Banks, Metals and Juniors

The collapse of the Silicon Valley Bank and the government/market response to that collapse has the investment side of the internet in a tizzy this weekend. What will happen Monday?

I have no idea. I am fairly confident that any chaos in the financial world brings more investors to precious metals, gold and silver primarily. The gold bugs and silver stackers redouble their efforts. People who had been thinking about buying a bit of gold or silver as a backstop, pull the trigger. Precious metals as a safe haven get a second look.

[Over on Twitter @ProfessorStam has a brilliant thread on how social media accelerated the end of Silicon Valley Bank. Virality is a much underestimated thing and, in the junior resource market, much the same sorts of issues arise. Go read the thread if you have a moment.

professorstam.eth @ProfessorStam

I worked in bank liquidity and treasury for the better part of the last decade, and there is one very interesting risk factor from the SVB collapse that I do not think we have ever witnessed before in modern finance, a 🧵:

This attention is certainly good for the large mining companies but it may be offset by general market conditions. Rather obviously, the crash of a single bank is bad news for the overall market, a more general loss of confidence could trigger a 2008 style crash.

I was around in 2008 and the junior market, across the board, took a huge hit. Many of the juniors traded at market caps which were less than the value of the cash they had in their treasury. Everyone “hunkered down”. The collapse in market caps meant that raising money was difficult to impossible. It was a mess.

Junior resource stocks are, of course, tied to overall market sentiment. If large-cap stocks fall, juniors will fall right along with them. However, juniors are in a different position now than they were in 2008. They have been “out of favour” for a couple of years and many are already at all-time lows.

As I write, the metals markets have resumed trading after the weekend. Both gold and silver are up, a bit. Not much. (Down now as I edit.)

Even as the third largest bank failure in US history, Signature Bank, was being announced on Sunday, the Treasury Department, Federal Reserve and FDIC announced that deposits, even in excess of the FDIC insurance limit of $250,000, would be available at Silcon Valley Bank. The Fed also announced a separate emergency lending program to prevent bank runs.

The metals markets seemed to have taken these announcements as an indication that the US Government would do whatever it takes to stop the bleeding and halt the runs. It is obviously an open question if these measures will be enough.

What this sort of crisis does is make people take a second or third look at the barbarous relics and the people who mine and explore for them. The juniors have not so much been scorned as ignored. That may change.