Tuesday, 5 March 2024

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

[8 min read]

Dear Reader,

I’m back in the Southern Highlands after a rather eventful 10 days in Melbourne.

Let me tell you about my journey back home from Sydney last Friday.

Normally that’s nothing worth writing about.

Hop in my car, take the motorway out of Sydney, get on the Hume Highway, take the turn off at Mittagong and I’m in the Southern Highlands.

It’s a 90 minute journey.

Now last Friday was a bit different. I had a few errands to do inside the city as I wanted to make the most while I was there.

I experienced the usual gridlock and congestion driving between my destinations from the Eastern suburbs to the CBD then out to the west.

Just as well I moved out of Sydney two years ago. I don’t have to deal with this too often.

After ticking off my to do list in the late afternoon, I set off on my homebound drive. It was just after 4pm so I figured I’d be able to beat the evening rush.

No problem.

Except, as I was planning to get onto the M4 motorway westbound, I saw the traffic was crawling.

I decided to take the parallel road a few kilometres on, hoping to bypass the bottleneck.

As I listened to the radio, it turned out that the bottleneck was more serious. The entire westbound section was closed for several kilometres due to a freak accident between a truck and a car.

That was the beginning of the almost three-hour odyssey home.

For two hours, I was one of possibly tens of thousands of drivers and commuters frantically trying to find alternative routes to head west.

Arterial roads turned into a parking lot.

At some intersections, we waited for several rounds of traffic lights before we started moving. Let alone pass the intersection.

Add to that the hot and humid evening. You can imagine how flustered I was by the time I got home.

I’m sure many felt the same. I can only hope that it was the worst moment of their weekend and everything got better afterwards.

Three years of pain for gold stock investors

Gold investors can certainly relate to my journey home last Friday evening.

Just take a look at the producers. They took a pounding in 2022 but then started to stage a recovery from October 2022.

Stocks looked set to stage a breakout by the end of 2023. A major bull market setup was on the cards:

Yet, expectations deflated in 2024, another selloff has brought the sector down.

It’s like being stuck in the arterial roads inside Sydney. You’re moving but not really getting anywhere fast.

As for gold explorers and early-stage developers, it was even more frustrating.

Have a look at the figure below where I use my unique Speculative Gold Stocks Index to track their performance:

Now I’m not writing to lament or complain.

I’m personally very bullish about the future of gold stocks, especially gold explorers and early-stage developers. These are trading at values I haven’t seen for years.

Rising costs, falling profit margins and
plummeting sentiment

But what’s caused the extended gridlock in this space?

As you can see below, gold in US dollar terms (green line) has been stuck in a trading range for almost 12 months.

Yet, gold is making new record highs in Australian dollar terms (yellow line).

But that doesn’t matter much. The market focuses on US dollar gold for its headlines.

The second point worth noting…gold producers haven’t delivered.

We can blame some of that on global lockdowns. A combination of border restrictions, worker absenteeism and equipment breakdowns stifled performance.

The price of gold went up. But so did costs.

Most of you remember how the price of oil traded at over US$120 a barrel in mid-2022, months after the Russia-Ukraine conflict broke out.

Add to that the aggressive rate rise cycle by central banks worldwide, and the mining industry was on its knees.

Let me show you how the average production cost for ASX-listed gold stocks increased since 2019:

And here’s the average profit margins of these gold producers too:

In 2020, when fear gripped the world, gold producers experienced a sweet spot. Gold soared and oil plummeted.

This reversed in 2021–23 as the global economies reopened but on limited capacity.

Western nations also united in sanctioning Russia on its oil and gas exports. That certainly didn’t ease the pain.

As you can see above, miners profit margins were squeezed significantly.

Mind you, I am showing you the average.

Larger producers make this falling margin look modest. Mid-tier producers and especially the smaller producers were bitten harder during this period.

All this combined to create a perfect storm for gold stocks.

Yes, we have had a three-year gridlock.

Fortunes await those who move ahead

Even now, the market sentiment is in the pits.

That was why I’ve been upbeat since last October. I was seeing exceptional value.

With a rally into the final quarter of 2023, it looked like a bull market was in the making.

You know the story. The selloff into 2024 dampened the mood.

So much that some of you who checked out my ‘Gold Strike 2024’ decided to sit on your hands for now.

I can understand why. There’s still time for things to turn around so you didn’t feel the need to rush.

Those who pressed the button and jumped on board, I tip my hat to you.

You understand that the odds are stacked well in your favour.

I hope that you’ll enjoy the rewards. You’ve moved ahead and all fortune be with you.

All we need is gold to break above and hold US$2,100 an ounce and we could see a chain reaction of events to trigger a gold stock bull run.

In fact, gold just broke above that overnight. Let’s see if it holds.

And it’s just as well we’ve prepared a presentation for you called ‘Gold Fever’, so you can learn about how I use the techniques used by mining investment legends to build my wealth with gold stocks.

This time round, I’m sharing these with you so you too can potentially get the chance to ride the bull market in gold stocks when it comes. Click here and enjoy!

It might be happening right now so act quickly!

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,

‘Then reflect, my son: you are poised,
once more, on the razor-edge of fate.’

Tiresias, Antigone

What should an old man do? What should he be? No longer raising children. No longer a captain of industry nor even a cog in the machine. No longer fit for battle or lead man in a rom-com. What is his role? 

Is it not to remember?

In ancient Ireland, ‘seanachies’ were employed to recall the lessons of the past. Wisemen, poets, and tellers of tales reminded kings and commoners of the great heroes of the past, their triumphs and their defeats. Some were real historical figures. Some were mythological. Scholars differ on what was real and what was not.

They told the story of the Great Queen Mebh (Maeve) of Connaught and the Cattle Raid of Cooley. She is the archetype of the independent, powerful, lusty modern woman. She’s also notable for having 7 sons, each of them named Maine. She wanted Ulster’s best bull; but this set off a familiar cycle of negotiation, treachery, murder, mayhem and war.

And who can forget the mighty Cuchulainn…who single handedly defended Ulster against Mebh’s armies? He had himself tied to a standing stone so he would be sure to die on his feet.

They had their moments of glory…and their tragic flaws. Poised on the razor’s edge — all of them.

The Duty of Memory

And now, what should an old man do? Shouldn’t he remind and warn...

…and remember…

…the great snowstorm of ’58…the great drought of ’62…the flood of ’75?  

Shouldn’t he tell his grandchildren to stock up on firewood…and head for high ground?

Shouldn’t he recall the bear market of ’66-82…the crash of Japanese stock market in 1990…the inflation of the ‘70s…and the Vietnam War?

Watching for sin with one eye and error with the other…shouldn’t the two eyes come together in a studied warning: ‘I wouldn’t do that if I were you?’

Of course, the young will ignore his unbidden advice. But so what? Just because his counsel is unwelcome doesn’t diminish his duty to give it out plain and simple.  

And like old, blind Tiresias, he can turn on his heels with a bit of dignity and a little mockery:

Just send me home. You bear your burdens, I’ll bear mine. It’s better that way, please believe me.

Later, he can have the pleasure of saying ‘I told you so’.

There are few advantages of old age. The ‘I-told-you-so’s are one of them. Yes, you can get discount tickets at some theatres…get in free at some museums and the all-you-can eat buffet at 5 pm at some restaurants.  

But the big advantage is that you have seen more Big Losses. You know what they look like.

What Could Go Wrong?

King Creon ignored the blind, old man and went on to suffer the Big Loss. He lost a son and a niece. (This is Greek tragedy, after all.)

And if you are over the age of 70, you’ve probably seen some Big Losses yourself. Marriages that broke up, companies that broke down…people who went broke…crashes…murders…massacres…mistakes…lies…vain and transitory glories.   

And all of us are always perched on a razor’s edge of fate…the sides so close together we can barely tell them apart…and yet, toppling over in the wrong direction can be tragic.  

Remember the disappointment felt by investors after the stock market boom ended in 1966…the shock of inflation in the ‘70s…and the debacle of the Vietnam War?

In 1966, investors had the Nifty Fifty as their version of today’s Magnificent 7. They were supposed to be ‘one decision’ investments that you could have and hold until death did you part. They were the best companies, in the best stock market, in the best economy, during the best decade, in the best nation in history. Eastman Kodak, 3M, Procter and Gamble — they had the best technology…and so much money; they could hire the best engineers and managers. What could go wrong?

And yet, where did they go after 1966? Nowhere. The group of favorites was more or less flat for the next 16 years. And that was in nominal dollar terms. Adjusted for inflation, investors lost 70% to 80% of their money.

And then came the ‘70s. Inflation came in waves, not just in one single episode. The first splash arrived in 1969, when prices shot up 6%. Then, inflation went down to 3%…and the feds said it was over. But the next wave, in 1974, pushed prices up at a 12% annual rate. After that wave crested, inflation went down to around 6%, and again people said there was no further need to worry about it. The final soak didn’t come until 1979 — 10 years after the first one, with inflation at a 13% rate. If the pattern holds, the next big wave will come in 2032…with the dollar losing about 70% of its value between now and then.

Standard Abandoned

Through much of this period, 1966 to 1975, a morbid absurdity hung over the US — the Vietnam War. The idea was to keep the domino from falling over. Those of us over 70 may recall friends who went to ‘Nam’ and never came back alive. And the US squandered so much money on the war, President Nixon felt obliged to go ‘off the gold standard’ — setting in motion the financialisation of the economy…the huge rise in debt…and the approaching bankruptcy of the US empire.  

We remember the arguments in favour of continuing the war, now used to prolong the proxy war against Russia: we had to maintain our ‘credibility’, by stopping them [communists] there; otherwise, we’d have to face them in California. To turn away would be appeasement.

(The closest we got, personally, to Vietnam was patrolling the coast of California in a US navy cruiser. Had the North Vietnamese actually had a blue water navy, and had they used it to launch an assault across the vast Pacific, we were ready for them.)   

In the event, the domino fell and nobody cared. Americans now take vacations in Vietnam and buy cheap T-shirts and running pants from Vietnamese mills. A trillion dollars down the rathole…a million dead…apparently, for nothing.

Yes, like old, blind Tiresias, we’ve seen our share of misery, crackpottery, and jackassery.  

Shouldn’t we say something?

Regards,

Bill Bonner,
For Fat Tail Daily