Gold, Silver...To the Moon?
The US Fed cut rates by .5 and gold kissed $2600 for a minute, blink and you missed it. Silver pops and then hovers around $30. Financial pundits, a class which my own portfolio’s performance leaves me out of, are happy to forecast higher highs forever. Robert Sinn has a very interesting take on the relationship between the price of gold and the break down of T-Bill yields, last part of the video here. Takes all of three minutes.
Over at The Daily Gold, Jordan Roy-Byrne gives all sorts of chart heavy reasons to think gold is going to $3000 and the gold miners are likely to follow. At Kitco the focus seems to be on the effect of the size Fed Funds rate cut on the price of gold. .25 and gold goes up, .5 and it goes up a lot. Gold futures seem to be betting on larger rather than smaller.
In the event, gold touched $2600 and then dropped hard to $2550. Predicting precious metals prices is hard.
Of course, there are the geo-political pundits convinced that the Ukraine war may go nuclear any day now or that Taiwan is likely to be invaded or that the Houthis will succeed in shutting down the entrance to the Red Sea and thereby the Suez Canal. But that veers into politics which I save for my “X” account. Rick Rule said it best when he said, “You don’t want to live in a world with $10,000 gold.”
Whether or not gold and silver are heading for the moon, the price rises of the last week or two have put a little life back in the junior resource markets. Not much, but most of my holdings are up a sliver. More green than red is never a bad thing.
It is an article of faith in the precious metals investment community that the rise in the price of gold and silver leads to a rise in the price of shares of senior mining companies - think Barrick, Rio Tinto, BHP. Then, if the rally is confirmed, smaller producers will see their share price rise, often more steeply than the big guys. Developers, companies which are not yet mining but have 43-101 confirmed resources and, ideally, PEAs if not pre-feasibility studies, catch the updraft. Finally, junior explorers begin to ride the wave.
The theory is that if PM prices rise and continue to rise the largely ignored junior explorers will catch some attention and, being very thinly traded at the moment can make the 5-30X returns which will make up for all the years of negative returns on dead money.
Here is the comparative chart for the large cap GDX and the mid cap GDX-J (which only includes mid tier gold producers) and the price of gold futures:
The chart is tough to read in detail here however the take away is not in the detail, it is in the gap. The price of gold has taken off, the share price of both senior and mid tier gold miners is still on the launch pad. The fact is that neither really recovered from the big melt which began in 2011. Thirteen years without a significant rally.
The TSX Venture Exchange is even more depressing and an even greater opportunity;
Is there an investment strategy here? The old adage, buy low, sell high certainly obtains. But those of us who have been in the junior resource sector have been buying low and sitting around for years. Will this time be different?
It might be. The rising tide which lifts all boats only lifts the boats which have survived the storm. The years from 2013 until now were, perhaps the storm. The companies which survived, which have continued to explore, to file 43-101s, PEAs, raised money and managed to keep their share count within reason, offer real opportuntities. Because many of them are trading at 50 to 80% discounts from their highs.
Every company is different and whether a particular company offers a good entry point at its current price is not obvious. But here are a few survivors worth a look.
Banyan Gold (BYN.V) Banyan was clobbered by the collapse of Victoria Gold’s heap. Banyan is right next door to the Victoria ground and when Victoria cratered so did Banyan. From $0.30 down to a low of $0.15. Now it is back up to $0.21.
Banyan’s ground is level. It is looking at alternatives to heap leaching and put out a very encouraging metallurgical press release on September 16. Realistically, BYN has a current 43-101 compliant, near surface, inferred gold resource of 7 million ounces. That inferred resource was calculated using an $1800 per ounce gold price.
Bayhorse Silver (BHS.V) If ever there was a survivor my pal Graeme O’Neill is it. Bayhorse is trading around $0.05 and waiting for a near term catalyst. It has staked very prospective ground in Idaho. Graeme is showing a little leg (as we used to say) and hoping to attract some investment to drill for blind copper porphyries as his friends down river at Hercules (BIG.V) managed to do on the strength of a single hole.
But BHS is, for the moment, a bit becalmed awaiting the endless permitting process in Oregon to reopen its silver mine. In fact, there is likely an end to the process in 2025. The whole of the recommissioning economics for the BH mine were predicated on $15-$17 silver. Costs will have gone up but a $30/ounce silver price makes the mine very profitable indeed.
Cartier Silver (CFE.C) Eloro’s sister project in Bolivia. This is a pure silver play with an existing, high grade, artisanal mine going down several levels chasing a rich galena vein. The Cartier team has determined that grade increases the further down you go.
The thinking here is that bulk mining the area the artisanal mine is located in would make sense. The question being whether the deposit extends in all directions as the IP/Chargeability surveys suggest. Cartier is drilling to find out. This is very much a sleeper story which is likely to “wake up” as the price of silver goes up. With a current $7.5 million market cap on a $0.16 share price Cartier is a plum target for a larger company looking to expand its exposure to silver.
If the precious metals tide is, in fact, finally coming in these three companies are each poised to make big gains from their current prices. So are dozens of others, the trick is finding them.
[Disclaimer: I own shares in CFE, BYN and BHS and may buy or sell at any time. This is not investment advice.
Do your own due diligence. Call the CEO.]