The World Is On A Path To Return To The Gold Standard While Gold Stocks Have Valuations Like Their Golden Gooses Are Cooked
I've seen this movie before.
There are striking similarities between the trading in the gold stocks prior to the 2001 to 2011 gold bull market and now. The main ones being the set up for gold was very bullish and the valuations for gold stocks were brutal.
Back then gold had gone through several years when it was extremely challenging to raise money for exploration which had significantly weakened the supply chain. At one point Bre-X Minerals had a CAD $6 billion valuation, then it was shown that the assay results were salted and the stock plummeted to nothing. This scandal caused investors to blow out their stock in explorers and bigger gold mining stocks. It was a bloodbath in mining stocks, funding for exploration and development dried up. Although now there wasn’t any scandal, the gold stocks are trading with valuations similar to that period.
Another serious contributing factor was that for several years every time gold would show some life the major miners would forward sell their gold production. This capped the price on every run which was followed by more weakness. The majors looked brilliant when it would soften because they sold their production at the higher price that they had locked in with their hedge books. They would promote that despite weak gold prices they were making money selling at higher prices.
So you had a vicious one-two punch combination back then for the gold stocks, a multi billion dollar scam and major gold mining companies capping every positive move with their hedging.
But, green shoots started to arise. As is often the case, the cure for low prices was low prices. The most significant green shoots were that the economies of China and India were growing. As they grew, their people had more money to spend and long term love for gold. Their buying became very big and with weak supply, the price started to go up in 2001.
Soon after, gold started to trade above the hedge prices of the majors. They had loudly promoted when the gold prices were under their hedge prices that they were doing great. Everybody was aware of their hedging so their stocks weren’t improving. Institutional investors in them started to ask a lot of questions, primarily why is gold going up and your stocks are doing nothing? Then they started to pressure them to close their hedge positions. They did by buying gold to close their hedges. Combined with the Chinese and Indian buying, it added fuel to the fire of the gold bull market.
It didn’t take long for the depressing valuations in gold stocks big and small to join the gold party and shift to much more optimism. This was a magical time in the mining business and many people looked in the rear view mirror wishing they had taken advantage of the extremely low valuations in the gold stocks.
Fast forward to today and we have gold stocks trading at depressed valuations, while the price of gold in every currency is setting new records and about to do the same in US dollar terms. Yet, nobody cares, they are willing to sell on the record lows and few buyers are lining up to take them off them at depressed valuations. History doesn’t always repeat, but it sure is with the gold stocks.
I strongly believe the set up for gold is even better today than in the early days of the 2001 to 2011 gold bull market.
Back then you had the brutal sentiment for the gold stocks caused by the Bre-X scandal and the majors hedging their gold production. While most were ignoring how weak the gold supply chain was and all the buying coming from the Chinese and Indians. This time you have a weak supply chain, the Chinese and Indians have never stopped buying and now Eastern countries' central bankers have been buying since the 2008 Global Economic Crisis (GFC) with 2022 and 2023 being record years of buying in this trend.
The Eastern central bankers see the writing on the wall from a global economy built for much too long on debt. When President Reagan took office, there was a bit under $1 trillion in debt, by the time he left office there was nearly $3 trillion. Since then the debt has just continued to grow, going into overdrive after the 2008 GFC. To answer the calamity the Fed started the Free Money Era with interest rates near zero until 2022.
The Free Money Era caused politicians to crank up their spending and now the debt is $34 trillion. In 2020, to try to answer the economic issues caused by Covid, they put the cash printing press into overdrive. Back then, there was nearly $5 trillion US dollars in circulation, now there is $19 trillion. It is kind of shocking to think that the debt and money printing isn’t talked about more. It is alarming and unsustainable.
I call the debt crisis that few talk about the Death Spiral of Debt. To emphasize how serious it is, to service the debt will be $1 trillion which is more than what America spends on the military.
Equally shocking is that the Fed and Treasury Secretary Yellen thought inflation that popped up in 2022 was transitory, like it came out of nowhere. It doesn’t take a lot of economic wisdom to realize that if they crank up the debt during the Free Money Era then put the printing press for cash into overdrive that inflation will get out of control. Which it did.
Then the Fed got hawkish and went on a two year interest rate raising binge. While the politicians just kept spending because that’s what politicians do. The weight of the debt, combined with interest rates going from Free Money to over 5%, and the politicians spending, is why it is a Death Spiral of Debt.
It is not that there is no way out. If the Fed went back to Free Money, allowing inflation and the economy to run much hotter than they want. And the politicians raised taxes and dramatically cut spending, it may not stop the Death Spiral of Debt, but it could slow it down.
Without a doubt, the chances of politicians raising taxes and dramatically cutting spending is absolutely zero. With 2024 an election year, plus two hot wars, and it looks like more countries are going to enter the battle in the Middle East, the spending will grow. Plus they need to spend to bribe the voters and they also need lower interest rates to make voters feel better as well. Add it all up and the Death Spiral of Debt will only get worse.
On cue, in the December, 2023 Fed meeting, they got down right dovish and signaled they are going to lower interest rates. It is not a coincidence that they switched from hawkish to dovish on the cusp of an election year.
Even if Bidenomics only works to increase debt and US dollars in circulation, the Fed seems much more interested in helping Biden and the Democrats than Trump. I mean Trump is not much of an alternative as he proved to be just as big of a spender as the Presidents before him. Sure Trump doesn’t like the US spending money on far away wars, even if he were to stop them, which he probably won’t, he will just find somewhere else to spend the money.
Lowering rates will help Biden et al, it will take some pressure off consumers and businesses, but without deep spending cuts, it will only keep the Death Spiral of Debt growing worse by the day.
The Eastern central banks see all of these issues. Which is why they are reducing their reserves of US dollars and US debt. While doing that they are buying gold like never before. Effectively what they are doing is putting themselves on a Gold Standard.
Should the Western central banks follow the lead of the Eastern central banks? Most definitely. Will they? Probably not until the voters wake up to the cost of the Death Spiral of Debt and how printing money like it is going out of style devastates the purchasing power of their cash.
In addition to the Eastern central banks putting themselves on a Gold Standard, they also seem fed up with the US dollar being the dominant currency for international trade. I doubt the BRICS organization is ready to launch a BRICS currency or use one of their member’s currency as the key currency for trade. What they are doing is creating trading alliances that use their domestic currencies for trade. This won’t displace the US dollar as the key currency for international trade, but it will start eroding its market share.
Gold used to play an important role in international trade and I don’t think it is far in the future when it will again. The BRICS nations, and those that want in, represent nearly half the global economy. They are putting themselves on a Gold Standard and in the not too distant future will likely want to increasingly use gold for international trade. This is very bullish for gold.
I’m also very encouraged to see that regular folks in the West are starting to join the party. It wasn’t lost on me that when the CEO of Costco was asked if there were bright spots in their sales, he said yes, gold. They sold $100 million in gold in their quarter leading up to the end of the year while limiting members to only two ounces and would sell out within an hour or two of putting them on sale. Now in the grand scheme of things $100 million is a drop in the bucket, but when the supply chain is already weak, they keep taking that much or more physical gold off the market each quarter it will make a difference.
The World Gold Council is also building a digital way for regular folks to easily buy gold from a trusted source and store it for them. This will make it a lot easier for people to know they are buying real gold and can have it safely stored for when they want it delivered to them. When this comes online, don’t be surprised if they see similar demand for physical gold as Costco.
The people leading Costco are brilliant at selling stuff. It won’t be lost on them that their customers are hungry to buy physical gold. Imagine if they had enough gold that they could remove the two ounce per member restriction and have enough to meet the demand and not sell out within an hour or two of putting it on sale. I’m sure they are imagining that and searching all over the world to get as much physical gold as they can.
It is very clear for those watching at home that demand for gold is very powerful and will continue in that direction for the foreseeable future. What is less clear for many is just how weak the gold supply chain is at the moment and based on what is in production and in the pipeline for new production will be woefully short of supply to meet the demand.
Take for example the current miners, they have been seeing their head grades in mines declining for many years. This happens because they are putting lower grades in from the front end of their mines. No mining company wants to see lower head grades at their mines, whether it is a low grade bulk tonnage mine or a high grade underground mine. But the reality is that is what is happening and has been for a long time.
During the 2001 to 2011 gold bull market, many of the majors bought out smaller miners in an effort to grow. In reality what they did was shift production from the smaller miner to their own company, but that does nothing to add ounces of gold to the supply chain. It only shifts it around.
They also bought explorers, and as the market was so strong they had to pay a pretty penny for them. When they got to look under the hood they figured out that many of them were lemons they bought for an extremely high price. So what they bought sits warehoused in their collections and many will never be a mine, or at least not until higher gold prices turn their lemons into lemonade. Don’t count on many of these projects turning into gold mines until we see gold trade between $3000 to $5000 and stay there for a long time.
Major mining companies used to do a lot of exploration. But in the past 30 years they realized they weren’t very good at it and abandoned their exploration efforts and fired all their exploration people. Yes, they still poke holes around their existing mines, but they don’t have a lot of success in that kind of exploration either, at least not enough to replace what they mine.
When the majors went on their company buying sprees in the 2001 to 2011 gold bull market, they pretty much cleaned out the mid tier companies. They played an important role in the past as they did more exploration and also did deals with juniors to help them advance their projects to see if they had found a mine. There aren’t many mid tier gold miners left.
Going down the food chain to the smaller gold miners, they used to do a lot of exploration and could buy the explorers that found a mine that was too small for the majors then use that to grow their production. A lot of them got bought out during the 2001 to 2011 gold bull market as well. There are very few small gold miners with the kind of assets that can help them grow to be mid tier gold miners. Thus, this is another part of the gold supply food chain that has also been hollowed out.
Then you have the explorers. During much of the 1980s and 1990s they didn’t have enough funding or patient investors allowing them to do the hard work of finding new mines. After the Bre-X scandal they were starved for funding until the 2001 to 2011 gold bull market got underway. This helped many get funded, unfortunately many that did shouldn’t have and many that should have didn’t because asset allocation in exploration is not exactly efficient.
Yes, there were new discoveries that got bought out at high prices and now are sitting in the majors warehouses because the majors overpaid for less than spectacular projects. Even if all of them were fantastic mines it still wouldn’t have been enough for the majors to replace what they mine every year.
When the price of gold peaked and then rolled over in 2012, it got harder and harder for explorers to get the funding they needed. Over the past few years it has gotten to the point that the explorers are starving again. Certainly some can get funding, but they are on a short leash and with sentiment poor even good to great drill results are met as a liquidity event for shareholders.
Exploration is hard work. It takes money, patience, science and a healthy amount of luck. With money and patient investors in short supply, it is hard to do the good scientific work that helps opportunity and hard work turn into luck.
Exploration companies are the most denigrated in the gold mining sector. They are expected to make discoveries on little money, do it fast, and if they don’t they are considered ne’er-do-wells or worse.
Meanwhile, the reality is that exploration is arguably the most important part of the gold supply food chain. If the hard work of exploration is not done, then there aren’t enough new mines in development to replace what the gold miners mine each year.
Then you get what we have now, the gold miners aren’t replacing what they mine, there aren’t enough mid-tier and smaller miners, and gold explorers are starving.
This sounds very bleak. Just like it did in the two or three years prior to the 2001 to 2011 gold bull market. The bleakness got in the way of many seeing opportunities. There were many back then that went on to huge success for their shareholders, especially for those that bought when the sentiment was the poorest and patiently waited for the good times.
Mining is a cyclical industry. Poor sentiment valuation periods are followed by bullish trends. I’ve been in the mining business for 30 years and have seen bearish cycles turn into bullish cycles before. The worst it got was the few years prior to the 2001 to 2011 bull market, then the best it got was during the great gold bull market. And here we are back to the worst of times.
But I can feel the winds of change. Most importantly I can see green shoots that will grow into a bull market.
Back in the fall of 2022, gold made an important triple bottom around $1600 and since then it is up to nearly $2100 now. It had another important low in early October, 2023, down to a little over $1800. Since then, it has been rallying and gained strength since the dovish Fed meeting in December, 2023.
When the Fed turned dovish, the US dollar dropped and gold popped to the upside. It was happening in real time when the Fed announced they would continue to pause and got stronger during Chairman Powell's press conference. He made several comments in his commentary and during the question and answer period that were dovish. We were able to get a glimpse into the future of what will happen when the Fed lowers interest rates during the election year of 2024.
Something else interesting happened after the October, 2023 gold low. The shares of the major mining stocks, and the ETFs bottomed and many of them are up 20% or more since those lows. Several mid-tiers and smaller gold miners, and even some explorers, have also got on the road to recovery.
Not only can I feel the winds of change are upon us. I can see in the gold stocks that they are starting what I think will prove to be the end of the brutal sentiment and depressed valuations silliness and transition to a much more bullish trend. When the Fed lowers rates, I expect in March or April at the latest, that gold will be making new record highs and the gold stocks will start closing the great divide between the gold price and the valuations of gold stocks.
Although I firmly believe that politicians on the left and right are buffoons that are only interested in spending more than they can afford. And that their accomplices at the Fed and Treasury as well as many on Wall Street are there to support their spending addictions. They collectively have caused a Death Spiral of Debt, in America and many other countries.
I think there are ways for investors to protect their wealth and purchasing power, and grow their wealth. Investors that protect their wealth and purchasing power in gold will be well rewarded by putting themselves on a Gold Standard. Ask anybody in any of the countries that have seen their currency pummeled if they regret holding their country’s fiat currency and would have been better off holding gold.
With gold stocks suffering from such poor sentiment over the past few years, it has set up a tremendous opportunity for investors. Those who take advantage of high quality gold stocks trading at depressed valuations will see their wealth grow faster than in gold.
The timing for investors to put themselves on a Gold Standard and look to high quality depressed gold stocks to grow their wealth, is ideal.
Gold Stocks
I follow plenty of gold stocks in my written reports, video reports and podcasts, and video interviews. You can find my video reports and interviews on my Youtube channel here. For my written reports and video reports and interviews you can find them on my Substack website here. For my podcasts, you can find them on my Twitter/X profile here.
In this report I wanted to give you an overview on some of the gold stocks I follow including why.
Goliath Resources
Goliath is my highest conviction gold discovery story. They had impressive news out a few days ago that I wrote about in a report that you can find here. I explained why I am so blown away with what they have found and where I see it taking them.
Based on what they recently reported, to me it is clear they have a Tier-1 gold discovery in the prolific Golden Triangle of British Columbia. This mining region is well known for big, high-grade mines and I can see that they have a project that will turn into a future mine that will be built by a much bigger company.
Dryden Gold
This is a brand new gold exploration company that just started trading this week. They are near the city of Dryden, Ontario that is not far from Red Lake, Ontario. Dryden is not as well known for gold as Red Lake, but in addition to being in close proximity, it has similar geology.
Dryden Gold has put together a large land package. Past drilling on their ground has returned off the charts high-grade gold. It was a patchwork of projects that Dryden had consolidated into one package owned by one company. They have excellent people involved as shareholders, on their board of directors and leading their exploration efforts.
I love finding underappreciated orogenic gold projects, with exceptionally high-grade gold, and presenting them early, then following them closely as they advance them.
Tomorrow, I will be interviewing key management of the company. I'm looking forward to discussing their project and the work they are doing to improve on the known discoveries and find new ones.
Canadian Gold Corp
I’m very impressed with this company’s Tartan Mine project in Manitoba. They have done recent drilling with excellent results and are currently drilling. This was a past-producing gold mine during the late 1980s, that was focused on the near surface gold mineralization in an orogenic gold system. It fell on hard times, and has recently come back to life with a new team and new major shareholder in Rob McEwen.
Goldcorp was a tiny company when Rob McEwen took it over, he then built it up to be one of the lowest cost gold producers in the business. Because their Red Lake, Ontario mine was so high-grade and low cost it was one of the highest margin producers in the gold mining space and due to the incredible free cash flow it was also one of the best performing gold miners in the sector during his tenure.
In the early days of Goldcorp, they were focused on the near surface gold in an orogenic gold system. These kinds of deposits have very deep roots, the gold goes down a long way, several thousands of metres, and often gets higher grade the deeper they go into it. They struggled as a gold mining company in the near surface portion of the system. Then they went deeper and at 1000 metres below the surface they hit the bonanza-grade portion of the system and it just kept going and going.
I see a lot of similarities between the Goldcorp mine and the Tartan mine. Almost all the drilling at Tartan was within the first 700 metres of surface. There were a couple holes deeper that hit impressive intersections of high-grade gold. It was never followed up because the company that had the project at the time was focused on mining the near surface stuff. It didn’t work out for them and the project sat idle for many years.
Then Rob McEwen came into the picture and the new drilling has been focused on the deeper high-grade gold. They haven’t drilled many holes yet, but they have hit thick intersections of high-grade and clearly have shown that it remains wide open at depth. I love when explorers have a high-grade gold orogenic system and they want to chase the depth potential.
On Tuesday, January 16, I will be interviewing their CEO and look forward to being able to hear the story, ask him questions and present their story to my audience. They are an undiscovered gem that has remarkable potential.
McEwen Mining
I feel honoured that Rob McEwen has been on several interviews at Rocks And Stocks News. It has helped my audience learn the compelling story at McEwen Mining. Plus, he is a very successful investor in the mining space, he loves investing in exploration companies with a keen eye for value. He also has a wealth of knowledge built up during his career and it is incredible that he comes on interviews and shares his insights into the mining space with viewers.
In 2022, McEwen Mining’s stock had been suffering due to challenges they faced at their gold mines. Rob came on for interviews to tell us what the problems were and what they were doing to fix them. He also mentioned in the Fall of 2022, around the time their stock was beaten down badly that they were also doing work to advance their copper project in Argentina.
Not long after, McEwen Mining subsidiary McEwen Copper got a substantial investment from Nuton which is a Rio Tinto venture. Nuton has proprietary technology to recover more copper, faster, and thought their technology has the potential to be used at McEwen Copper’s Los Azules project.
Shortly after the Nuton investment, Stellantis, one of the world’s largest car makers, made a very big investment in McEwen Copper. They have significant car manufacturing in Argentina and recognized the potential that Los Azules could provide them with the copper they needed. It was the first time a major car maker invested into a copper mining project.
Shortly after the Stellantis investment, Nuton made a second significant investment. The two investments from Nuton and the Stellantis investment brought serious recognition to McEwen Mining and McEwen Copper. It helped McEwen Mining’s valuation significantly over the past year and a bit. Most of that can be credited to recognition of the quality of McEwen Mining’s subsidiary McEwen Copper.
What I see as being underrecognized now are the efforts McEwen Mining are undertaking to improve the performance at their gold mines. They are making great strides on that front. What I think could be the game changer for their mines is the drilling they are doing. It has gone under the radar but not lost on me. I’m very impressed with the drilling results from their recent drilling which is ongoing as they plan to do a lot of exploration drilling.
The company making event for Goldcorp was when they drilled under the near the surface mine and tagged the bonanza-grade portion of their Red Lake mine. Almost nobody is giving McEwen Mining credit for their potential to make important discoveries with their exploration drilling. I’m not one of those people.
i-80 Gold
i-80 Gold is a new company that only started trading a couple of years ago. They are a small gold miner with three new mines being fast tracked to production. When these three mines are in production, they have the growth profile to grow i-80 Gold into a much larger miner with peer leading production growth.
The McCoy-Cove project has over 1 million ounces of high-grade gold in their past resource estimate. They have built underground workings that enable them to aggressively drill the deposit. From the expansion drilling they have done I think when they update their resource it will be much bigger, maybe even over 2 million ounces with higher average grade than their past resource estimate.
The Granite Creek project was a past producer that was rushed into production with not enough drilling that bankrupted the company that built the mine. i-80 Gold drilled under the old mine and found the Ogee Zone that was much better than the old mine. Then they drilled beside that into the South Pacific Zone which is a game changer for this project. What is impressive about the South Pacific Zone is that it has an impressive strike length with excellent continuity along strike and higher grades as they drill deeper into the system. The drilling is going to the north and if you keep following the rock packages and structures it leads to a 25 million gold mine to their north. This is truly a world class gold project.
The Ruby Hill project is their cornerstone asset. It was a past-producing mine in an open pit that had a pit wall failure, stopped production and sat idle for many years. Then i-80 Gold got their hands on it and saw data that led them to drill to the west of the open pit and they hit a Carlin style gold deposit. Following that success, they drilled to the south of the pit and found a high-grade CRD discovery with an overprint of high-grade gold. Not only is this one of the most important new discoveries in Nevada, if you look at the value of the metals in their discovery, it is some of the highest value rock anywhere in the world for any kind of deposit. Then they drilled to the east of the pit and found a very high-grade skarn deposit. To the east of that they have tagged a new sulphide discovery on the east side of a fault. Finding these various styles of high-grade deposits is very rare in the mining sector. Even more impressive is they are all in close proximity to each other and can all be reached with the same network of underground workings. Go to the west and you have a Carlin gold deposit, go to the south and you have a high-grade CRD with an overprint of high-grade gold, go the east and you have a high-grade skarn. This project is also a world class project.
The work they have done in 2022 and 2023 has set the stage for them to have exceptional news flow in 2024. For a small gold mining company to have two world class projects and three mines being moved toward production is uncommon. When they bring them all into full commercial production, I don’t think it is a stretch to think they will be a much larger company focused on mining Nevada.
In Conclusion
In a court case, depending on whether it is a civil case or criminal case, the burden of proof is either a preponderance of the evidence or beyond a reasonable doubt. When it comes to the bullish case for gold there is an overwhelming preponderance of evidence with practically zero reasonable doubts it is going higher.
The case for gold stocks seems to be they are over and done with and have little hope. Just like in the years leading up to the 2001 to 2011 gold bull market.
I think the world is on a path to a return to the Gold Standard for countries, and people will also put themselves on a Gold Standard. This will take many years to transpire which is why I think the current gold bull market will be more powerful and last longer than the 2001 to 2011 gold bull market.
Many gold stocks did very well in that gold bull market. Partially because they came from such low bases of despair with severely depressed valuations. Does this sound familiar? It sounds to me like history is repeating and rhyming.
All the best,
Allan Barry Laboucan
Disclosure
I-80 Gold is a sponsor of Rocks And Stocks News. Goliath Resources is a sponsor of Rocks And Stocks News, and Allan Barry Laboucan is a shareholder and holds warrants to purchase additional shares.
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. This funding helps cover the costs of research and reporting on the sponsors and picks that aren’t sponsors. 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.