Opportunity And Preperation To Turn Into Luck For Gold As Fed Will Lower Rates To Help Politicians Bribe Voters
The stage is set for gold to make multiple all-time highs in 2024 and bring depressed gold stocks into a more bullish trend. The bipolar gold and gold stocks are about to sing the same golden tune.
The mining investment conference season has started in Vancouver with the Metals Investor Forum, Vancouver Resource Investor Conference and the AME Roundup. The next will be the PDAC in early March. This is always when a lot of companies put out news and it can be an exciting time with some companies becoming the talk of the shows.
Investors converge on these conferences, with the sentiment toward mining stocks having a significant impact on attendance. I’ve been to them when sentiment is bullish and bearish, when bearish you can roll a bowling ball down the aisles and not hit anyone. During the bullish time, the aisles are packed and you can feel the buzz.
It will be hard to tell how the attendance will be at the Vancouver leg of the conference season, as we have gold in a bull market at record highs against practically every currency and on the verge of setting new all-time highs in US dollar terms. While this is happening, the gold stocks are trading at depressed prices on low volumes. I would expect them to be fairly well attended with a healthy mix of optimism about the price of gold and depression over the gold stock valuations. A bipolar kind of vibe.
I’m very bullish on gold as I think the world is returning to a Gold Standard that will last for many years that was caused by the Free Money Era after the 2008 Global Economic Crisis building a Death Spiral of Debt. Adding to my enthusiasm is that 2024 is an election year in which the Fed will help the current administration with lower rates that will enable them to spend like crazy to bribe voters.
When I look for a turn in a bear market, one of the key things I look for is low volume to go with the depressed valuations. That is where we are for the gold stocks. Some look for a capitulation moment to mark the bottom, it sounds good on paper. But what usually happens is that all those willing to sell on the lows are drying up and those that hold are shocked and can’t bring themselves to sell at extreme valuations even if they are depressed about the prices. Meanwhile the buyers feel they can sit on the fence and wait. The market action in gold suggests few are expecting a change from bearish to bullish in the gold stocks. Which is usually when the turn happens.
A key catalyst in 2024 for a change in sentiment will be when we get closer to the Fed changing from their dovish commentary at the December, 2023 meeting to dovish rates. I expect that will be in the March meeting, so February will be the warm up act for the headliners. The move to dovish rate policy will be bearish for the USD and bullish for gold which will be enough to move it into new record highs in nominal terms.
Gold making new record highs above $2100 will give the gold stock sellers willing to sell at record low valuations some reasons to rethink giving their shares away at insanely cheap valuations. It will also bring those that won’t sell because the prices are so depressed off the ledges of buildings. Coming inside the window instead of jumping to the pavement. And it will get the buyers sitting on the fence to get a little more greedy and start gaining a fear of missing out attitude.
Something that I’ve mentioned in past reports, is that I’ve seen a trend developing over the past couple of years that has me somewhat shocked.
I’ve been in the mining business since 1993 and during most of the time since then, when juniors would do joint venture deals with majors the majors were pretty brutal about the terms for the juniors. But, during the past couple of years, I’ve seen a healthy amount of junior-friendly deals. Considering how brutal the sentiment has been for the gold stocks, the majors could have easily continued making junior-abusive deals.
So what has caused this change? The majors can see that they need more explorers to succeed in making discoveries that can then be developed into future mines, so that small miners can become mid-tier miners and mid-tier miners can grow big enough to move the needle when the majors buy them out.
Why do they need this to happen? It is very simple, they are not replacing what they mine and realize that they aren’t going to be able to feed the demand they can see on their doorsteps, and in the immediate future as well as over the long term.
The majors are mining gold with all in costs and gold prices that give them margins that have them sitting on a lot of cash. Some of their shareholders will be comfortable with share buybacks and dividends, but others will want production growth because growing production with healthy margins is a lot better for their stock action than share buybacks and dividends.
They need that growth element, which is why their stocks are still close to yearly lows. Although it is important to point out that several of them made their lows in early October, 2023 and are up from those depressed prices.
Basically, I can see from the trend of more junior-friendly deals that some majors want to be considered the partner of choice. The juniors, smaller miners and mid-tier companies are the minor leagues for the majors. The minor leagues are very weak, they need help.
Helping them out serves two purposes, it helps the farm teams get stronger so that they can grow into takeover targets for the major league. Plus, being the partner of choice is a smart strategic move on several levels.
The mining conferences are a chance for the smaller companies to rub shoulders with people from the majors. They can show them their drill core, geophysical surveys and geology maps. Which has a way of turning into joint venture deals or investments from the majors into their smaller counterparts. I won’t be surprised to see some junior-friendly deals come about over the next few months.
Not only do I see the trend of junior-friendly deals happening of late, I also see great projects that are available at cheap valuations. Actually, a significant amount of them would benefit from a helping hand from the majors with money and technical advice. The majors have both, and a need for success in the minor leagues to help them replace what they mine.
I can see this play out in several ways. One way is following the path that Teck did when Diamond Fields was early in the discovery of Voisey’s Bay. They bought a 10% interest that made them hundreds of millions when Inco bought Diamond Fields for a little over CAD $4 billion.
An interesting twist is that within a year of the buyout Inco had a valuation of CAD $1 billion as the stock got hammered because the market felt they overpaid. Which gave Teck an opportunity to use their gains to pay for a big chunk of buying all of Inco, but they didn’t take that opportunity. Hindsight is 20-20 and it would have been a second brilliant move, but they did very well financially off their initial investment.
I can see opportunities out there for aggressive gold miners to take actions like Teck did with Diamond Fields, to make strategic moves that turn into lucrative investments. The valuations on some world class projects are extremely cheap with plenty of data showing they are in fact world class projects. Those that make those moves will send the message they see the opportunities and want to be the partner of choice.
I love the quote from Roman philosopher Seneca who once said, “Luck is what happens when preparation meets opportunity.”
We are at that point in the gold sector.
The foolishness since the US went off the Gold Standard is remarkable but predictable. Surprise surprise, with nothing holding them back the politicians went on a multiple decades long spending spree.
In 1981, US debt was just under $1 trillion. Now it is $34 trillion with over $1 trillion in interest payments to service the debt, they have done the preparation to build a Death Spiral of Debt.
This opportunity has the world, so far led by the Eastern countries' central bankers, returning to the Gold Standard. Now we are ready for the Fed to help the preparation and opportunity turn into luck for gold and gold stocks as they lower rates to help the current administration bribe voters in the 2024 elections.
We have a perfect storm for gold to set several new record highs in 2024, and the gold stocks to join the golden party.
All the best,
Allan Barry Laboucan
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