Gold Makes Remarkable Breakout To New Record Prices While Many Gold Stocks Are Primed To Become Fear Of Missing Out Trades
Just prior to leaving for the PDAC, I wrote a couple reports explaining why I thought gold was ready to breakout above $2100. On the Friday before the PDAC started, gold gained strength and then it continued throughout this week. I also wrote that after it breaks out above $2100, it will have passed a physiological barrier which will put it in good shape to see a series of new record highs throughout 2024.
I’ve been to many PDACs over the years, and it has been a long time since the floor was packed like it was, with plenty of people talking with management of companies at their booths. It was impressive, you could feel the buzz in the room and had to zig zag between people in the aisles.
I felt that gold was trading like a coiled spring looking for any reason to break out above $2100. It had stayed above $2000 for a few months, even after the Fed flip-flopped from dovish comments on interest rates at the December, 2023 meeting, to taking a rate cut off the table in March at the January, 2024 meeting.
Key reasons for the breakout is that it looks like there are cracks in the banking system at the regional banks and a ticking time bomb with commercial real estate.
It is an election year, the Biden administration needs help to entice voters who are feeling the effects of high interest rates and inflation. The Biden crew will need lower interest rates to pile more debt onto the Death Spiral of Debt caused by prolific spending of politicians during the Free Money Era after the 2008 GFC.
It is shocking to me how few are talking about the debt crisis, and that more people aren’t preparing for it. The central bankers of the BRICS nations are preparing by putting themselves on the Gold Standard. Plus, the people in India and China continue to buy gold. But, investors in the West don’t seem to get how gold can protect them from the Death Spiral of Debt.
Another catalyst that likely caused the break out in gold was the recent increase in sanctions against Russia. And the threat that the US may want to turn seized Russian assets into cash to support Ukraine in the ongoing war between Russia and Ukraine.
Many have described the actions of the central banks of the BRICS nations to reduce their reserves of US debt and US dollars (USD) as a currency war. But, I think it is more than that. I believe they see the Death Spiral of Debt and want protection. In addition to wanting less USD, they also want alternatives to the USD as the world reserve currency and it being the dominant currency for world trade.
In addition to reducing their USD reserves, they are regularly creating trade agreements to use their domestic currencies for trade. There are issues with that due to the volatility of their domestic currencies. Which is why I can see an increase in them using gold for trade.
Gold is trading at new record highs in practically every currency and now you can add the USD to that list. The central bankers in the BRICS nations are returning to the Gold Standard in real time, and I don’t think it will be long before the central bankers in the West will have to follow suit.
A question I was asked during my speaking engagement at the PDAC, and while chatting with folks at the conference, was when will the strength in gold make its way into higher prices for gold stocks?
Currently, gold stocks are trading at depressed valuations, on low volume. They are coming from very low bases. Which applies to majors, mid-tiers, small producers, developers and explorers. The whole food chain of gold stocks is trading as if gold is heading lower.
Meanwhile, gold has made a major break out and looks to set a series of new record highs during 2024. So why the big disconnect? To answer that, one has to consider who is buying gold. It is the Chinese and Indian people, and the central bankers of the BRICS nations. They don’t buy gold stocks.
Gold stocks have extremely low prices and brutal sentiment. What they need is for gold stock investors and generalist investors to get more excited about gold stocks. The big breakout above $2100 is catching investor attention, there were a lot of investors with a pep in their steps at the PDAC.
To get the gold stock investors and generalist investors more excited needs gold stocks to have them fearing they are missing out. Before the gold stocks breakout, they need to first bottom.
In late October to early November, 2023, it looked like the major gold miners, and the GDX, had made important bottoms. Then they had a strong rally into late December, 2023. Coming into 2024, they rolled over and by February, 2024, they had given back their gains.
Of the major gold miners I follow closely, Newmont was the worst performer. Not only did they give back all the gains in the late 2023 rally, they gave back an extra 10% for good measure.
Barrick did better than Newmont, they gave back all the gains but didn’t dip below the third quarter 2023 lows. The GDX traded in a similar fashion as Barrick. The star performer of the majors was Agnico Eagle, they didn’t give back all their gains showing relative strength.
I watch Newmont, Barrick, GDX and Agnico Eagle as they are good indicators of sentiment toward gold stocks amongst retail, institutional and generalist investors. It looks like important bottoms were made in these stocks during February and they have come off those lows. The third quarter 2023 lows were fakeouts, but with gold getting much stronger it looks like the biggest gold stocks have made lows that they can rally off of in a big way.
The top of the gold stocks food chain are the first movers in a significant gold stock rally and we are seeing them move. It is a good sign that more investors are starting to get interested in gold stocks. This is far from an indication that the gold stocks are getting bullish, but before a more positive trend develops they need to bottom then start improving. This is what we are starting to see come into play.
Another first mover down the gold stock food chain of late has been McEwen Mining. They had good news from their gold mines and their copper asset McEwen Copper prior to the PDAC. It came at a very opportune time and was well received. Their stock hit a yearly low of CAD $8.25 on February 28, 2024, and has rallied significantly since then to close on Friday at $10.95.
I had a good chat with Rob McEwen and Michael Meding in a podcast at the PDAC on Tuesday. You can find that interview and other commentary I did while at the PDAC on my Twitter/X profile here.
Their booth was extremely busy as they had a big gold bar on display and allowed people to take pictures with it. You should have seen the smile on their faces, there is definitely something magical about physical gold that makes people happy.
Many gold miners want to add copper to their production and McEwen Mining is well set up to follow this trend. At their gold mines they are bringing down costs and increasing production, and then at McEwen Copper they have a top 10 undeveloped copper project that is also in the lowest quartile of costs.
They have a strong group of assets, and are showing relative strength as gold has broken out and look to have lots of news coming.
i-80 Gold had high-grade gold drilling results out just prior to the PDAC. The stock hit a 52-week low of $1.68 just prior to the start of the PDAC and closed Friday at $2.11. While I was at the PDAC, I had the chance to interview Tyler Hill, i-80 Gold’s Chief Geologist, from the floor of the PDAC. He was pretty excited about the drill results from their McCoy-Cove project in Nevada. I don’t blame him.
Highlight holes included 22.6 g/t gold over 19.1 m, 32.9 g/t gold over 14.9 m and 23.5 g/t gold over 12.8 m. I love seeing high-grade over thick intersections especially from a deposit that continuously returns high-grade gold over thick intersections.
In the news release Tyler Hill put the results into perfect context. He stated, “Results received to-date have met or exceeded our expectations as definition drilling continues to confirm that Cove is one of the highest-grade, development-stage, gold deposits in North America. Deposits with grades in excess of ten grams per tonne gold over widths frequently in excess of ten metres are rare. Significant upside exists at McCoy-Cove as mineralization in the main deposit remains open for expansion and multiple high-potential exploration targets have been identified on the large land package.”
They are a small miner now, but are simultaneously drilling and developing three exceptional projects at McCoy-Cove, Granite Creek and Ruby Hill. They are working on an ambitious plan for growth that gives them very good potential to meet their production growth plans.
SilverCrest Metals is a company that I consider a special situations pick, due to the performance at their Las Chispas gold-silver mine in Mexico. They went into their first quarter of full commercial production with around $100 million in debt from building the mine. They ended their second quarter of full commercial production having paid off all the debt and built up nearly $100 million in cash. While they were doing that, they also bought back stock.
Their Las Chispas mine is truly a cash machine of a mine that has low costs of production, and high-grades which generates remarkable free cash flow. This gives them funds to keep drilling to replace ounces in their known deposits and explore for more on their ground.
This performance gives them plenty of cash for stock buybacks, and the ability to consider paying dividends and look for acquisitions. There are plenty of projects out there that are too small for major mining companies, yet can provide tremendous growth opportunities for a company of SilverCrest’s size.
Their mine is also helping them show relative strength compared to other gold and silver miners. In early October, 2023, they hit their 52-week low at a little under CAD $6.00, then they rallied into January, 2024, to trade at a bit above $9.00. After that they gave back gains like many gold stocks, and had a higher low at $6.75 on February 28th. Since then it has rallied as gold has been on a rally to new highs, it closed on Friday at $7.47.
Their Las Chispas mine is performing very well and they are showing relative strength because of it. I can see that they should have plenty of catalysts for growth.
In Closing
PDAC 2024 was impressive due to the enthusiasm as gold had a breakout above $2100 during the conference. The floor was packed and the buzz was palpable.
I’ve written a lot about reasons to be bullish on gold having a year that we see a series of new record highs. Now what I want to see happen is a sense of fear of missing out amongst investors in gold stocks. I believe we are approaching that point now.
Another refreshing aspect of the PDAC was that there were plenty of new faces looking after the booths, and a healthy amount of younger, and new investors in the gold sector at the conference. We need more new blood in the mining sector.
There are plenty of generalist investors out there that follow where there is momentum. A crucial part to seeing more momentum in mining is gold making new record highs. If momentum investors make their way into gold stocks we could see astonishing moves because the sentiment is so brutal, and the valuations are so depressed. I can see this kind of action coming around the corner.
For your information, I’m planning to do a video report discussing the companies I talked to at the PDAC.
All the best,
Allan Barry Laboucan
Disclosure
I-80 Gold is a sponsor of Rocks And Stocks News.
Rocks And Stocks News does not make buying or selling recommendations. The reports are for information purposes only. Sponsors pay a fee to Rocks And Stocks News for content creation. The business model of Rocks And Stocks News is to fund research and reporting on the sector, picks and sponsors through corporate sponsorship. We are thankful to sponsors for enabling commentary free of charge to readers and viewers of the reports. When reporting on sponsors it is on behalf of the sponsors discussed in the portion of the report mentioning the sponsor. Before making any investment decision it is important for you to speak with your financial advisors to consider your risk profile. It is also important to do your homework. To help in that process, Rocks And Stocks News means to be a gateway by doing reports and interviews of management of sponsors and picks. The reports and interviews should not be considered investment advice. Allan Barry Laboucan is the founder and owner of Rocks And Stocks News, he has worked in the mining sector since 1993 and has been reporting on the sector since 2005. He has worked with and been mentored by very talented geoscientists in geology, geochemistry and geophysics. He uses the skills he has picked up during his career to assess sponsors and picks in the reports. Whether a company is a pick or a sponsor they go through the same filter and are reported on when important news is made that Allan Barry Laboucan wants to discuss on the Rocks And Stocks News platform. He may own shares in sponsors and picks for investment purposes.
The junior resource market needs a catalyst right now. It needs a company to make a mega-discovery to send the share price up a few thousand percent. It needs a Corona, a DiamondFields, a Diamet, an Arequippa, or an Aurelian Resources. It needs to show investors that sometimes you can make a life changing bonanza of a killing in this space . . . and not just lose your shirt, which is all most junior mining investors have been doing this past decade. Until then, junior miners will grossly underperform the spot gold and silver prices.