Gold Trades Above $2500 In Futures Market On Friday, $3k In The Works Before End Of 2024
Plus, big news in copper as BHP and Lundin make a C$4.1 billion takeover offer for Filo.
Important developments are happening regularly in gold, copper and the stocks focused on these metals. That gets me really pumped up because it means that a lot of great things are happening setting the stage for even better things down the road.
I wrote a recent report about why I thought a summer to remember was shaping up for mining. This week we got a week to remember with a series of great news for the gold and copper industry.
The week started with the buyout offer by BHP and Lundin Mining for copper development company Filo. They offered C$4.1 billion, making it one of the highest prices ever paid for a development company.
All of the majors have clearly stated their intentions to add more copper assets to their portfolios. Earlier in the year, BHP had been rebuffed by Anglo when they made an offer to take them over, primarily for their copper mines. That didn’t didn’t dissuade BHP at all and soon after made the takeover offer for Filo.
Many of the majors are talking about their desire to add copper assets, but BHP is clearly taking actions. This very well could be the impetus to cause other behemoth mining companies to start taking actions on the mergers and acquisitions front.
Once I saw the takeover offer, it immediately made me think of McEwen Mining. They own nearly 50% of the shares in McEwen Copper which owns the Los Azules project. Like Filo, McEwen Copper’s Los Azules project has the size of what majors need and when it comes to copper development projects, it has a very long mine life and is in the lowest cost quartile of production costs for undeveloped copper projects. Plus, it is in Argentina, in the most mining-friendly province in the country.
Once the Filo deal was announced, I wrote an article about it and highlighted two of the copper development projects that are stock picks at Rocks And Stocks News. One of them, McEwen Mining, is a no-brainer of a future free cash flow machine of a copper mine.
The other copper development project in our reports has the size and grade that majors wanting to get into copper need. Alta Copper, is currently a small junior, but they have a heavyweight in mining, Fortescue, owning 31% of their stock. Their Canariaco copper project obviously fits the bill for what major miners want as I’m sure Fortescue is not a big shareholder as a stock play.
When it comes to copper, there is a looming copper deficit that once it starts it will only get more severe. To meet the demand, pretty much every copper development project needs to become a copper mine, that won’t happen because some of them are stuck in permitting purgatory.
Another issue is copper mines are expensive to build, they start at a $1 billion and rise from there to several billions of dollars. There really aren’t enough majors and mid-tiers that can fund all the development needed. The result is copper prices will have to go much higher along with the valuations of the larger miners to fund all the copper mines that need to be built.
Following that Filo takeover news, there was great news out for our two largest gold mining picks on Wednesday afternoon. Both Agnico Eagle and Alamos Gold had spectacular quarterly reports. I had written reports about why I thought the second quarter could be an inflection point that brings generalist investors into the gold stocks.
The first quarter of 2024 had the highest ever average price of gold for a quarter, and then the second quarter beat that by around $300 per ounce of gold. Both Agnico Eagle and Alamos Gold produce gold for well under the average cost of production for gold miners.
With gold trading at pretty close to $1000 above their average costs of production, it made for them both to report record highs of free cash flow. Another thing that sets them both apart from their peers is that they are increasing production and bringing down their costs of production.
Plenty of gold miners are struggling to increase production and bring down costs, not Agnico Eagle and Alamos Gold. Their shareholders are being rewarded, plenty of their peers are well off their all-time highs, while Agnico Eagle and Alamos Gold are making new all-time highs over the past couple months.
With the incredible free cash flow that gold miners are producing, they are showing generalist investors that gold mining is a terrific business. It is only going to get better as gold goes higher. No matter what sector you look at, gold miners are shining when it comes to free cash flow.
Especially Agnico Eagle and Alamos Gold that are firing on all cylinders. Strong bottom lines with growing gold production while lowering costs of production when they were already well below their peers in costs.
They are my top 2 picks when it comes to gold miners, in order to change that, I would have to find better performers on the bottom line, production growth and costs. I can’t, so they remain my top 2 picks for gold miners. I expect them to continue showing they are best in breed for gold miners that are significantly outperforming their peers on every key metric.
On Friday, the big news continued for gold. It broke out above $2500 in the futures market when the unemployment numbers surprised with a higher than expected jump. Then the Wall Street stocks took a dive when it seemed fear increased on the thinking that maybe the Fed made a mistake by not lowering rates at their Wednesday meeting.
It is rather shocking that investors didn’t see that the jobs market is in trouble, long before the unemployment numbers came out on Friday. Full-time jobs have been dropping for several months, with the Fed and politicians trying to spin that there is almost full employment because part-time jobs have increased.
Just because government statistics count full-time jobs and part-time jobs as the same, doesn’t hide the reality to workers that know the difference and are stressed. I’m not sure if I can accurately say that even the government sees the problem and is hiring workers, or they are only trying to buy votes. Either way, government jobs are an economic drain.
No matter how you slice it, the job market is in big trouble.
The Fed is always behind the curve, but they will notice that the Dow and S&P 500 are down pretty significantly since the Fed decided on Wednesday to keep interest rates at its elevated level. If they didn’t notice, their phones will be ringing off the hook over the weekend from their banker friends on Wall Street.
They even chose to ignore renowned hawk Bill Dudley, former president of the New York Fed, who mentioned that he flipped from his higher for longer stance on rates. The headline for his article was; I Changed My Mind. The Fed Needs To Cut Rates Now. Accompanied with the subheading; Waiting until September unnecessarily increases the risk of a recession.
The Fed probably thought they could sit tight and wait until September to start the process of lowering rates. But, they definitely spooked Wall Street. Now they will likely have their public relations spokespeople that they call “economists” out signalling that the Fed has options.
One of those could be to mention that a rate cut between meetings is possible, I doubt they will do that as it would cause panic. They will likely jawbone that a rate cut is likely at the September meeting and a half-point cut is not off the table. This could cool the concerns, but if it doesn’t, they may have to roll the dice on cutting between meetings.
When the employment numbers came out the US dollar index dropped precipitously, after already having a tough month of July. Gold was up to a new record high in the futures market after the employment numbers were out. But, around 15 minutes after Wall Street stock got hit hard, gold dropped as well.
By the end of the day, the US dollar index closed near its daily low, while gold bounced up nicely from its daily low.
During a rate hiking cycle, gold is usually under pressure. Instead, during this one, gold has performed exceptionally well as it is trading near all-time highs against every fiat currency. This relative strength with the headwinds of a hawkish Fed has been driven by concerns over the Death Spiral of Debt and unsustainable cost of servicing the debt.
The debt crisis is driving central bankers in the BRICS nations to increase their gold reserves. Recently, gold surpassed the Euro to become the second largest reserve currency held by central bankers. In addition, the central bankers of the BRICS nations are decreasing their US debt holdings and US dollar holdings.
They have clearly stated that they want an alternative to the US dollar as the world’s reserve currency. The next shoe to drop is that they start increasing world trade in gold.
Whether it is a politically motivated goal to take some power away from America, or an economic one, or both, matters not. It is a smart economic move as fiat currencies are in a race to destroy purchasing power and gold is regaining its position as the soundest money.
In Closing
Bullish events for gold and copper are happening rapidly. This past week is a precursor of bullish things to come. I expect to see more actions on the copper front with mergers and acquisitions, that party is just getting started.
Earlier this year, I wrote articles that I saw the trends shaping up for gold to have an important breakout followed by a series of new record highs for the remainder of the year. This is happening and looks primed to keep going.
I also wrote recently that I see $20k within 10 years. The basis for that outlook is that the Death Spiral of Debt is forcing a return to the Gold Standard. Additionally, that gold would need to significantly back up the $300 trillion of global government debt, and regain its importance as the best reserve currency, plus become more important in international trade.
The bottom line is there is a renaissance happening in gold and metals, that is only getting started. Next we will see the metals stocks join the festivities.
A closing trend to mention is that the big gold miners are strengthening and starting to move down the food chain to smaller gold stocks. I doubt we will see a rising tide lifting all boats, and to be honest, I don’t want to see that, I would much prefer to see it be much more selective and focused on quality.
I have a new company scheduled for an interview on Tuesday. On Wednesday, I will be talking with Borealis Mining to discuss them becoming a newly listed public company.
As I started this report, things are moving fast on the news front for gold and copper, which I find very bullish. I’m also looking for talking heads at the Fed to try cooling worries from Friday’s unemployment numbers by signalling they will likely cut rates at their September meeting. Possibly even making the point that they could do a half-point cut or even make a move between meetings.
The US dollar looks to be in a bearish trend, with gold short-term oversold on Friday. I’m expecting more downward pressure on the US dollar and a strong rally in gold. Plus, several gold stocks on our shopping list look very solid and primed to rally.
All the best,
Allan Barry Laboucan
Disclosure
Alta Copper is a sponsor of Rocks And Stocks News, content creation about them is for the benefit of the company. Sponsors also benefit readers of the reports as it makes content creation possible for no charge to readers. Allan Barry Laboucan is a shareholder of Alta Copper.
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