some tough questions to answer.

Did he not aid and abet the murder of 28,000 civilians in Gaza…and sacrifice hundreds of thousands of Ukrainians in order to continue his proxy war with Russia?

We don’t know the verdict; who knows which side God is on? But we’d love to see the trial. And while no Vegas odds-maker will let us put money on it, our guess is that odds against acquittal run more than 2-1.

Election Disputes

Yes…the poor president is headed for that bourne from which no traveler returns… along with the rest of us. There, he’ll have some ‘splaining to do. And with his diminished mental faculties, it won’t be easy.

But for now, he remains in the nation’s highest office…the president of all the Americans…and the world’s laughingstock.

Our sympathies are with him. He is just a few years older than we are. Already, we search the clutter of our own brains…looking for a single word amid 75 years of accumulated sales jingles, hit songs from 1965, and recipes for curing hams. Often, we come up empty handed. And last weekend, we slipped on the steps and fell hard onto the ground.

Then again, we are not so vain as to think we would make the best president America could find. And if by some fluke of bad judgment on the part of voters, we were chosen president…

…like Donald Trump himself, we would dispute the election results.

Regards,

Bill Bonner,
For Fat Tail Daily