Tuesday, 30 April 2024

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

[8 min read]

Dear Reader,

Gold started going parabolic after the US Federal Reserve’s March meeting. Before that, gold has been trending up since making a cyclical low in November 2022 as you can see below:

Looking at how gold has rallied over 25% in the last three years, you might think the rally is long in the tooth.

Add to that the media hype on gold now, you might think it’s time to sell gold and move to another commodity, like copper.

Gold stock investors lived through three testing years. False rallies lured them to add to their portfolios, only to destroy their wealth as individual companies slumped as they operated in a hostile environment.

This month is especially poignant, at least for me.

Let me show you why with this figure of the performance of the ASX Gold Index [ASX:XGD]:

Gold stocks made their high for the year in April in both 2022 and 2023. It’s done the same this year.

However, in the past two years, gold stocks ground down for several months, dashing the hopes of many investors.

If you look at the past as a guide to help you invest, you’re inclined to sell into this recent surge in gold.

The signs are pointing to it.

In another period, I’d lean on making a quiet exit.

But this time, the corporate insiders and something else are telling me to do the opposite.

Let me talk about this today.

What not to do if you want to
invest successfully

In our times, years of events can happen within weeks.

Earlier this month the narrative changed from focusing on inflation accelerating in the US and in many countries around the world to fears of a world war erupting over Israel and Iran trading fire.

Things came to a head the weekend before this one when Israel fired missiles at Iran, threatening the Iranian nuclear facilities.

That was last week.

Now the attention has turned back to the state of the global economy as the US GDP reading for the first quarter disappointed market expectations. Add to that the dire outlook on our economy as inflation picked up pace and rental vacancies are falling while costs are rising.

If you’re trading based on the latest news, you’ll become a mental wreck. You’d be bullish one day and bearish the next.

Not to mention trying to work out which trades to jump on and to close.

Some of you may already have stopped reading or watching the news.

You might be doing the right thing. 

Besides the media driving an agenda nowadays rather than reporting the facts and events as they happen, they’re unlikely to help you beat the crowd.

Think about how they cover financial and investment news, especially on gold.

Most of you have noticed that gold made new highs in Australian dollar terms as early as March 2023 when it breached AU$3,000 an ounce for the first time.

For several months, it held that level.

Did you hear much about that from the financial pundits on different channels?

I doubt it!

But things changed this month.

By now, gold has smashed through US$2,100, a crucial level I pointed out last December as the key resistance level which would give the gold bull market further momentum.

Finally, the media cranks up the press to churn out stories about how major investment banks predict gold will trade over US$2,500 and as high as US$3,000 by the end of the year.

Well what a surprise, I wrote about that last December too!

My point is that investing with the media pundits to guide your decisions will mean you’re late to the party.

Three signs to show this rally is
gathering steam

So let me get back to the main takeaway for this article which is why I’m not selling into the gold rally now.

Firstly, corporate activity is heating up in this space.

Last year was one of the biggest years for mergers and acquisitions in the gold space. Some US$30 billion worth of transactions, in fact. The biggest of course was Newmont Corporation [NYSE:NEM] buying our own gold mining giant Newcrest Mining to create the world’s biggest gold producer.

There were several others, some of which I recommended to my paid readers.

This year hasn’t seen it let up. Rather it’s accelerated!

Just last week, Equinox Gold [NYSE:EQX] arranged to buy the remaining 40% stake of Greenstone Gold Mines from its joint venture partner, Orion Resource Finance, for AU$1 billion.

This is yet another consolidation happening, adding to the list of mergers between gold producers and mine asset purchases.

Another sign is several companies managed to raise an excess amount of capital from investors in the recent round of offerings.

In the last three years, the trend has been that companies raising capital ended up with less funds than it intended because investors weren’t interested. Therefore, these companies would rely on a financial institution to buy these shares to close the funding gap.

This is no longer the case.

In extreme cases, the company closed its offer early as investors clamoured to buy cheap shares and dilute the capital. I’ve experienced it myself, having been shut out of an offer because I didn’t move fast enough.

Thirdly, the figure below made me think twice about leaving this party early:

The figure showed the comparative performance of gold (yellow line), established gold producers (orange line) and gold explorers (blue line) since 2021.

Notice the significant gap between the performance of gold and gold stocks?

It’s clear gold has powered ahead in this gold price cycle while gold stocks lagged.

Two things might be happening right now: Either gold is overvalued or gold stocks are undervalued.

I’m leaning on the latter.

The reason for me believing that gold stocks are undervalued lies in the lack of a parabolic run in gold stocks in this gold price cycle.

The key reasons are the crippled supply chain and the aggressive rate rise cycle that pushed mining costs higher while labour availability suffered.

These companies just released their financial activity reports for the 2024 March quarter.

This time, the results look more positive, barring those in parts of Western Australia that faced unseasonably heavy rainfall.

Companies that were ramping up their operations are finding their cruising altitude. Meanwhile, production costs seemed to have peaked and are on the decline.

So we might be about to see a setup for the next leg of the rally as the numbers support this.

Follow the corporate insiders and reap the potential benefits

In closing, I hope that you can see why this year’s setup for gold stocks could be more promising than the last two.

Gold has moved higher but the backdrop of economic weakness supports this rise.

Gold stocks, on the other hand, are far from being overvalued. The recent conditions might help it overcome the curse of its recent past, taking it to new heights.

If you’re reluctant about taking this journey alone, then let me make an offer to you.

Check out this video where I showcase what my precious metals investment newsletter, The Australian Gold Report, has to offer. This is your one-stop shop for building a comprehensive precious metals portfolio from physical bullion to gold stocks.

Besides the established gold producers, I have two early-stage gold explorer/developer recommendations for you to consider.

Since February this year, one of them has almost doubled! While there are no guarantees this stock, nor any stock, will continue to perform like this, as gold stocks remain risky and volatile, the company’s potential could take it higher even at this level.

So you don’t want to hesitate any longer. Jump on board before the mainstream investors rush into this space.

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,

One of the problems with being the world’s hegemon is that you become like a TikTok idol; you can’t stop looking at the screen and admiring yourself. Your beliefs, you think, are the beliefs every successful society should have. Your institutions are those everyone should mimic. Your rules and regulations should apply to everyone. And if anyone else wants to be successful, they’ll have to do what you did.

But let’s back up. Here’s what we know so far: 

Bonds topped out in July 2020. 

Stocks topped out December 2021. 

These twin peaks marked the beginning of a new Primary Trend. If we are right, we will not see a repeat of these highs, probably not in our lifetimes, and probably not before major new lows are registered. 

The Primary Trend now is headed down for asset prices, and up for interest rates. 

Exaggeration Nation

Federal policies — ultra low interest rates — exaggerated the tops. Now, as if guided by an ‘invisible hand’, they will exaggerate the bottoms. That is, the feds will spend too much money, get involved in too many wars, limit trade, reward their cronies... punish their opponents...  and enact regulations and policies that will curtail output, thus raising real consumer prices and increasing poverty. 

We have no authority for this, the tail end part of our outlook. It is a guess. But it’s what a late, degenerate empire tends to do. And so far, the feds are doing it -- what they ought to do, if their real goal were to take the US down a peg and make things worse for most people.  

This backasswards view seems to be the best way to understand the recently passed $95 billion ‘foreign aid’ act, which can only be justified in the most abstract terms — security, nobility and so forth, which, we suspect, is nothing more than claptrap to disguise what is primarily a boondoggle for the firepower industry.  

But today, let’s look deeper... into the megapolitical mush. We, almost all of us reading this commentary, live in The West. Our views are those of Westerners. Our news and opinions come from the Western press. 

If we listened to Tucker Carlson’s interview with Vladimir Putin, we quickly realised that he had an entirely different perspective. Did he live on another planet? Was he just dumb? Maybe... but it was a different kind of dumb. 

In the Ukraine-Russia war, for example, we Westerners are told that the Russians are the ‘bad guys.’ Almost all of us believe it. But Putin doesn’t believe it. What’s wrong with him?  

In Gaza, we are expected to believe that the Israelis are the good guys, even if they have ‘gone too far.’ Only a fringe of intellectuals, students, and leftists think otherwise. What’s wrong with them? 

Foreign Entanglements

And what about the generations who came before us and now sleep in the earth?  They were clear about it…we would be better off avoiding ‘foreign entanglements’; now we’ve got them all over the place.  And for 180 years they did their best to control deficits.  Even as late as the Reagan administration total accumulated US debt was less than $1 trillion. Were they dumb too, for trying to live within their means? 

We also know that our thoughts — shaped as they are by our contacts and circumstances, our influencers and bigmouths — are the correct ones. After all, our models for government, markets, courts, fast food, movies, news media, and ‘defense’ dominate the world. They are successful. They must be ‘right.’ We are the chosen people. We invaded North and South America, Australia, too…and practically exterminated the indigenous peoples.  It wasn’t the other way around.   

Our Western world must be freer, fairer, richer and smarter than any rival. And if anyone wants to be our partner…an ally...or a friend, he’ll do things our way.   

And it almost goes without saying that a “dictator” in charge of a quirky, marginal economy such as Russia’s, would do things differently... and make a mess out of it. So, too, how could a communist central planner, such as Chairman Xi, possibly ‘run’ a successful economy... especially one with 1.4 billion people in it? 

And yet, the Chinese and Russian economies are both growing 3-4 times faster than the US.  

What’s going on? Didn’t we sanction them enough? 

And what’s this? Oilprice.com‘ 

'China Is Winning The Race for Affordable EVs 

‘In China alone, EV sales are set to jump to about 10 million this year, accounting for about 45% of all car sales in the country. 

Asia Times: 

‘What haunts policymakers is the realization that the US no longer has... [a WWII-style]... industrial edge. Today China is the world’s manufacturing powerhouse. The US isn’t as far behind China as Japan was behind the US in the 1940s, but it’s no longer the arsenal of democracy. 

‘Today the US has the world’s second largest manufacturing economy and its $2.5 trillion in annual manufacturing output exceeds the entire economies of all but seven countries. But it’s a distant second and its capacity to build enough of the most important tools of war is open to question. 

‘Old-fashioned metal bending is among America’s hollowed-out sectors. Measured by output dollar value, the three largest US manufacturing industries are chemicals; computer and electronic products; and food, beverage and tobacco products. 

‘Meanwhile, China is said to be acquiring weapons five to six times faster than the US. In a conflict over Taiwan, would its vast manufacturing infrastructure enable it to outproduce the US the way the US outproduced Japan and Germany in World War II?’ 

Bending metal is what you have to do if you’re going to make tanks, planes or bombs.  But maybe we can buy them from the Chinese? 

Tomorrow... tune in for more on a different kind of dumb.    

Regards,

Bill Bonner,
For Fat Tail Daily