Friday, 3 March 2023 — Albert Park

By Brian Chu Editor, The Daily Reckoning Australia

[8 min read]

Dear Reader,

There’s a well-known saying that every long-term position results from a short-term trade that went wrong.

For those who bought gold mining company shares in the last two years, they would’ve accumulated several such positions.

For two years, gold stocks were in a bear market. There were several false rallies that gave the false hope that things were turning around. It took a turn for the worse when the US Federal Reserve and other central banks started aggressively raising rates in March 2022. The sell-off turned brutal, and by September, only the most faithful gold investors remained. The rest had scrambled out, taking severe losses.

It hasn’t been easy for them.

Things started turning around after September 2022, and soon gold stock investors were getting ready to rise up to do a victory lap this January, as the ASX Gold Index staged a 60% rally.

‘This is it; the bull market is clearly here!’, they said.

Well, last month gave them a good gut punch as gold pulled back significantly in USD terms from US$1,950 an ounce to a low of just over US$1,800 an ounce. The ASX Gold Index fell almost every single day in February, as you can see in the figure below:

While the index fell around 15% from its highs, a lot of gold producers fell more than 20%. The small end, namely the explorers, even saw prices fall below their lows last year.

Many who had been patient in hanging onto their positions last year saw their portfolios dip deeper into the red.

Check out this figure below showing how gold investors fared buying established producers (measured by the ASX Gold Index [ASX:XGD])and the speculative explorers (measured by my own Speculative Gold Stocks Index):

There’s likely carnage with their long-term positions, which could’ve been short-term trades once upon a time.

But all isn’t lost. Far from it.

Suppress your emotions amidst the roller coaster ride

Unless you’ve been in this space for at least seven years, you’d think that those who invest in gold stocks are on a fool’s errand.

I understand this perception, though I’d vehemently disagree in principle.

I’ve got results to back it up in case you want to take a look.

Yes, it’s not easy to keep a clear head when your portfolio is going through the roller coaster ride, with more plunges than climbs. Many just dump their holdings to cut losses.

The first time is the hardest, no doubt. You’re sailing through a treacherous passage, and every wave could potentially see your wealth shrink.

However, there are people you can follow who have done this before, several times over.

The veterans that I follow include Rick Rule, Eric Sprott, Don Durrett, Peter Schiff, and Adam Hamilton. The common theme in their recipes for success is their ability to focus on the drivers of value, rather than simply letting the market movements shake them.

In fact, most of them are excited when prices are low. This allows them to go bargain hunting while encountering less competition from other investors.

For something as cyclical as gold, what the company is actually worth can differ widely from what the market is willing to pay. Therefore, an emotional investor will focus on the current price rather than the company’s future potential, which could exceed the current price by a lot.

What comes next is deciding whether to hang on to a position or let go if it falls further or fails to rally within your time frame. This one is hard, especially given the cyclical nature of gold. A great company could lie dormant or look like a dog stock simply because investor interest is so low, as has been the case over past nine months.

Again, this is where you suppress your emotions and let the company’s numbers do the talking.

Sure, there’ll be times when the soft cycle for gold stocks lasts so long that even good companies end up having to dilute their capital heavily to stay alive. In these cases, your initial purchases could be deeply underwater.

What separates the veterans from the rest is their ability to discern the situation and decide whether to double down on such a company, to do nothing, or to cut losses without giving it a chance to recover.

Those who have succeeded may have to wait a while to see things play out in their favour. It doesn’t often show itself immediately.

Let me share an example with you based on my own experience.

Case Study — Toughing it out in a bear market with Silver Lake Resources

Silver Lake Resources [ASX:SLR] is a well-known, mid-tier gold producer with two operating mines in Western Australia and one in Canada. I made my first purchase in August 2013 at 88 cents after the massive capitulation in the gold stock space arising from gold took a king hit in April 2013. The share was trading at $3 at the start of the year. The company continued to decline into 2014 and languished into 2015, even as several of its peers started rallying. It had a pretty good year in 2016, but grinded down in 2017–18.

Things started turning around significantly for the company in 2019 after it merged with Doray Minerals. The share price rose seven-fold or so from late-2018 to July 2020.

Here’s a figure of the price history:

As you can see, I’d have to wait until mid-2019 to see the share price return to what I paid in my first purchase. However, I had increased my holdings as the price fell and started to make a profit from my positions by late 2015 before the share itself went on its first bull run! Henceforth, the subsequent rallies handed me the cherry on top in terms of my trading gains with this company.

What made me so confident about this company that I’d double down on it as the price sagged? I saw that its operations were profitable even during hard times, it had a solid cash balance, and it was debt free — so it didn’t face any immediate pressure to raise capital and water down its future gains.

Of course, I don’t strike it rich for every company that I take a position in. However, you can see that my results show I’m more often successful than not.

And I can tell you that I look like an amateur when you line me up against the mining legends! They’ve been in this game longer than I’ve lived on this Earth!

To conclude, I hope I’ve given you a different perspective on gold stock investing, despite what they’ve gone through the last two years. Also, I hope that you can see that something that’s had it so bad may set up for something real good going forward.

Let me add this: The worse it has been, the better the future potential.

It really was THAT bad for gold stocks during 2021–22. Which leads me to believe the future is going to be THAT good.

Jump in now…join me on board this journey in Jim Rickards’ Strategic Intelligence by clicking here. I run the portfolio in this service, and I’ve got many gold stock recommendations for you to get started.

God bless,

Brian Chu,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

‘For the first time in US history, an ex-president described the heavy hand of the “Deep State” on America’s main institutions, and denounced the sinister influence of the war lobby on the situation in the Ukraine.’

France Soir

The stock market is mostly calm. The general thinking seems to be that the Fed will muddle towards higher rates, and the economy will muddle towards adjusting to them.

No crash yet!

But investors are slowly getting the message: don’t fight the Fed.

Cluster incoming

As we saw yesterday, when you look at stocks priced in gold, the whole boom of the last 22 years disappears. And now, with more debt than ever before…more inflation than we’ve seen in 40 years (which doesn’t seem to be going away)…higher deficits, higher stock prices, lower earnings, less productivity, and more quackery, incompetence and nonsense than ever…

…and now that the Fed is no longer supporting the stock market…and both stocks and bonds seem to have entered a new Primary Trend…both downward…

…you could easily conclude that the foreseeable future is not likely to be a picnic for investors.

That is the investment outlook as it is today.

But wait…there’s more.

And here’s where the ‘cluster’ comes into view. For while the stock market gets whacked by an unpleasant spell of financial reckoning, there are other things ready to whack the economy and the whole nation.   

One is, of course, the Great Crusade to ‘save the planet’. The planet is in absolutely no danger. But many of the people who live on it — particularly, the elite who control its major governments, media, and universities — believe that we would be better off if we stop ‘global warming’ before we are all burned to a crisp.

Whether there’s a real problem or not is open to some question…as is the cost…and the benefit. China’s Great Leap Forward cost some 50 million lives. The COVID lockdowns cost unknown trillions in lost output. How much collateral damage this Green Crusade will inflict, we will find out anon.

Today, we’ll look at another part of the cluster, that is: the decline and fall of the US empire.

Graceless indignity

All empires must die. In our view, the US is now in decline, and has been losing muscle mass since 1999. Of course, a national renewal is not out of the question; a few major policy changes — major cuts to Social Security, Medicaid, and the Pentagon, balanced budgets, a solid dollar, honest interest rates, and a more modest foreign policy — could restore real growth and prosperity. But for now, if there’s one thing our elites all agree about, it’s that no major changes are urgently needed. They like the system as it is. No redistribution of power…or money…required.

All of us eventually get feeble. The best we can hope for is that we’re able to do it with grace and dignity. Empires are no different. 

As long-term sufferers know, we are no fans of Donald Trump. When in office, we often used the words of his own subordinates to mock him as a ‘moron’ or a ‘jackass’. And while we don’t recant, we recognise that sometimes the fool is the wisest of all.    

No, we are not joining the Trump Worshippers…nor have we been infected with Trump Derangement Syndrome. But Trump has just said something important. And if we relied exclusively on the US mainstream press, we wouldn’t even know it.  

It was only a couple of weeks ago that the press drowned the biggest story to come along in many years: Sy Hersh reported that the Biden team had pulled off the most reckless, irresponsible, and lawless caper in US history. It blew up the Nord Stream pipeline.

Was Hersh right? The feds have made no attempt, so far, to put Hersh in prison with other whistle-blowers — after all, he claimed to have revealed their most sensitive, super-classified information — for an obvious reason. They’d have to admit he was right.

War be with you

We bring it up because the complicity of the press is a big part of the cluster story. Here’s a report from a Knight Foundation survey:

‘…findings from the American Views 2020 report showed that Americans were “very concerned” about increasing political bias in news coverage and the perception that news organizations “push an agenda.”’

Do they have an agenda? You bet.

None of the major media dare to challenge the empire’s ‘war and inflation’ agenda. None cared to investigate Sy Hersh’s charges more carefully…or even mention them. Nor do they bother to present a balanced, impartial view of the Ukraine conflict. And now, they join in with the imperial jingo-buskers to designate China as the Next Big Enemy.

Even someone as dim as Donald Trump can see that this program will be a disaster. But when he gave one of the most important foreign policy rants of any president since Dwight Eisenhower…we didn’t see a word about it…except in the French press, via American journalist Gilbert Doctorow.

In an amazing tweet, Trump goes on the attack…against the Deep State, the Pentagon, the globalists, NATO, Victoria Nuland, the warmongers and the ‘America Last’ politicians. You can watch it here.

From a political perspective, Trump — whose instincts for popular sentiment are as keen as anyone’s — is betting that a large segment of the US population agrees with him. The warmongers have spent trillions, getting us into unwinnable, dangerous wars. ‘The People’ may be getting sick of paying for them.

But most likely, with the collusion of the press…almost no opposition in Congress…and the irresistible lobbying power of the military/industrial complex…a contrary point of view will never even get a hearing…

…and the dangerous cluster will develop…unmolested.

To make our point of view clear…we believe that just as the powers-that-be will not permit the Fed to stop inflation…

…nor will they allow the US to take its place among the world’s peaceful nations. Too much of their money, reputations and status depends on war and inflation. War keeps the money headed to their main industries. Inflation is how they pay for it. And the mainstream press — a vital part of the elite — keeps quiet.

More to come...

Regards,

Bill Bonner,
For The Daily Reckoning Australia