June 2019 - MiningFeeds

The gold miners’ stocks just blasted higher to a major decisive breakout this week! Driven by gold’s own huge bull-market breakout, the gold stocks surged well above vexing years-old upper resistance. The resulting new multi-year highs are a game changer, starting to shift long-apathetic sector sentiment back towards bullish. This will increasingly attract back traders, with their buying unleashing a virtuous circle of gains.

Traders usually track gold-stock fortunes with this sector’s most-popular exchange-traded fund, the GDX VanEck Vectors Gold Miners ETF. Launched in May 2006, this was the original gold-stock ETF. That big first-mover advantage has helped propel GDX to sector dominance. This week its net assets of $10.5b ran 44.6x larger than the next-biggest 1x-long major-gold-miners ETF! GDX is this sector’s leading benchmark.

And as recently as late May, neither speculators nor investors wanted anything to do with gold stocks. GDX slumped to $20.42 on May 29th, down 3.2% year-to-date. That was much worse than gold’s own slight 0.2% YTD decline then warranted. The gold stocks were really out of favor, largely ignored by apathetic traders. What a difference a month makes though, as their fortunes changed radically in June.

The gold miners started reanimating on May 31st, after Trump unleashed a bombshell warning to Mexico the evening before. He said tariffs would be imposed on all of its exports to the US if it didn’t seriously clamp down on illegal immigration across the US southern border. While Trump subsequently suspended those tariffs on Mexico’s promises to take action, that was the catalyzing event that awoke gold from its slumber.

A couple weeks ago I wrote an essay on the resulting mounting gold-stock upleg, explaining what was going on. But the developments since have been stunning, a colossal bullish surprise. Long neglected, GDX kept on marching higher mid-month leading into last week’s highly-anticipated Federal Open Market Committee decision. GDX closed at $23.67 the day before, already 15.9% higher in only several weeks.

The Fed kowtowed to stock traders’ hyper-dovish expectations and shifted its future rate bias from tightening to cutting, lighting a fire under gold. In last week’s essay I analyzed the gold bull breaking out, which was a momentous sea-change event. Gold rallied 1.0% to $1360 that day with top Fed officials forecasting a new rate cut next year. Gold-stock traders just shrugged at gold’s best close in 2.9 years.

They only bid GDX 1.4% higher to $24.00 after the Fed’s dovish shift. That only amplified gold’s gains by 1.4x, far short of the major gold stocks’ normal upside leverage to gold of 2x to 3x. While gold was high, it had tried and failed for years to break out above its $1350 resistance zone. And gold stocks suffered big and sharp selloffs after those previous forays proved unsuccessful. Traders didn’t expect this time to be different.

That Fed-Day evening New York time, Asian markets reopened as their Thursday morning rolled around. The Asian cultures have a deep cultural affinity for gold, and aggressively piled on in early trading. All that buying catapulted gold from $1358 to $1383 in about an hour! Partially thanks to Iran shooting down a big and sophisticated US surveillance drone overnight, gold’s Asia gains held in last Thursday’s U.S. trading.

Gold closed 2.1% higher that day at $1389, a decisive breakout 1%+ beyond its previous bull-market high of $1365 from way back in early July 2016! That also happened to be a 5.8-year closing high, so gold-stock traders realized big changes were afoot. They poured capital into gold stocks with a vengeance, catapulting GDX 4.4% higher on 3.5x its 3-month-average daily volume! That propelled it to $25.05 on close.

That was a critical technical level, as this GDX chart shows. It looks at the gold-stock price action of the last several years or so during gold’s own parallel bull market. GDX is rendered in blue, its key 50-day and 200-day moving averages in white and black, and 2.5-standard-deviation bands in light yellow. This leading gold-stock ETF had to decisively best years-old upper resistance at $25 to prove this time is different.

Since late 2016, GDX has largely been trapped in a giant consolidation basing trend running from $21 support to $25 resistance. $25 had proven a graveyard in the sky for gold stocks since November 2016, and needed to be overcome to change bearish psychology. GDX’s $25.05 close last Thursday on that new secular gold high was right there. But $25 resistance had to be broken decisively to impress traders.

Last Friday gold climbed another 0.7% to $1399 on pure momentum, yet gold-stock traders were worrying again. So GDX’s resulting 0.6% rally was pathetic, actually lagging gold. While not a decisive breakout over $25.25, or 1% above that long-vexing resistance line, GDX’s $25.21 close was darned close. The major gold stocks as measured by this ETF hadn’t been higher in 21.4 months. That was certainly bullish.

Last Friday and this Monday it was becoming evident that new-high psychology was taking root in gold. That is a powerful force motivating speculators and investors to buy. GDX $25 finally being materially surpassed has long been the key to unleashing this self-reinforcing sentiment in gold stocks. A couple weeks ago when GDX had merely climbed to $23.33 at best, I wrote about this coming critical breakout.

“The higher gold stocks climb, the more traders will want to buy them to ride that momentum. The more capital they deploy, the more gold stocks will rally. This normal virtuous circle of improving psychology and buying will become even more exaggerated as GDX $25 is surpassed. Seeing the highest gold-stock levels in several years will work wonders to improve sector sentiment, unleashing widespread bullishness.”

“This gold-stock upleg’s potential gains are massive spanning such a major upside breakout. Remember speculators and investors love chasing winners, so the higher gold stocks rally the more attractive they’ll look.” Nothing drives trader interest and thus capital inflows like major new highs. And GDX was right on the verge of entering that excitement-fueling zone decisively over $25 as markets opened for trading this week.

This Monday gold surged another 1.4% higher to a dazzling $1419 close! That new 6.1-year high was fueled by sheer momentum, there was little gold-moving news that day. Gold’s new-high psychology was already feeding on itself. And that enthusiasm spilled into gold stocks, with traders bidding GDX another 3.8% higher to $26.17. That was the long-awaited decisive $25 breakout, with GDX blasting 4.7% beyond!

The importance of gold stocks powering through to new 2.7-year highs cannot be overstated. Major new highs act like magnets attracting traders’ attention, interest, and capital. They prove that the long-ignored gold stocks are in bull-market-rallying mode again, portending massive gains to come. They also garner media coverage, which greatly increases the number of traders looking to ride the breakout momentum.

Since late May’s depressing low, GDX had rocketed a huge 28.2% higher in just 18 trading days! Stock traders would kill for those kinds of fast gains. And the major gold stocks’ upleg-to-date advance per this ETF had grown to 48.9% over 9.4 months. That would be impressive for any sector, but is actually still on the smaller side for the high-potential gold stocks. Their uplegs have tended to grow much larger in the past.

The last time gold was hitting new bull-market highs was in the first half of 2016. That was the maiden upleg of this bull, where gold soared 29.9% higher in just 6.7 months. The resulting excitement fueled a deluge of capital roaring into gold stocks, which skyrocketed GDX an incredible 151.2% higher in roughly that same span! While that upleg was exceptionally large, the last major gold-stock bull’s uplegs were big.

Before GDX came along, the primary gold-stock benchmark was the classic HUI NYSE Arca Gold BUGS Index. Like GDX it tracks most of the same major gold stocks, so HUI and GDX price action are usually indistinguishable. The last gold-stock bull straddling GDX’s birth saw the HUI soar 1664.4% higher over 10.8 years between November 2000 to September 2011! Those gains accrued over 12 separate uplegs.

One was an anomaly, the epic mean-reversion rebound after late 2008’s first-in-a-century stock panic. Excluding it, the other 11 normal gold-stock uplegs in that last bull averaged 80.7% gains over 7.9 months per the HUI! So GDX’s 48.9% upleg-to-date advance as of early this week remains well below precedent to be mature. Odds are it will grow much larger in line with past major uplegs before giving up its ghost.

Gold stocks paid a terrible price as gold drifted sideways over the last several years, trapped under that $1350 resistance zone which masked its in-progress bull. That’s why GDX mostly meandered between those $21 support and $25 resistance lines since late 2016. That chronic inability to break out to new highs gradually scared away the great majority of traders, leaving gold stocks incredibly undervalued.

Gold-stock prices are ultimately determined by gold, because it overwhelmingly drives their earnings. So one way to measure gold-stock “valuations” is looking at them relative to gold. This can be done using the GDX/GLD Ratio, the leading gold-stock ETF’s price divided by the flagship gold ETF’s price. That of course is the GLD SPDR Gold Shares. I last wrote about and analyzed the GGR in an early-February essay.

This Monday as GDX finally decisively broke above $25 to close at $26.17, GLD’s shares closed way up at $133.94. That made for a GGR of just 0.195x at the best gold-stock levels in several years. Yet that was still really low by historical standards. The last normal years for the gold market were arguably 2009 to 2012. That stretch was sandwiched between 2008’s stock panic and the Fed’s QE3 stock-market levitation.

The resulting extreme and irrational stock euphoria had a devastating impact on gold. But from 2009 to 2012 before markets became wildly central-bank-distorted and fake, the GDX/GLD ratio averaged 0.381x. That encompassed all kinds of gold environments, from strong bull to budding bear. So there’s no better recent span to approximate gold stocks’ “fair value” relative to gold. Applying that today is super-bullish.

At Monday’s $133.94 GLD close, that historical-average fair-value GGR would put GDX at $51.03. That is a whopping 95.0% higher than its actual close that day! Gold stocks are literally trading at just half of where they ought to be at today’s gold prices, meaning they still need to double just to catch up. And that doesn’t account for higher future gold prices or the GGR overshooting proportionally higher after mean reverting!

At best GDX has powered 151.2% higher within gold’s current bull. But during gold’s last secular bull, the HUI skyrocketed an astounding 1664.4% higher over 10.8 years! Gold stocks are one of the highest-potential sectors in the entire stock markets. When they really start running the resulting gains can truly generate life-changing wealth. That’s why contrarians are willing to suffer between their mighty bull runs.

This week’s long-awaited GDX $25 breakout is a critical technical milestone that is likely signaling much-bigger gains to come. The gold-stock surge this month is really special, actually the strongest early-summer performance for this sector in modern gold-bull history! Normally this time of year I’d be updating my gold-summer-doldrums research, highlighting the weakest time of the year seasonally for gold stocks.

Hopefully I can find time next week. This chart looks at the HUI’s average summer performances in all modern gold-bull-market years. Each summer is individually indexed to its final close in May, keeping gold-stock price action perfectly comparable regardless of prevailing gold levels. The yellow lines show 2001 to 2012 and 2016 to 2017. Last year’s summer gold-stock action is rendered in light blue for comparison.

All these lines averaged together form the red one, revealing the center-mass drift trend of gold stocks in market summers. Gold stocks’ current 2019 summer action is superimposed over all that in dark blue. As you can see, this past month’s action is the best summer start gold stocks have seen since at least 2001! They are even tracking better than the summer of 2016 in this gold bull’s mighty maiden upleg.

This chart really illuminates how unique gold stocks’ powerful June rally has been. This is more evidence that a sea-change sentiment shift is underway in this long-neglected sector. That sure implies the gains to come will be much larger than traders expect, driving GDX towards its own new bull highs on balance. In early August 2016, GDX hit its bull-to-date high of $31.32. That’s 19.7% higher than Monday’s breakout close.

The major gold miners’ fundamentals remain strong and bullish too, supporting much-higher stock prices. After every quarterly earnings season, I dig deep into the GDX gold miners’ fundamentals. They finished reporting their latest Q1’19 results about 6 weeks ago, and I wrote a comprehensive essay analyzing them. At that point GDX was still really out of favor, languishing under its $21 multi-year support line.

Stock prices are ultimately determined by underlying corporate earnings, and for the gold miners that is totally dependent on prevailing gold prices. Gold-mining costs are best measured in all-in-sustaining-cost terms. In Q1’19 the GDX gold miners’ AISCs averaged $893 per ounce. That’s right in line with the prior four quarters’ trend of $884, $856, $877, and $889. Gold-mining profits are going to soar with higher gold.

Gold averaged $1303 in Q1 when the major gold miners were producing it for $893. That implies they were earning $410 per ounce mined. $1400 and $1500 gold are only 7.4% and 15.1% higher from there. As the GDX gold miners’ AISCs reveal, gold-mining costs are largely fixed from quarter to quarter and don’t follow gold higher. So assuming flat AISCs, gold-mining profits surge to $507 at $1400 and $607 at $1500.

That’s 23.7% and 48.0% higher from Q1’19 levels on mere 7.4% and 15.1% gold gains from that quarter’s average price! And as of earlier this week, gold had already climbed 9.2% of that. The major gold miners’ fundamentals are already bullish, but improve greatly at higher prevailing gold prices. With earnings growth hard to come by in general stock markets this year, the gold stocks will be even more alluring.

All the stars are aligning for big gold-stock gains in coming months, with their technicals, sentiment, and fundamentals all looking very bullish. This breaking-out gold-stock upleg has excellent potential to grow much larger later this year, greatly rewarding contrarians buying in early. More and more traders are becoming aware of this sector’s huge potential, and their buying will push the gold stocks much higher.

This is not the summer to check out, but to do your homework and get deployed in great gold stocks. All portfolios need a 10% allocation in gold and its miners’ stocks! Many smaller mid-tier and junior miners have superior fundamentals and upside potential to the majors of GDX. And by the time gold stocks get really exciting again hitting their own new bull highs, much of the easy gains will have already been won.

One of my core missions at Zeal is relentlessly studying the gold-stock world to uncover the stocks with superior fundamentals and upside potential. The trading books in both our popular weekly and monthly newsletters are currently full of these better gold and silver miners. Mostly added in recent months as gold stocks recovered from selloffs, their unrealized gains were already running as high as +109% this week!

If you want to multiply your capital in the markets, you have to stay informed. Our newsletters are a great way, easy to read and affordable. They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks. As of Q1 we’ve recommended and realized 1089 newsletter stock trades since 2001, averaging annualized realized gains of +15.8%! That’s nearly double the long-term stock-market average. Subscribe today and take advantage of our 20%-off summer-doldrums sale!

The bottom line is gold stocks have joined gold with their own decisive breakout! GDX finally burst back above its long-oppressing $25 upper-resistance line this week. These multi-year highs are a game changer for gold stocks, ushering back long-absent bullish psychology enticing traders to return. They’ve been gone for so long that this entire gold-mining sector is deeply undervalued relative to prevailing gold prices.

That portends huge upside potential as gold and its miners’ stocks return to the limelight on their major breakouts. Traders love chasing winners to ride their upside momentum, and buying begets buying. Of course gold-stock uplegs don’t power higher in straight lines, periodic selloffs to rebalance sentiment are normal and healthy. So any material gold-stock weakness should be used to accumulate sizable positions.

Adam Hamilton, CPA

June 28, 2019

Kincora Copper [TSX-V: KCC] fell off investor’s radar screens due to an extended period of inactivity in 2018, but now the Company is cashed up, team in place, and ready for extensive drilling at 5 independent, large-scale porphyry targets with a 12-month funded budget for up to 18,000 m of drilling.

Kincora has been operating in Mongolia for > 8 years. In 2016, the Company secured unencumbered access to its promising Bronze Fox project and consolidated the dominant landholding in the Southern Gobi copper-gold belt, between and on strike with Rio Tinto’s Oyu Tolgoi (“OT“) copper-gold mine, and the Tsagaan Suvarga porphyry project, via the merger with IBEX, a private vehicle indirectly controlled by Robert Friedland.

This attracted a world-class technical team, credited with multiple discoveries of Tier 1 copper deposits, looking to repeat such successes. Since then, the Company has been executing the first modern systematic exploration program across a district-scale landholding in a highly mineralized, but vastly under-explored copper-gold porphyry belt. Now, drilling is just days away.

These are exciting times for Kincora, the most exciting in the Company’s history. The Company is in a prime position in the copper sector where new discoveries are being well rewarded and successful juniors acquired at significant premiums. For example, just this week Australian-listed MOD Resources was taken out by a billion-dollar market cap Sandfire Resources.

A new cornerstone investor, HK-based New Prospect, now the 2nd largest shareholder with about 12% of the Company, is a natural resource specialist fund with an extensive global network. LIM Advisors remains the largest investor, one of the longest operating alternative investment managers in Asia, they invest across the capital structure in deep value & special situations.

Investors in small cap natural resource stocks know that the best time to be in a junior is right before a BIG discovery. That’s the time we could be at right now with Kincora. Management just raised $6.25M. Will there be a new discovery! More than one!! None!!! Yes, there could definitively be zero new discoveries…. This is a highly speculative situation, but backed by a team that has an excellent track record of large discoveries.

Even without blockbuster discoveries, the Company has planned a very detailed and well thought-out drill program that’s sure to cover a lot of bases and provide a pipeline of news flow over the next 12 months. Raising $6.25M in a very tough market at a $7M pre-money valuation was a BIG success in and of itself, demonstrating the strength of management, the projects / targets and the massive opportunity.

The de-risking capital raise is strong evidence of the belief by cornerstone investors & seasoned management that Mongolia is a great place to, potentially, make the newest globally significant copper discovery since 2014. To learn more, please continue reading this Interview of Sam Spring, President & CEO of Kincora Copper [TSX-V: KCC].

Can you talk about how we got to the point of a substantial drill program starting very soon?

After 2018 being a transitional year of setting the right corporate foundations for success, we are entering an exciting period where the drill bit will drive Kincora’s valuation once again. This month we will commence an aggressive, multiple rig, fully-funded drill program. The focus is discoveries on 5 large, independent copper porphyry targets on our 100%-owned Bronze Fox and East Tsagaan Suvarga (“East TS”) projects.

This will be the first drill program conducted by our industry-leading technical team, who have found multiple Tier 1 copper assets. For the last 3 years, we have undertaken the first modern, district-scale, exploration across this vastly mineralized, but significantly under-explored Southern Gobi copper-gold belt.

As readers may know, there are 2 large-scale porphyry projects in this region. Rio Tinto / Turquoise Hill Resources’ Oyu Tolgoi open pit mine and underground development project, and a privately-held open pit development project called Tsagaan Suvarga. We believe there are more globally significant copper discoveries to be found.

Limited drilling supports our Bronze Fox project potentially hosting an independently defined, conceptual exploration target of 1.3 to 1.5 M tonnes (midpoint = 3.086 billion Cu Eq. pounds). That would be an in-situ value of $11 billion (1.32 CAD/USD, US$2.70/lb. Cu).

The first hole of the program will, for the first time, correctly test a very large zone (previously drilled in the wrong direction). However, prior drilling still managed to intersect 37 m at > 1% Cu Eq., within 864 m of 0.38% Cu Eq.

Our East TS project sits in the shadows of a billion-dollar open pit construction project at Tsagaan Suvarga (“TS”). Within this brownfield setting, we’re drilling 3 separate targets that are the closet analogues to the high-grade ore bodies at OT…. since OT! While just targets, readers should understand that what we’re exploring for is large and in a very favorable location and geological setting. OT’s ongoing underground expansion is the largest hard rock mining project in the world. It could become the 3rd largest copper mine on the planet, with a 100-year+ mine life.

Kincora was formed in 2011, but we are in the strongest position today that the Company has ever been in. Yet, our current market cap of $12M, (with $6M cash!) is a fraction of our peak valuation of nearly $50M. At that time, we had attracted a buyout offer for the Company and had signed 14 NDA’s with interested parties.

While naturally I’m biased, I think it would be hard to find many juniors with similar risk/return profiles and multiple near-term catalysts, backed by a world-class management, Board, Technical team, Advisors and key shareholders, trading at such a low valuation.

With the Company shortly ramping up drilling of our existing exploration portfolio, and focused on ongoing expansion opportunities, Kincora is the most active foreign-listed junior seeking to make the next Tier 1 discovery in Mongolia.

You just closed on a $6.25M capital raise in a very difficult market. Who were the key investors in this very important round?

~60% was taken up by 2 large natural resource funds and associated groups, who will represent > 40% of Kincora’s shares going forward. These groups, LIM Advisors & New Prospect Capital are both Hong Kong based funds and have a track record investing in Mongolia.

In total, there were > 30 investors in the deal, with strong Board / management participation and good support from high-quality sophisticated investors. As you can imagine, given current market conditions, a lot of work went into this raise. We truly appreciate the vote of confidence from those who invested.

How much of that $6.25M will go towards exploration? Please describe the upcoming drill program.

The vast majority will support Kincora undertaking the most aggressive exploration & discovery drill program anywhere in Mongolia this year. ~$5M will cover up to 18,000 m of drilling at Bronze Fox & East TS, plus project generation activities and advancing earlier-stage exploration targets.

Mongolia has unique geological potential to host globally significant discoveries, and that is what we are focusing on. This raising, with the accompanying warrant package, aligns our capital markets strategy with our exploration & expansion plans and gives us a good shot (but no certainty) at making new discoveries.

We are on record stating that these drill targets are, ‘as good as you get within a global setting for their respective stages’. The key driver in the next 12 months is proof of high-grade & our geological concepts, to confirm our models & interpretations with positive drill results.

In addition to your management team & Board, please describe recent due diligence done by independent advisors, consultants & analysts. Didn’t your largest shareholder also commission a study?

Our drill strategy is the culmination of almost 30 years’ copper exploration experience in this belt by senior members of our team, 5 years of exploration work and model refinements by ourselves and previous owners (including Ivanhoe Mines and IBEX) that provide us with strong conviction to focus on the selected 5 targets.

Kincora has been through 5 technical reviews since mid-2017, including from 1) a leading natural resource private equity group, 2) the EBRD, 3/4) LIM Advisors (twice) and 5) New Prospect Capital, all of which have resulted in capital being invested.

As you have picked up on Peter, our largest shareholder commissioned an independent technical review of our targets, work programs and strategy before becoming a cornerstone investor in our latest offering. This review suggested a, ‘discovery’ had already been made at Bronze Fox within the under-explored target zone to the west of a key regional fault in an area we are calling West West Kasulu. This is where the first drill hole will go. In the independent consultant’s opinion, this target area has been significantly upgraded by recent exploration activities.

While we are optimistic, and management participated in the recent raising, and have undertaken detailed systematic exploration, there’s nothing left to do but drill these targets. Please let me reiterate that Kincora is a high-risk, exploration play. Hence, there are high rewards for success.

A risk is that it might cost tens of millions to delineate an attractive NI 43-101 compliant resource. What is your team’s goal for the upcoming drill program, can you articulate what success might look like?

Absolutely. We appreciate the fact that porphyries are capital intensive, and that exploration is very risky. More meters of drilling provide us a better chance of confirming our geological concepts and riding the value creation curve for shareholders.

The best recent example of a large-scale copper porphyry discovery is that of SolGold at its Alpala project in Ecuador. The deposit at Alpala is deep, so drilling costs there are significantly more than in Mongolia. In March 2016, SolGold raised A$5.7 million at 2.3p/share, having drilled 13 promising holes and seeking to confirm its discovery. An equivalent drill program to what Kincora is now looking to complete at our 2 projects. They had fantastic results…. Over the course of 31 months, SolGold drilled a further 54 holes, attracted both Newcrest and BHP as strategic investors, and re-rated 20x for shareholders.

That’s what success at the target-testing phase of drilling can result in, even in difficult capital markets and a flat/decreasing copper price environment, which we believe is temporary.

At Bronze Fox, our drill campaign is designed to advance the strike potential away from the fault to the west, demonstrate the interpreted, significant increase in tonnage & grade potential, and confirm a new discovery. Prior higher-grade intersections include 3 of 4 holes drilled by Kincora that returned > 1% Cu and/or Cu Eq., incl. the best hole, F62, which hosted 13 m of 1.15% Cu / 1.41% Cu Eq., within 37 m at 0.83% Cu / 1.04% Cu Eq. and 864 m at 0.38% Cu Eq.

At our East TS, the geological concept we are seeking to confirm is that OT-style mineralization is present. Each of the 3 targets at East TS have large-scale potential, with individual coincident geophysical anomalies equivalent in size to ore bodies at OT and SolGold’s Alpala project.

While more conceptual and risky than the 2 targets at Bronze Fox, such a setting and scale of targets is unique – if located in more established copper districts around the world — it’s likely the area around TS & East TS would have already seen extensive drilling.

A rule of thumb for porphyry discoveries is that ~50,000 m of drilling generally provides visibility for ~5M tonnes Cu Eq. metal. Exercise of the warrants that were part of the recent offering would bring in an additional $15M (2.5x the recent raising), and enable another 100,000 meters of drilling.

There are many Copper bulls, yet the price at US$2.70/pound is half of what some bulls think is coming. Do you have a view on the Copper price?

A good question, we get asked that a lot. I will leave the forecasting to the experts, but we’re noticing that most investors see the writing on the wall. Like us, they believe the supply side will at some point (perhaps soon?) struggle to meet even average-trend demand growth, let alone any acceleration from increasing global electrification. This theme is being picked up by generalist investors as well, who have noticed what an unexpected supply shock has done to the iron ore price this year.

Regarding the industry players (mid-tiers & Majors), there has been a notable, but quiet, shift towards looking at new growth projects again over the last 18 months. BHP & Rio Tinto are even talking about organic exploration success stories, focusing on copper as a preferred commodity for expansion. That said, we are just starting to see more of the traditional miners expand into earlier stage projects to rebuild their pipelines.

Time will tell, but I certainly think that even at current copper prices, if we find what we’re looking for, there will be significant interest in Kincora. A tailwind from rising copper prices would of course be welcomed, but given the lack of exploration success industry-wide, globally, for many years now, the project pipeline is in great need of new, sizable discoveries. That is what we believe Mongolia and our targets offer investors.

Please talk about Mongolia, some readers probably won’t invest there. What do you tell investors, shareholders, prospective investors — about Mongolia country risk?

At the time I joined Kincora in 2012, Mongolia was the fastest growing economy in the world. This was driven by the first phase emergence of delivering previously untapped resources to international markets.

This emergence meant that at the time it was almost mandatory for coal & copper Majors to be seeking entry into the southern Gobi regions, with product trucked to the world’s largest consumer of both commodities. We are 5 Prime Ministers, 2 governments, a number of high profile disputes and reversals to unfavorable investment laws later, but the rocks and big picture potential remain unchanged.

In a landscape of few significant greenfield projects recently being commissioned, OT is proof of concept that Mongolia is a mature mining jurisdiction. OT is the largest development project in Mongolia’s history. It’s expected to account for up to a third of Mongolia’s GDP by the mid 2020s. It paves the way for companies like ours by lowering barriers to entry and we and others greatly benefit from newly built regional infrastructure.

When one looks at other copper jurisdictions, it’s becoming harder and more expensive to operate. Chile’s 2018 copper output was greater than the 2nd, 3rd & 4th largest country producers combined. The multi-billion-dollar cap-ex profile for Chile’s Codelco, just to keep production flat, shows the increasing challenges regarding water, community relations & high altitude, not to mention a declining copper grade!

Many other large copper supply regions are also difficult and/or increasingly difficult to operate in; look at recent developments in the DRC, China, Panama, Russia, Zambia, Indonesia, PNG, etc.

Given the team and operational track record we have at Kincora Copper [TSX-V: KCC] we are eyes wide open to the risk/reward scenario in Mongolia, which we find compelling, exploring for the next globally significant copper discovery.

Your readers should stay tuned for drill results, which should start arriving in 5-6 weeks’ time. We expect results to be ongoing for the rest of the year.

Thank you Sam, I think we covered a lot of ground. Bottom line, drill results will define Kincora Copper going forward, and a lot of smart money is betting on good drill results between now and year end.

Peter Epstein

Epstein Research

June 27, 2019

Disclosures: The content of this interview is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Kincora Copper including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Kincora Copper are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this interview was posted, Peter Epstein owns shares in Kincora Copper, and it was an advertiser on [ER].

Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.

To view what may be the most important chart in the history of markets, please click here now. Double-click to enlarge. Gold is breaking out of a massive inverse H&S bull continuation pattern, and that pattern itself may be the head of an even more massive pattern that targets the $3000 price area.
Please click here now. Double-click to enlarge this fabulous GDX chart.
At my https://guswinger.com swing trade service, traders are sitting on a veritable mountain of profits, having entered NUGT at about $20 barely a week ago. It’s $30 now!
NUGT is a triple-leveraged ETF that tracks GDX. We are also long Barrick and Agnico Eagle stock, and we hold Kirkland Lake call options. If the market turns lower, we’ll not only have the profits locked in… we’ll short the market too, via DUST and JDST.
Having said that, long-term investors should not try to top call this market. Gold is staging a major upside breakout on the charts, and the fear trade is the main price driver now. Hedges should be reduced, and aggressive speculators should hold call options on quality miners.
Almost all major US money managers and analysts are predicting a major dovish pivot for the Fed at the upcoming July 31 meeting.
Unfortunately for members of the Trump administration “fan club”, these analysts are basing their outlook on a peaking business cycle and the horrifying (and potentially inflationary) effects of the tariff taxes tantrum currently being thrown by the administration.
Tariffs are a global GDP growth wrecking ball, and I’m predicting there are going to be more tariff taxes, more corporate earnings disappointments, and no tax cuts for the working class of America.
The million-dollar question is this: What does the Fed do when the tariffs begin creating visible inflation as corporate earnings continue to fade?
If the Fed hikes to fight the inflation, the stock market implodes and gold rallies strongly. If the Fed does nothing, the stock market likely goes nowhere and gold rallies.
If the Fed cuts (and three big bank analysts are predicting a half point cut at the July meet), the stock market would stagger higher, and gold would probably stage a “moon shot” higher.
Trump put more sanctions in place against Iran yesterday. Iranian government spokesmen suggested that marks the end of diplomacy. War isn’t guaranteed, but it’s certainly possible. The bottom line: Gold is the obvious place for investors to be!
Please click here now. Double-click to enlarge. While gold stocks continue to soar, the US stock market is struggling.
I’m long TQQQ as a swing trade. I do still have buy signals in play on the weekly charts for most of the US stock market, but my recommendation as any business cycle matures is to reduce position size on core positions. Concentrate on short-term trading to reduce risk and relieve stress.
That’s hard for investors to do, especially when their favourite politician, Donald Trump, is the president of the United States. Like Trump, Herb Hoover was an incredibly successful businessman. When he was elected, many of America’s business leaders predicted that the business cycle was “defeated”, and America would never have a recession ever again.
The stock market promptly fell 90% and the nation voted in socialist and war mongering madman Roosevelt. He gave the citizens food stamps, took their gold, and the banks bought stocks as the ravaged citizens sold.
The US stock market moves higher or lower mainly on interest rate decisions from the Fed (which includes QE/QT) and on earnings growth, or lack of it.
If the Fed cuts rates and earnings don’t start improving, money managers will begin to sell stock market rallies and rate cut decisions. The gold price rally will intensify in that situation.
Please click here now. Double-click to enlarge. The price action on this USD vs yen chart is quite concerning, and it fits with current calls from major bank analysts for rate cuts to stop the economic slowdown from worsening.
When the US stock market rises while the dollar falls against the yen, it suggests the rally is not based on economic growth, and risks are rising. That’s exactly what is happening now.
Please click here now. Double-click to enlarge. Is bitcoin a safe haven? I call it an asset that makes investors richer, but whether it’s a safe haven or not is debatable.
What is clear though, is that gold, T-bonds, yen, and bitcoin are all rallying… as money managers grow more concerned about peaking US growth in this business cycle.
Please click here now. Double-click to enlarge this weekly GDX chart. A major breakout occurred yesterday, and a flagpole pattern has formed on the chart. A bull flag on a weekly chart in any market is very rare and carries powerful upside implications. I think a bull flag may start forming on GDX and many component stocks. When will the breakout happen?
Well, I’ll predict that the breakout happens around the July 31 Fed meet, as an institutional money manager stampede into gold stocks is unleashed!

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Junior Miners On Golden Steroids!” report. I highlight key GDXJ junior and intermediate miners that are becoming must-own stocks for the rest of 2019! I include key buy and sell levels for each stock.

Thewanks!!

Cheers

Stewart Thomson

Graceland Updates

Written between 4am-7am. 5-6 issues per week. Emailed at approx 9am daily.

https://gracelandjuniors.com

www.guswinger.com

Email:

stewart@gracelandupdates.com

stewart@gracelandjuniors.com

stewart@guswinger.com

Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.

Risks, Disclaimers, Legal

Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:

Are You Prepared?

Gold is finally surging to new bull-market highs! Several years after its last bull high, gold punched through vexing resistance after the Fed continued capitulating on ever normalizing. This huge milestone changes everything for gold and its miners’ stocks, unleashing new-high psychology fueling self-feeding buying. With speculators not yet all-in and investors wildly underdeployed, gold has room to power much higher.

Gold momentum has certainly been building for a major upside breakout. Back in mid-April with gold still near $1300, I wrote an essay describing the “Gold-Bull Breakout Potential” and why it was finally coming. Then a couple weeks ago with gold in the $1330s, I published another one analyzing “Gold Surges Near Breakout”. For several years higher lows had slowly compressed gold ever closer to surging over resistance.

Today’s gold bull was first born back in mid-December 2015 the day after the Fed’s initial rate hike in its just-abandoned tightening cycle. Gold’s maiden upleg was massive, rocketing 29.9% higher in just 6.7 months to $1365 in early July 2016! But that first high-water mark has proven impregnable over the 3.0 years since. Gold tried and failed to break out in 2017, 2018, and 2019, repelled near a $1350 Maginot Line.

While gold mostly climbed on balance, the lack of higher highs really impaired traders’ view on this asset. New bull highs generate enthusiasm, enticing capital inflows. When prices fail to achieve new bull bests from time to time, traders’ interest wanes. Gold was largely forgotten, even though it technically remained in a bull market since there had been no 20%+ selloff. Psychology needed new bull highs decisively over $1365.

While they were inevitable sooner or later here, I sure didn’t expect them this week. June is peak summer doldrums, the weakest time of the year seasonally for gold. And U.S. stock markets remain way up near recent all-time record highs, steeped in euphoria. That has really stunted gold demand in recent years. So the odds favored gold’s long-overdue bull-market breakout getting pushed later into July or August.

But this metal was defying weak seasonals to inch inexorably closer. It closed at $1340 on June 7th, $1342 on the 13th, and $1346 ton June 18. That was the day before the latest Fed decision. The Federal Open Market Committee had really painted itself into a corner. It had shifted dovish so hard in recent months that traders’ expectations for a new rate-cut cycle starting seemed impossible to meet.

Had the Fed not been dovish enough, the U.S. dollar would’ve surged unleashing sizable-to-serious gold-futures selling. But amazingly the FOMC managed to neither cut rates nor tease a rate cut at its next meeting in late July, yet still convince traders it was ready to cut. That masterful sleight of hand came in the quarterly dot plot, the collective future federal-funds-rate forecasts of top Fed officials. They were dovish.

Back in late September before the flagship S&P 500 stock index plunged 19.8% in a severe near-bear correction, the dots predicted 5 more rate hikes including 3 in 2019 and 1 in 2020. After December’s 9th hike of this cycle, the mid-December dot plot only moderated to 2 in 2019 and 1 in 2020. In the next dot plot in late March, this year’s hikes were struck but 2020’s lone 1 remained. That led into this week’s dot plot.

Traders were expecting almost 4 rate cuts over the next year heading into this FOMC decision, which seemed like a bridge too far. And it was! Top Fed officials’ neutral 2019 outlook of no rate hikes stayed unchanged, no cuts were added. I’m surprised the U.S. dollar didn’t surge on that, indirectly hitting gold. But the dot plot did eliminate 2020’s lone hike and pencil in 2 cuts instead, which was a major dovish shift.

So improbably in mid-June with the S&P 500 just 0.7% off late April’s all-time-record peak, gold caught a bid. Even before Wednesday’s 2pm release of the FOMC statement and dot plot, gold held steady near $1345. When the Fed headlines hit and currency traders interpreted them as dollar-bearish and sold, gold shot up to $1354. It gradually climbed from there to challenge $1360 by the end of that U.S. trading day.

Gold’s full reaction after major FOMC decisions often isn’t apparent until the next trading day though, after Asian traders can react. Their markets are closed when the Fed makes its announcements. As Asian markets opened Thursday morning which was late evening Wednesday U.S. time, gold rocketed from $1358 to $1385 in about an hour! Being a markets junkie, I always check overseas action last thing before bed.

I could hardly believe my eyes that night, and verified gold’s price in multiple trading accounts. This gold bull was breaking out! A decisive breakout is 1%+ beyond an old key level. That translated into $1379 off July 2016’s seemingly-ancient $1365 bull-to-date peak. If those gains could hold into the US close on Thursday, a decisive breakout would be confirmed. In early summer with euphoric U.S. stock markets no less!

These charts are current to Wednesday’s Fed-Day closes. In order to write and proof these essays on Thursdays, Wednesdays are the data cutoff. But as I pen these words on midday Thursday, gold is still trading at $1385 in U.S. markets (and has climbed over $1400 on June 24 – ed). This breakout looks like the real deal, the answer to contrarian investors’ prayers. And speculators’ gold-futures positioning shows room for more buying!

Because of the extreme leverage inherent in gold futures, their traders wield outsized influence over the short-term gold price. At $1350 gold, each 100-ounce contract controls $135,000 worth. Yet traders are now only required to hold $3400 cash in their account per contract. That equates to absurd maximum leverage of 39.7x. Each gold-futures dollar has up to 40x the gold-price impact as a dollar invested outright!

This chart superimposes gold in blue over speculators’ total gold-futures positions, with long upside bets in green and short downside bets in red. Note that while gold has spent several years struggling with that $1350 overhead resistance, it has carved major higher lows. That has coiled gold into a giant tightening ascending-triangle technical formation. These patterns are usually resolved with strong upside breakouts.

Speculators’ collective gold-futures bets are reported weekly late each Friday afternoon, current to the preceding Tuesday. So the latest data available when this essay was published was as of June 11, 6 trading days before the Fed’s shift into forecasting rate cuts coming. Gold did rally 1.5% over the next Commitments-of-Traders-report week ending this Tuesday the 18th, so specs had to be buying gold futures.

But this latest-available data still offers some great insights. Total spec longs and shorts were running 299.1k and 97.1k gold-futures contracts nearing the FOMC decision. Those shorts were actually at a 14.3-month low, leaving big room for aggressive short selling. I was worried heading into this week’s Fed meeting that it would disappoint by not being dovish enough, igniting a dollar rally triggering gold-futures shorting.

With shorts so low, the risk of a short-term gold selloff remains high. But high gold prices really stamp out any zeal traders have for short selling gold futures at extreme leverage. At 39.7x, a mere 2.5% gold rally would wipe out 100% of the capital risked by short sellers! So in the several months following recent years’ major $1350 breakout attempts, spec shorts stayed low. They didn’t climb until gold started falling.

Major gold uplegs have three stages. They are initially triggered by gold-futures short covering which quickly exhausts itself after a couple months or so. Note above that gold’s 15.9% upleg as of Wednesday was largely fueled by a massive 153.7k contracts of short covering! That was necessary after spec short selling soared to all-time-record highs late last August, forcing gold to the lows which birthed this upleg.

After first-stage short covering, the second stage is fueled by gold-futures long buying. So far that has been relatively minor, just 41.0k contracts as of the latest CoT data. Again heading into the FOMC, the specs were only long 299.1k contracts. That is much lower than at past $1350-breakout attempts, which implies much more room to keep buying from here. This is very bullish for gold unless short selling flares up.

Back in early July 2016 when gold rocketed to this bull’s initial $1365 peak, it was fueled by spec longs soaring to 440.4k contracts! That was a whopping 141.3k or 47.2% higher than the latest read. The next major $1350 breakout attempt came in early September 2017, driven by total spec longs surging way back up to 400.1k contracts. That too was 101.0k or 33.8% higher than recent levels leading into the Fed.

In late January 2018 that vexing upper resistance repelled another valiant gold breakout attempt. Total spec longs crested at 356.4k then. That was 57.3k or 19.2% higher than the latest data. So assuming there wasn’t massive gold-futures long buying leading into this Tuesday, there’s still room for gold-futures speculators to buy another 57k to 141k contracts! Such big long buying would propel gold well higher from here.

But far more bullish than that is the potential stage-three investment buying. While speculators have the leverage, investors control vastly-larger pools of capital. All the stage-one gold-futures short covering and stage-two gold-futures long buying is just an ignition mechanism to entice investors to return. Once they do, their big capital inflows can ignite strong virtuous circles of buying that persist for months or even years.

The higher gold climbs, the more investors want to own it. The more they buy, the higher gold rallies. As investors love chasing winners, nothing drives buying like new highs. New-high psychology is easily the most-powerful motivator fueling big investment buying. And gold investment remains very low even this week as gold’s bull-market breakout neared. This is evident in the leading gold ETF’s gold-bullion holdings.

The American GLD SPDR Gold Shares dominates the gold-ETF world, acting as the primary conduit for American stock-market capital to flow into and out of gold. I discussed this in depth a couple months ago in another essay on stock euphoria and gold. As of this Wednesday as gold surged back to $1360 on that Fed capitulation from tightening, GLD held 764.1 metric tons of physical gold bullion for its shareholders.

In early July 2016 when gold first hit $1365, GLD’s holdings ran far higher at 981.3t. That was 217.2t or 28.4% higher than this week’s levels! At that next major $1350 breakout attempt in early September 2017, GLD’s holdings were 836.9t or 9.5% above today’s levels. And at January 2018’s attempt this key metric for gold investment hit 849.3t, or 11.2% higher than this week. There’s lots of room for investors to buy!

GLD’s holdings haven’t really soared since the first half of 2016 when gold rocketed 29.9% higher in this bull’s maiden upleg. That was the last time new bull highs made investors excited about gold. So their potential buying from here is much bigger than the GLD holdings near $1350 breakout attempts suggest. The total GLD build in that huge H1’16 gold upleg was 351.1t or 55.7%. Consider that from recent lows.

In early October GLD’s holdings sunk to a deep 2.6-year secular low of 730.2t. That was before the US stock markets started plunging in Q4’s severe near-bear correction, so gold was deeply out of favor with stock euphoria extreme. A similar total build of 350t from there as gold returns to favor among investors would push GLD’s holdings over 1080 metric tons. That would represent a 47.9% total upleg build, not extreme.

And American stock investors pouring enough capital into GLD to force it to grow its physical-gold-bullion holdings to 1080t isn’t a stretch. Back in early December 2012 fully 15.6 months after gold’s last secular bull peaked, GLD’s holdings hit their all-time high of 1353.3 metric tons. That’s 77% higher than this week’s levels, proving investors have vast room to shift capital back into gold given their current low allocations.

One way of inferring gold investment is looking at the ratio of the value of GLD’s gold holdings to the total market capitalization of all 500 elite S&P 500 companies. From 2009 to 2012 that averaged 0.475%, for an implied gold portfolio allocation near 0.5% for American stock investors. That’s terrible, as every investor needs a 10% allocation in gold and its miners’ stocks! But 0.5% is still far higher than today’s levels.

When the SPX recently peaked at the end of April, this ratio was running around 0.12%. That’s only a quarter of that average from recent years before gold fell deeply out of favor. Today investors are so radically underinvested in gold that their portfolio allocations need to quadruple from here to merely return to quasi-normal levels! So there’s room for great amounts of capital to return to gold, driving it much higher.

Again my data cutoff for this essay was Wednesday’s close, before gold started breaking out. At that point its gold bull to date was 29.9% higher at best as of several years earlier. The last secular gold bull ran between April 2001 to August 2011. Over that 10.4-year span, gold powered a massive 638.2% higher! So gold ultimately doubling or tripling from this bull’s birthing low of $1051 certainly isn’t a stretch at all.

With this gold bull finally breaking out after several years of vexing failures, there are dozens of charts I’d like to share today. But I’m settling with three so you don’t have to read a book. Again June happens to be gold’s weakest time of the year seasonally, which gold’s breakout surge is bucking. But despite the wonderful emerging new-high psychology, gold’s advance isn’t particularly outsized even for summer doldrums.

This chart looks at gold’s average summer performances in all modern bull-market years. Each summer is individually indexed to its final close in May, keeping gold price action perfectly comparable regardless of prevailing levels. The yellow lines show 2001 to 2012 and 2016 to 2017. Last year’s summer action is rendered in light blue for easier comparison. All these lines are then averaged together into the red one.

That reveals the center-mass drift trend of gold in market summers, which include June, July, and August proper. Gold’s current 2019 summer action is superimposed over all that history in dark blue. At least as of gold’s $1360 Wednesday close following the FOMC, it was only up 4.2% summer-to-date. That is still within the typical gold summer trend of +/-5% from May’s close. This gold summer rally is big, but not extreme.

As I continue writing this essay early Thursday afternoon, gold is trading near $1386. That is up 6.2% since the end of May. In the summer of 2016 the last time gold was in favor and enjoying that new-high psychology, it rocketed as high as +12.3% summer-to-date by early July. So while early summers tend to be weak, gold can still power higher in the right conditions. And a major bull-market breakout is definitely it!

The main beneficiary of higher gold prices is the gold miners. They enjoy big profits leverage to gold as its price rallies higher. Last week I wrote a whole essay on this “Gold-Stock Upleg Mounting” where I went into leverage. The leading gold-stock benchmark is the GDX VanEck Vectors Gold Miners ETF. In mid-May I dug into its component gold miners’ latest Q1’19 results, revealing their current fundamentals.

The GDX gold miners’ average all-in sustaining costs last quarter were $893 per ounce mined. When compared to Q1’s average gold price near $1300, at $1400 and $1500 gold the major gold miners’ profits would soar 25% and 49% higher! So naturally gold-stock prices are surging with gold’s awesome bull-market breakout this week. Here’s the latest chart of gold-stock performance per GDX as of Wednesday.

Since late 2016 the gold stocks have been trapped in a giant consolidation by gold remaining mostly out of favor with investors. That manifested in GDX terms in a major trading range running from $21 lower support to $25 upper resistance. On Fed Day as gold rallied to $1360, GDX’s price climbed to $24.00 on close. That was a 16.7-month high for this leading gold-stock benchmark, and nearing its own breakout.

Early Thursday afternoon as I pen this essay, GDX has surged again to $25. That’s right at that major resistance line of recent years. A decisive breakout from here would portend gold stocks finally being off to the races again. And that means enormous gains for contrarian speculators and investors. In essentially the first half of 2016 as gold blasted 29.9% higher, GDX skyrocketed 151.2% for huge 5.1x leverage!

As of Wednesday this current gold-stock upleg per GDX only had 36.6% gains. As gold’s own new-high psychology makes gold stocks alluring again, they should soar dramatically from here. We haven’t seen a real gold-stock upleg in several years. Just like gold, when its miners’ stocks are powering to new highs buying begets buying. Traders love chasing their gains which fuels a glorious virtuous circle of capital inflows.

For years traders have told me they were avoiding gold stocks until something big changed. And there is nothing bigger for this high-potential sector than new gold-bull highs. All the stars are aligning for big gold-stock gains in the coming months, with their technicals, sentiment, and fundamentals all looking very bullish. This is not the summer to check out, but to do your homework and get deployed in great gold stocks.

Unfortunately the major gold miners dominating GDX are failing to grow their production. That along with their large market caps means smaller mid-tier and junior gold miners with superior fundamentals will enjoy far-better upside as gold climbs higher. While GDX should amplify gold’s gains by 2x to 3x, that will be dwarfed by the epic gains in better smaller miners. Major gold uplegs are a gold-stock pickers’ market!

The bottom line is gold is finally breaking out to new bull-market highs! Somehow the FOMC managed to be dovish enough in its rate-cut outlook this week to drive US-dollar selling, which unleashed major gold buying. So gold blasted back over its bull-to-date peak from several years earlier that had oppressed it for so long. Gold hasn’t enjoyed new-high psychology since then, which is a powerfully-bullish motivating force.

New bull highs bring gold back into the limelight, making it attractive again. Traders love chasing winners to ride their upside momentum, and buying begets buying. Gold coming back into favor portends much more upside to come, with room for big buying by both gold-futures speculators and far-more-important investors. As their capital inflows push gold to new bull-market heights, the gold stocks are going to soar!

Adam Hamilton, CPA

June 24, 2019

Gold has finally broken out to the upside.

In Asia trading on Thursday, Gold exploded through the $1360 to $1370 resistance zone and was able to hold the gains throughout the day, closing above $1395/oz.

As we pen this article, Gold has to chance to break $1400/oz by the weekend. The close of the month (and quarter) next week will provide an additional clue as to the sustainability of this strength.

The gold stocks meanwhile have been on an absolute tear. GDX is up 16 of the past 17 trading days and has gained 23% over that period. GDXJ is up 13 of the past 17 sessions and has also gained 23% during that period.

GDX closed right at resistance at $25. It could blow through it and reach a multi-year high at $27 or it could first correct and consolidate around $25.

GDX’s various indicators are very encouraging but not quite at confirmed bull market levels.

Roughly a third of GDX made new highs, which is the highest amount since August 2016. Also, 79% of miners closed above the 200-day moving average. Surpassing 90% would be quite bullish.

The GDX to S&P ratio needs to close above its recent peak to signal sustainable relative strength.

Turning to GDXJ, we see that it is slightly behind GDX in nominal and relative terms. It faces a bit of resistance here around $35 but more resistance at $37.

The percentage of GDXJ stocks above the 200-day moving average and at new highs are at very encouraging levels but need to advance higher to confirm a new bull market.

Assuming Gold maintains current strength without more than a minor retest of previous resistance then we should look for GDX and GDXJ to approach the aforementioned resistance targets. Initially, that means GDX $27 and GDXJ $37.

If the miners were to reach those targets then these various indicators should reach bull market levels at the same time.

The fundamentals are finally in place for precious metals (as we’ve mentioned in recent articles) and that, along with bullish technicians is why we should remain bullish.

Unless Gold loses the breakout gains into the end of the quarter, then I would not anticipate too much of a pullback. Bull moves tend to remain overbought with overly bullish sentiment.

As we noted last week, the gold stocks, junior gold stocks and Silver are ready to explode higher once the breakout move in Gold is confirmed. To learn which stocks we own and intend to buy that have 3x to 5x potential, consider learning more about our premium service.

By Jordan Roy-Byrne CMT, MFTA

June 21, 2019

It’s my firm belief that most Americans are living in a fantasy world where a superhero named President Trump is going to negotiate fabulous “America-first” trade deals with cowering governments around the world… and Americans will then magically relive the 1950s with massive GDP growth, even while QE to infinity becomes as American as apple pie.
The reality of the situation is almost the exact opposite of this fantasy world; de-dollarization is relentless and American government size and debt growth is totally out of control.
China is an economic bullet train carrying 1.4 billion gold-focused passengers. It’s blasting through a melting block of American fiat-focused butter, and India’s citizens are poised to take everything China’s citizens are doing to even greater gold-oriented heights.
The rise of the Chindian gold-oriented economic empire and the decline of the American empire are both unstoppable processes.
There’s no question that Trump will negotiate numerous trade deals with more favourable terms for America than his presidential predecessors ever did, but the tariff taxes involved mean these deals create less global growth rather than more.
These taxes are also inflationary.
A “big” trade deal between China and American is unlikely, but even if it happens it would probably add only about half a point to the current pathetic level of U.S. GDP growth in the short term, and it wouldn’t stop the business cycle from peaking.
The cycle is peaking. Recession is coming.
Please click here now. Double-click to enlarge. A breakout above $1362 targets $1450.
Simply put, the peak in the business cycle is when sane investors buy gold and silly children try to relieve the 1950s by price-chasing the U.S. stock market.
I’m long the stock market, but I’m not buying new and bigger core positions. I consider that an act of financial madness.
Please click here now. Double-click to enlarge. It’s been a great ten-year run for the stock market, and now it’s clearly time to book some profits, fade position size, buy gold, and wait for the next bear market in stocks to bring a major buying opportunity.
Please click here now. Double-click to enlarge. There is no asset class that does as well as gold does as the business cycle peaks, and this cycle peak might include the interesting arrival of… inflation.
Note the similarity of the current action in the inverse H&S bull continuation pattern to the price action in late 2009. Gold is poised for a major upside breakout.
I think the U.S. business cycle peak will force Trump to change tactics from trying to extend the cycle with tariff taxes and he’ll focus on devaluing the dollar. If he loses the election, the democrats are also likely to pursue dollar devaluation. It’s win-win for gold.
I expect this U.S. business cycle peak will be followed by a substantial period of growing stagflation.
That means the Dow could gyrate between about 15,000 and 30,000 for years in a stagflationary quagmire, much like it gyrated between 500 and 1000 in the 1970s as stagflation lorded over all markets.
“Right now, they’ll just give a very dovish message that leans toward a July rate cut. The market is worried enough about weakness in China, inflation undershooting and the possibility that tariffs disrupt the global supply chain that it’s hard for me not to think the Fed won’t be moving faster than people thought.” – Joe LaVorgna, chief economist for the Americas, Natixis, June 14, 2019.
Mike Grapen is chief economist at Barclays bank, and he’s predicting a half-point cut in July! The bottom line is that while the long-term outlook for America is empire-fade and stagflation, the Fed is still a powerful central bank and the main driver of the U.S. stock market.
On that note, please click here now. Double-click to enlarge this short-term Nasdaq stock market chart. While big core positions should be reduced as the business cycle matures, short-term trading should be embraced.
At my https://guswinger.com swing trade site, I’m betting the Fed makes a dovish statement at tomorrow’s key meeting, and that creates short-term buying of the stock market… and gold!
Please click here now. Double-click to enlarge this GDX chart. The current Fed meet should be bullish for gold stocks. What about the July meet?
Well, that should be even more bullish! A big rate cut in July may not be enough to save the stock market from the tariff tax quagmire it’s sinking into as the business cycle peaks.
That’s because institutional money managers traditionally begin to sell the stock market as the Fed cuts rates at the peak of the cycle and… they buy gold! Once tomorrow’s Fed meet is out of the way, it will be time for gold stock investors to get bold, reduce hedges, buy all dips, and… enjoy!

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Gold & Silver Miners, A Perfect Mix!” report. I highlight key gold and silver miners that are poised fly in July! Key buy and sell tactics for each stock are included.

Thanks!!

Cheers

Stewart Thomson

Graceland Updates

Written between 4am-7am. 5-6 issues per week. Emailed at approx 9am daily.

https://gracelandjuniors.com

www.guswinger.com

Email:

stewart@gracelandupdates.com

stewart@gracelandjuniors.com

stewart@guswinger.com

Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.

Risks, Disclaimers, Legal

Are You Prepared?

The gold miners’ stocks have surged powerfully over the past few weeks, challenging upleg highs. Traders started returning to this small contrarian sector as gold blasted back above the psychologically-crucial $1300 line. While such early-summer strength is atypical, gold miners’ technicals, sentiment, and fundamentals all support more gains to come. Gold stocks need to mean revert to much-higher price levels.

Traders usually track gold-stock fortunes with this sector’s most-popular exchange-traded fund, the GDX VanEck Vectors Gold Miners ETF. Launched in May 2006, this was the maiden gold-stock ETF. That big first-mover advantage has helped propel GDX to sector dominance. This week its net assets of $9.7b ran 46.5x larger than the next-biggest 1x-long major-gold-miners ETF! GDX is this sector’s leading benchmark.

And it sure didn’t look pretty in May, with traders wanting nothing to do with gold stocks. GDX spent the great majority of last month languishing near its 200-day moving average. Just a few weeks ago on May 29th, GDX closed at $20.42. That was down 3.2% year-to-date, much worse than gold’s own slight 0.2% YTD decline. The gold stocks were really out of favor, just like the metal they mine which fuels their profits.

This sector started perking up on May 30th, when gold and GDX enjoyed 0.7% and 1.7% rallies. Major gold miners’ inherent profits leverage to gold usually helps their stock prices amplify gold’s gains by 2x to 3x. But there was still no excitement with gold and GDX trading at $1288 and $20.77 heading into June. Early market summers have gold’s weakest seasonals of the year, usually weighing on it and the miners.

But leave it to Trump to unleash a bombshell shaking the status quo. That evening he shocked, tweeting “On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied, at which time the Tariffs will be removed.”

The White House said those tariffs would be ratcheted up 5% each month until they hit their terminal 25% level on October 1st! While Trump later suspended his Mexico-tariff threat, it really surprised traders. Not only was Trump opening up a new front in the trade wars, but he was tying tariffs to non-trade issues as a hardline negotiating tactic. That had serious implications, so Asian traders flooded into gold after that tweet.

The next day that new momentum spilled into the US, driving gold 1.3% higher to $1305. Long-apathetic gold-stock traders rejoiced at seeing gold claw back over $1300. That has proven a crucial level for gold sentiment for years now, the dividing line between popular bearishness and bullishness. GDX shot up 3.9% that day. Asian traders bought gold aggressively heading into the next trading day, driving a $1300 breakout.

That upside action again carried into U.S. markets on June 3rd, when gold powered another 1.5% higher to $1325. The major gold stocks’ gains mounted, with GDX surging another 4.2% to $22.49. In those two trading days following Trump’s Mexico-tariff threat, this leading gold-stock ETF blasted 8.3% higher on a 2.8% gold surge! GDX’s gains were amplifying gold’s breakout rally by a strong 3.0x, rekindling sector interest.

There’s nothing speculators and investors like more than chasing winners, riding the momentum. So that newfound gold and gold-stock buying persisted. By this Wednesday’s data cutoff for this essay, gold had powered 4.1% higher since May 29th. True to form, the major gold stocks as measured by GDX rocketed up 12.4% in that same span for 3.0x leverage. The gold miners’ stocks are starting to return to favor again!

Their strong gains in recent weeks didn’t erupt from major lows, but from a lull in a solid existing upleg. This chart looks at GDX over the past several years or so, across the life of gold’s current bull market. It is important to consider big moves in broader technical context, as that offers clues on what’s likely next. The gold miners’ stocks have lots of room to rally much higher from here, with major-upside-breakout potential.

While this week’s $23ish GDX levels feel high after May’s disheartening 200dma grind, they are actually fairly low. Since late 2016 GDX has mostly meandered in a major consolidation trend running from $21 support to $25 resistance. $23 is right in the middle of that long basing channel, which isn’t noteworthy at all technically. The gold miners’ stocks won’t get exciting again until GDX breaks out decisively above $25.

The past few weeks’ big surge is simply part of an in-progress upleg born in deep despair back in early September. That episode was brutal. All-time-record gold-futures short selling hammered the metal to 19.3-month lows. That unleashed cascading stop-loss selling in gold stocks, an ugly forced capitulation that crushed GDX to deep 2.6-year secular lows. All the gains since are just a normal mean reversion higher.

Gold stocks’ recovery from those anomalous extreme lows has already passed plenty of bullish technical milestones. GDX’s series of higher lows and higher highs carved the nice uptrend rendered above. This leading sector benchmark enjoyed a major triple breakout, climbing back over three key resistance zones including GDX’s 200dma. A powerful Golden Cross buy signal flashed as GDX’s 50dma surged over its 200dma.

By late February this young gold-stock upleg had lifted GDX 33.0% higher to $23.36. But there was no reason for gold stocks’ mean reversion higher to fail there. Those gains remained relatively small by sector standards. Back in essentially the first half of 2016, GDX skyrocketed 151.2% higher in a monster upleg on a parallel 29.9% gold one! And gold-stock uplegs during gold’s last bull averaged bigger gains too.

One was an anomaly, the epic mean-reversion rebound after late 2008’s first-in-a-century stock panic. Excluding it, the other 11 normal gold-stock uplegs in that last bull averaged 80.7% gains over 7.9 months per the HUI! So GDX’s 33.0% upleg-to-date advance as of late February was nothing, way too small to be mature. Odds are it will yet grow much larger in line with past precedent before giving up its ghost.

Mid-upleg selloffs after big surges are normal and healthy to rebalance sentiment. If greed becomes too excessive early in uplegs, it can prematurely exhaust them by pulling forward too much future buying. In most cases mid-upleg pullbacks bounce at upleg support. But that didn’t hold in late April, as GDX fell even farther to its 200dma. That was the result of extreme stock-market euphoria stunting gold demand.

The gold stocks were down but not out, simply awaiting signs of life in gold before traders returned. That came in late May after the stock markets had entered a pullback and Trump’s Mexico-tariff threat rattled traders. GDX quickly leapt back up into its upleg’s uptrend channel, proving it is alive and well. Overall this upleg’s technicals remain very bullish, pushing this leading ETF’s price ever closer to a major upside breakout.

For the better part of several years now, GDX $25 has proven gold stocks’ graveyard in the sky. They’ve challenged it several times, but haven’t been able to decisively break though. They certainly can go much higher. In this gold bull’s monster initial upleg in H1’16, GDX rallied as high as $31.32. And near the end of gold’s last secular bull, this ETF peaked at $66.63 in September 2011. There’s nothing magical about $25.

And it isn’t far away at all. As of the middle of this week, GDX merely had to rally 8.9% more to regain $25! That’s nothing for a sector as volatile as gold stocks. Remember just a few weeks ago GDX surged 8.3% in only two trading days as gold powered back over $1300 after Trump’s Mexico-tariff threat. So a major gold-stock breakout that would radically improve sector psychology is very much within reach today.

The higher gold stocks climb, the more traders will want to buy them to ride that momentum. The more capital they deploy, the more gold stocks will rally. This normal virtuous circle of improving psychology and buying will become even more exaggerated as GDX $25 is surpassed. Seeing the highest gold-stock levels in several years will work wonders to improve sector sentiment, unleashing widespread bullishness.

This gold-stock upleg’s potential gains are massive spanning such a major upside breakout. Remember speculators and investors love chasing winners, so the higher gold stocks rally the more attractive they’ll look. If GDX’s current upleg grows to the last secular bull’s average upleg gain of 80.7%, it would catapult this ETF to $31.75. The major factor almost certain to push GDX well over $25 is gold’s own breakout.

Much like GDX $25, gold’s own bull since December 2015 has been capped near $1350 ever since. Last week I wrote a whole essay explaining why gold is winding closer and closer to blasting through that to new bull-market highs. New-bull-high psychology in gold would spark a frenzied rush to bring neglected gold stocks back into portfolios. Weakening general stock markets should create the necessary gold demand.

Gold stock sentiment is merely decent today, average at best even after recent weeks’ sharp surge. That leaves lots of room for improvement. The more bullish traders get on gold miners’ stocks, the more they will want to buy. Gold miners’ shift back into favor could easily propel GDX back above $25 anytime in the coming months. But we may have to wait until August, after the worst of the gold summer doldrums pass.

Normally this time of year I’d be updating my gold-summer-doldrums research. But that takes a backseat to the recent gold and gold-stock surges. In a nutshell, Junes and Julys are the weakest time of the year seasonally for gold with no recurring outsized gold-demand spikes. Gold and gold stocks can rally during early summers if unexpected demand materializes, but they usually don’t. Will summer 2019 prove an exception?

I sure hope so, but only time will tell. This next chart looks at the HUI’s average summer performances in all modern gold-bull-market years. Each summer is individually indexed to its final close in May, keeping gold-stock price action perfectly comparable regardless of prevailing gold levels. The yellow lines show 2001 to 2012 and 2016 to 2017. Last year’s summer gold-stock action is rendered in light blue for comparison.

All these lines averaged together form the red one, revealing the center-mass drift trend of gold stocks in market summers. Gold stocks’ current 2019 summer action is superimposed over all that in dark blue. As you can see, this sector is off to one of its best summer starts in all modern bull-market years! That could be sustainable like summer 2016’s powerful run, or gold stocks may end up consolidating until August.

Which way this summer plays out depends on gold. If gold keeps climbing on balance, so will the stocks of its miners regardless of seasonal tendencies. Weakening stock markets would spur gold investment demand continuing to push its price higher. A weaker U.S. dollar would also help, motivating gold-futures speculators to buy as well. Only time will tell whether the gold and gold-stock breakouts come sooner or later.

Whatever the timing, the gold miners’ fundamentals remain strong and bullish and support much-higher stock prices. After every quarterly earnings season, I dig deep into the GDX gold miners’ fundamentals. They finished reporting their latest Q1’19 results about a month ago, and I wrote a comprehensive essay analyzing them. There’s no doubt fundamentally that gold stocks should be trading way over GDX $25 levels.

That’s 23.7% and 48.0% higher from Q1’19 levels on mere 7.4% and 15.1% gold gains from that quarter’s average price! And as of the middle of this week, gold had already climbed 2.3% of that. The major gold miners’ fundamentals are already bullish, but improve greatly at higher prevailing gold prices. With earnings growth hard to come by in general stock markets this year, the gold stocks will be even more alluring.

All the stars are aligning for big gold-stock gains in coming months, with their technicals, sentiment, and fundamentals all looking very bullish. This mounting gold-stock upleg has great potential to grow much larger later this year, greatly rewarding contrarian traders buying in early. More and more investors are becoming aware of this sector’s huge potential, including elite billionaires running major hedge funds.

This week one of them, Paul Tudor Jones, gave an interview in New York. He was asked what his best trade over the next year or two will be. He said, “The best trade is going to be gold. If I have to pick my favorite for the next 12 to 24 months it probably would be gold. I think gold goes beyond $1400, it goes to $1700 rather quickly. It has everything going for it in a world where rates are conceivably going to zero…”

This is not the summer to check out, but to do your homework and get deployed in great gold stocks. All portfolios need a 10% allocation in gold and its miners’ stocks! Many smaller mid-tier and junior miners have superior fundamentals and upside potential to the majors of GDX. And by the time the gold stocks get really exciting again in upside breakouts with gold, much of the easy gains will have already been won.

One of my core missions at Zeal is relentlessly studying the gold-stock world to uncover the stocks with superior fundamentals and upside potential. The trading books in both our popular weekly and monthly newsletters are currently full of these better gold and silver miners. Mostly added in recent months as gold stocks recovered from selloffs, their prices remain relatively low with big upside potential as gold rallies!

If you want to multiply your capital in the markets, you have to stay informed. Our newsletters are a great way, easy to read and affordable. They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks. As of Q1 we’ve recommended and realized 1089 newsletter stock trades since 2001, averaging annualized realized gains of +15.8%! That’s nearly double the long-term stock-market average. Subscribe today and take advantage of our 20%-off summer-doldrums sale!

The bottom line is this gold stock upleg is mounting. Despite weak early-summer seasonals, the gold miners’ stocks are rallying with gold and nearing a major breakout above GDX $25. Seeing the best gold-stock prices in several years will really motivate traders to return, fueling a virtuous circle of capital inflows and gains. Gold stock technicals, sentiment, and fundamentals all support much-higher prices ahead.

Gold’s own inexorably-nearing major bull-market breakout will really light a fire under gold stocks. The higher gold climbs, the more investors and speculators will want to own it and its miners. While summer may force a consolidation, softening stock markets could easily overcome gold’s weak seasonals. The potential gold-stock gains as gold returns to favor are massive, so it’s important to get deployed early.

Adam Hamilton, CPA

June 17, 2019

The more times a level is tested, the weaker it becomes and the more likely it is to break.

Once again, Gold has rallied up to the wall of resistance in the $1350 to $1375 region. Gold has previously tested that wall a handful of times but failed to break through.

This time, Gold is in position to punch through and I will explain why.

First, we can allude to what we already wrote. The more times a level is tested, the more likely it is to break. By virtue of testing resistance again, Gold is already in a better position.

Second, the fundamentals are moving into place.

Specifically, market-based indicators of real interest rates (the fundamental driver for Gold) are falling in anticipation of Fed easing, which is nearly a given at this point.

Over the past year, we’ve noted that in 11 of the 13 rate-cut cycles since 1955, gold stocks have averaged a 172% gain from the bottom (usually a few months before) around the first rate cut.

In short, the start of a rate cut cycle is usually very bullish for precious metals. This was not in place in 2017 or 2018 but should be for the second half of 2019.

Third, Gold is in position to break resistance while the US Dollar technically remains in an uptrend but in a weak state. At present, the dollar is not oversold nor does it appear likely to blast higher.

In the summer of 2016, the dollar had already put in a higher low while in late 2017 and early 2018, the dollar broke to new lows but Gold failed to break through.

If the greenback were to weaken and lose its 40-week moving average (which it has held for over a year), it should push Gold past $1400/oz and potentially to $1500/oz.

If the Fed follows through and we get multiple rate hikes before 2020, Gold should break the wall of the resistance. Couple that with a breakdown in the dollar and Gold could reach $1500/oz or even higher.

We anticipate the gold stocks, junior gold stocks and Silver could explode higher once Gold breaks that wall of resistance. To learn which stocks we own and intend to buy that have 3x to 5x potential, consider learning more about our premium service.

Jordan Roy-Byrne, CMT, MFTA

June 14,2019

Rockridge Resources (TSX-V: ROCK) / (Frankfurt: RR0) is an exploration company focused on acquiring, exploring & developing mineral resource properties in Canada. Its focus is copper & base metals; more specifically — base, green energy & battery metals — of which copper is all three. Not just in any place, only top-tier mining jurisdictions such as Saskatchewan. And, only in mining districts that have had significant past exploration, development or production. And, only projects in close proximity to key infrastructure. Rockridge’s management team, Advisors & Board expertly and methodically eliminate many of the risk factors, early on, that can kill projects. This is a tremendous team for a company with a market cap of just C$5.6M / US$4.2M.

New CEO Bolsters Already Strong Team

Late last month, Rockridge appointed Grant Ewing, P.Geo to be its new CEO. Jordan Trimble remains as President & a Director. Grant has more than 25 years’ experience in the Metals & Mining space. His expertise covers the mine development cycle, from early stage exploration through to production. I spoke with Grant last week and was impressed with his very extensive knowledge of base metals and his understanding of the district that hosts the Company’s Knife Lake project. Grant seems to be an ideal person to help advance the Project and make new discoveries. Please see more about CEO Grant Ewing, P.Geo here.

The Company’s flagship project, Knife Lake, is in Saskatchewan, Canada, (ranked 3rd best mining jurisdiction in the world) in the Fraser Institute Mining Company Survey. The Project hosts a near-surface, (high-grade copper) VMS copper-zinc-silver-gold-cobalt deposit, open along strike and at depth. Management believes that there’s strong discovery potential in and around the deposit area, and at additional targets on roughly 85,200 hectares of contiguous claims. As a reminder, Rockridge has an option agreement with Eagle Plains Resources to acquire a 100% Interest in the majority of the Knife Lake VMS deposit.

Flagship Project, Knife Lake, 12 Drill Hole Results Now in….

The Project is within the famous Flin Flon-Snow Lake mining district that contains a prolific VMS base metals belt. Management believes there’s tremendous exploration upside. The goal? High-grade discoveries in a mineralized belt that could host multiple deposits, as VMS–style zones often contain clusters of mineralized zones. Of course, the trick is finding them.

However, no modern exploration, drilling method or technology has been deployed at Knife Lake. It was discovered 50 years ago and last explored in the late 1990s. Airborne geophysics, regional mapping & geochemistry was done, but technologies have improved. Management believes that modern geophysics; high resolution, deep penetrating EM & drone mag surveys to cover large areas in detail, could make a big difference.

Earlier this year, Rockridge drilled 12 holes for a total of 1,053 meters. Importantly, this represents the first significant work on the property since 2001. Readers may recall from reading past articles & interviews on Epstein Research & Equity.Guru & Aheadoftheherd, and viewing videos of then CEO Trimble, that the Company’s primary goal is to explore districts that have been under-explored, never explored, or not recently explored. Management’s highly skilled & experienced technical team & advisors deploy the latest exploration technologies & methods. A lot has changed in 18 years; a simple example would be the use of lower-cost, high resolution drones to fly various surveys.

These 12 assays, added to the historical database, will generate a new NI 43-101 mineral resource estimate in late July or early August. This will be a major milestone that will hopefully draw the attention of prospective strategic partners. Subsequent to that de-risking event, Rockridge is funded for a Summer exploration program, that will likely stretch into Fall. The goal is to identify & refine targets at depth and regionally. Modern vectoring techniques will be deployed, using metal ratios & structural interpretation to identify “primary” VMS deposits.

Other modern methods include high-resolution geophysics, deep penetrating EM to identify conductors, and drone mag surveys to cover large areas in detail. Finally, ground work & sampling will be conducted, analyzing rock geochemistry to identify prospective VMS style hydrothermal systems. Importantly, very limited previous drilling was done below 100m, but of the deeper holes, several intersected mineralization at around 300m. Could they be mineralized lenses?

Last month Rockridge reported additional results from its Winter diamond drill program. The first 5 holes are shown in the chart above. Readers may recall that a key takeaway was that holes KF19001 & KF19002 largely confirmed historical grades, intercept widths & geological conditions. Hole KF19003, reported on May 7th, was a blockbuster, 37.6m of 2.42% Cu Eq., significantly better than the first 2 holes. KF19003 had a grade (Cu Eq.) x thickness (in meters) value of 91, compared to 41 & 49. Importantly, it confirmed high-grade mineralization up-dip of KF19002 in an area where no historical drilling is known to have been done. Therefore, this assay, and perhaps nearby assays to follow, could potentially increase the size & grade of the upcoming mineral resource estimate.

Best Intercept in Last 7 Holes: 15.2 m of 2.45% Cu Eq.

In a press release June 10th, holes KF19006 thru KF19012 did not contain any blockbusters, but 6 of 7 were nicely mineralized with Cu Eq. values ranging from 0.46% to 2.45%. The interval widths averaged nearly 8 meters. The best intercept was 15.15 m at 2.45% Cu Eq. in hole KF19006. This intercept is a good one, like those found in holes KF19001 & KF19002, reported in the April 30th. press release. Importantly, KF19006 tested the up-dip extension of the Knife Lake deposit in an area that had not been previously tested. Likewise, hole KF19007 tested the down-dip extension of the deposit near KF19006. KF19007 intersected a solid 2.95 m of 0.82% Cu Eq. grade. The latest property map provided from today’s press release is too large to fit comfortably within this article, please click on link here.

Rockridge’s CEO, Grant Ewing commented:

“The Knife Lake property package is highly prospective for new discoveries using modern exploration techniques & methods given the lack of recent field work. The known deposit is thought to be a remobilized portion of a presumably larger primary VMS deposit, and there is excellent potential for deposit expansion at depth which we plan to test in future programs. Furthermore, there are several high quality targets to test on the expansive landholding, and there have yet to be satellite deposits discovered in the vicinity as VMS systems often host clusters or stacked deposits.”

Something I found interesting was the 2 portions of the 15.2 m intercept in KF19006 that assayed 7.25 m of 0.72 g/t Gold, (from 8.75 to 16.0 m), and 5.0 m of 0.93 g/t Gold, (from 11.0 to 16.0 m), both within 16.0 m of surface. Those 2 grades (true widths undetermined) are the highest Gold values reported to date. The 0.93 g/t showing is nearly 50% higher, and 1.0 m longer, (5.0 vs. 4.0 m) than the next highest grade Gold showing, in blockbuster hole KF19003. While intriguing, these values in isolation may not amount to much. Still, they’re worth keeping an eye on.

Rockridge’s President & Director, Jordan Trimble commented:

“The results from this first-pass drill program have exceeded our expectations with almost all drill holes having intersected high-grade copper mineralization, and in doing so, we have successfully confirmed the tenor of mineralization reported by previous operators, while expanding known zones of mineralization. We are working towards issuing an NI 43-101 compliant resource estimate as well as planning a regional summer field program, both of which will provide steady news flow and catalysts over the near term. We will continue to execute on our value creation strategy of going into overlooked but prospective projects in prolific mining jurisdictions and using modern exploration methodologies to test new ideas and make new discoveries.”

The deposit remains open at depth. Additional discoveries are very possible as the property is nearly 85,200 hectares in size and vastly under-explored. The Winter drill program gives the Company’s technical team valuable information about geology, alteration & mineralization that will be applied to regional exploration targets. The Company is now working towards completing an NI 43-101 compliant resource estimate for Knife Lake with the results from this drill program. A summer exploration program is also being planned, details to follow.

Conclusion

As mentioned, Rockridge Resources (TSX-V: ROCK) / (Frankfurt: RR0) has a tremendous team — Management, Board & Advisors — for a company with a market cap of C$5.6M = US$4.2M. Readers should take just 5-10 minutes to review the Company’s new June Corporate Presentation. And, the latest press releases can be found here. The flagship Knife Lake project is large enough, at ~85,200 hectares, to keep the Company busy for years to come. Even if management were to farm out (get free-carried) a portion of the Property, there would still be tens of thousands of hectares remaining to explore in a top mining district in Canada.

Copper prices are down into the US$2.60’s/lb. from close to US$3/lb., but near-term fluctuations in the price are meaningless for anyone who believes that copper is needed for, 1) clean-green energy storage, 2) the global electrification of passenger & commercial vehicles, and 3) the surge of infrastructure building needed to accommodate a growing global middle-class population migrating to ever-larger cities. Not to mention the re-building of old and destroyed infrastructure like buildings, roads & bridges. Everything uses copper, everything will continue to use copper. The price of copper has to rise, or there won’t be enough copper, it’s that simple. Several experts believe that the copper price is headed to US$4-$5/lb. by 2020 or 2021. If so, a company like Rockridge Resources has a lot of leverage to that outcome.

Peter Epstein
Epstein Research (ER)

June 13, 2019

Disclosures: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER] about Rockridge Resources, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Rockridge Resources are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this article was posted, Peter Epstein owned stock in Rockridge Resources and the Company was an advertiser on [ER].

A lot of Americans getting a myriad of government entitlements thought that President Trump would recreate the 1950s for them.
If Trump had eliminated the PIT (personal income tax), capital gains tax, and corporate income tax, I’ve estimated that around $100 trillion in capital would have surged into America.
That would have created a super-sized version of what Switzerland achieved at its peak.
Sadly, Trump and his team didn’t do that, mainly because they are giving the citizens what they want; bigger government, more debt, and more storytelling.
To understand what is likely coming next for America, please click here now. Mike Wilson does a near-perfect job of outlining what I believe is in store for H2 of 2019.
Yesterday, Goldman Sachs’ chief economist was quite adamant that the consensus prediction of three rate cuts in the second half of this year would go awry, and the Fed will not cut at all.
The risks are clearly rising for U.S. stock market investors.
My biggest concern is that many Americans sold a lot of their gold stocks into the lows and are now aggressively buying the US stock market. The size of their buying is quite large.
Unfortunately, their buying appears to be based mostly on Trump’s frequent “Let’s make America great!” pump-up tweets, rather than prudent study of the business cycle.
The U.S. business cycle is very late stage now, and that’s when investors must reduce stock market exposure and increase exposure to gold!
Having said that, please click here now. Double-click to enlarge this TQQQ triple-leveraged Nasdaq ETF chart.
Almost 80% of mainstream stock market analysts predict the Fed will cut in July. If they are correct, the stock market will likely soar to new highs. If they are wrong, the market likely begins crashing at the start of August.
A lot of stocks in the Dow Jones Industrials index are already at new highs, and that’s usually a sign that the indexes will make new highs too, regardless of whether a crash follows soon after that. I think new highs for the indexes occurs ahead of the July Fed meeting. That meeting also likely marks the final bull market peak for the U.S. stock market.
At my https://guswinger.com swing trade service, we are long the stock market via TQQQ. My system is mechanical; I am always either long or short the Nasdaq via TQQQ/SQQQ. I’m also always long or short gold stocks via NUGT/DUST.
Even if the Fed doesn’t cut rates at the July 31 meeting, the market has about six weeks to keep rallying before getting disappointed by the Fed’s decision.
Also, I would not rule out a rate cut, because the Fed has tended to support the stock market whenever it gets into trouble. The Fed has also tended to support the U.S. government with lower rates when the government wants to borrow a lot of money.
What about gold? Well, I suggested that investors should brace themselves for a pullback from $1350. That’s clearly in play this week as the stock market rallies. Also, Indian dealers have reduced their buying after the big gold price surge.
Please click here now. Double-click to enlarge this daily gold chart. The most impressive event in the rally from the $1272 area is the creation of a new up channel!
A range trade for gold is likely now. I think it will be in the $1310-$1350 area, although a wider range of $1292-$1350 is also possible. I’m happily short gold stocks at my swing trade service via DUST/JDST after a big NUGT/JNUG win, but I do expect some gold stocks to keep rallying even as gold consolidates in the trading range.
On that note, please click here now. Double-click to enlarge this Kirkland Lake chart. My swing trade subscribers and I hold call options on this great company. The stock is trading above its February high while most gold stocks are not. This kind of outperformance is what I look for when considering a call options position.
As GDX tumbled yesterday, Kirkland rallied higher!
Speaking of GDX, please click here now. Double-click to enlarge. The entire pullback from February is starting to look like a giant flag pattern. The price target of the pattern is about $29.
Please click here now. Double-click to enlarge. That’s a second look at the GDX chart. Any consolidation that occurs now will build a H&S bull continuation pattern as well as more flag-like price action.
The July Fed meeting (which occurs as the gold love trade strong demand season begins) could create a stock market inferno and a gold stocks “Rally to the stars”. The bottom line: Investors who pare their stock market exposure as the US business cycle matures and increase their exposure to gold stocks are clearly acting with professionalism and prudence!

Special Offer For Website Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Golden Junior Giants!” report. I highlight key junior miners that are outperforming in this gold price consolidation zone, with key buy and sell tactics for each stock!

Thanks!!

Cheers

Stewart Thomson

Graceland Updates written daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.

Risks, Disclaimers, Legal

Are You Prepared?

Gold surged sharply over the past week or so, nearing a major bull-market breakout! Nearly everyone was surprised by this violent awakening, which erupted suddenly as gold languished around year-to-date lows. If this dramatic rally has staying power, gold has good odds of achieving decisive new bull-market highs. That would change everything psychologically, ushering gold and its miners’ stocks back into favor.

Gold has largely flown under traders’ radars this year, mostly drowning in apathy. Actually this unique asset had a strong start, climbing 4.6% year-to-date by mid-February to hit $1341. While merely a 10.1-month high, gold was close to a major bull-market breakout. For several years now, gold has faced stiff resistance around $1350. It has repelled gold multiple times, looking like an impregnable Maginot Line.

But gold’s promising ascent was short-circuited from there, unleashing a disheartening slump over the next 10 weeks or so. By early May, gold had retreated 5.2% to $1271. The primary culprit was resurgent euphoria in the US stock markets. Equity exuberance has long proven gold’s mortal nemesis. When stock markets are high and expected to continue climbing on balance, gold investment demand often withers.

The recent gold action can’t be understood without the context of the US stock markets as represented by their flagship S&P 500 index (SPX). Heading into last September, the SPX was marching to a series of new all-time record highs. Since gold tends to climb when stock markets sell off, there was little demand for this essential portfolio diversifier. Why buy gold when stocks seem to do nothing but rally indefinitely?

That who-cares sentiment helped fuel all-time-record short selling in gold futures, hammering gold down to $1174 in mid-August for a 19.3-month low. Stuck in the shadows of euphoric stock markets, gold largely drifted sideways from there averaging $1197 until early October. But on October 10th, hyper-complacent stock traders were finally confronted with a serious selloff as the SPX plunged 3.3% that day alone.

Earlier hawkish comments from the Fed chairman were to blame. With stock markets bleeding, traders remembered gold. The world’s leading and dominant gold exchange-traded fund is the GLD SPDR Gold Shares. According to the latest data from the venerable World Gold Council, GLD’s 784.3 metric tons of gold bullion held in trust for its shareholders at the end of Q1’19 represented 31.6% of global gold ETFs’ total.

In early October with the SPX just fractionally under its recent record peak, GLD’s holdings slumped to a deep 2.6-year secular low of 730.2t. But a few trading days later as the SPX’s sudden and sharp plunge started to kill complacency, GLD enjoyed a big 1.2% holdings build. When stock traders buy GLD shares at a faster pace than gold itself is being bought, GLD’s managers equalize that excess demand by buying gold.

That SPX selloff snowballed into a severe near-bear correction, down 19.8% by Christmas Eve. With the stock markets burning, investors remembered the timeless wisdom of prudently diversifying their stock-heavy portfolios with counter-moving gold. It had rallied 8.1% in 4.3 months by the time a super-oversold SPX was ready to bounce. That gold upleg kept growing, ultimately extending to 14.2% gains by mid-February.

But as gold neared that major $1350 bull-market breakout then, stock euphoria came roaring back with a vengeance. The SPX had rocketed 18.2% higher out of its correction low by then, fueled by a radical shift back to dovishness by the Fed! It completely capitulated and caved to the stock markets, declaring that its quantitative-tightening monetary policy was open for adjustment in contrast to earlier statements on QT.

By that point the SPX had regained nearly 3/4ths of its total correction losses, so exuberant-again traders started to forget gold. Gold investment demand peaked in late January the day before the Fed gave in on QT, capping a 12.8% GLD-holdings build over 3.8 months. The higher the SPX rallied in recent months, the greater stock euphoria grew and the more gold was forgotten. Yet again stock euphoria stunted gold.

The SPX peaked at the end of April at another new all-time-record high. That extended its total monster-bounce rebound rally since late December to a colossal 25.3% in 4.2 months! A couple days later in early May with the SPX still near records, gold fell to that $1271 YTD low. Euphoric stock investors’ exodus from gold persisted another week, when GLD’s holdings slumped to 733.2t. That was down 11.0% in 3.3 months.

Gold failed to break out above its years-old $1350 resistance zone in mid-February because skyrocketing stock markets forced it back out of favor. Between late January and mid-May, fully 97% of GLD’s holdings build fueled by the SPX’s severe near-bear correction largely in Q4 had been erased! Just like late last summer, gold was again hostage to lofty euphoric stock markets. Investors wanted nothing to do with it.

But the SPX started rolling over again in May, slowly at first. It was shoved after Trump got fed up with China backtracking on nearly a year’s worth of trade negotiations with the US. On May 5th he warned that tariffs on $200b of annual Chinese imports would blast from 10% to 25% going effective the following Friday. That gradually drove the SPX lower into mid-May, including serious 1.7% and 2.4% down days.

So once again just like in October the last time the SPX rolled over hard, gold caught a bid. It rallied back up to $1299 in mid-May as investors again remembered stock markets can also fall. GLD’s holdings began modestly recovering as stock-market capital started slowly migrating back into gold. But that nascent trend reversed again in mid-May as stock markets bounced sharply higher, unleashing surging euphoria.

The primary driver of gold in recent years has been stock-market fortunes. Gold often falls out of favor when stock markets are high and rallying, then starts returning to favor when they sell off again. In a very real sense gold is the anti-stock trade. While it doesn’t only climb when stock markets weaken, that’s what mainstream investors remember gold for. Its investment demand is rarely strong near stock-market highs.

So gold again slumped back near $1273 by late May as the SPX rebounded, further demoralizing the few remaining contrarians. This metal felt pretty hopeless heading into its summer doldrums, its weakest time of the year seasonally. Then a Trump bombshell shocked stock traders out of their complacency. He warned the US was levying escalating tariffs on all Mexican imports to force Mexico to fight illegal immigration!

Last Friday May 31 was the first trading day after that surprise, and the SPX fell 1.3% to its lowest close since its all-time-record peak a month earlier. That extended its total recent selloff to 6.6%, so worries mounted. Gold had closed at $1288 in the prior day’s US trading session. Overnight after Trump’s tweet on Mexico tariffs gold rallied to $1297. That upside continued in the U.S., with gold closing 1.3% higher at $1305.

$1300 is a critical psychological line, heavily coloring sentiment especially among hyper-leveraged gold-futures speculators. They tend to buy aggressively when gold regains $1300 from below, and sell hard when gold breaks under $1300 from above. But while gold-futures trading heavily influences short-term gold price action, only sustained investment buying can ultimately grow gold uplegs to major status.

GLD’s holdings are the best daily proxy available of gold investment demand. And last Friday when gold surged, GLD merely saw a small 0.3% holdings build. American stock investors weren’t buying gold, it was the gold-futures speculators. These traders control far-less capital than investors, so their available buying firepower to push gold higher is limited. Gold uplegs never reach potential without investment demand.

The Asian markets were closed last Friday as gold rallied back over $1300 in the States. So when they opened again this past Monday June 3, Asian traders piled on to the gold buying. By the time the U.S. stock markets neared opening that day, gold was already up to $1317 in overnight trading. Once again that global momentum carried into the U.S. session, helping gold surge another 1.5% higher to $1325!

While great to see, that was still just a 3.2-month high. Without investment demand, gold’s new surge was unlikely to last very long on gold-futures buying alone. But something big changed that day in the U.S. markets. American stock traders, which had mostly shunned gold since late January, took notice. They started shifting capital back into gold via GLD shares in a major way, driving a huge 2.2% build in its holdings!

That was the biggest single-day percentage jump in this leading gold ETF’s holdings in 2.9 years, since early July 2016. That happened to be soon after the UK’s surprise pro-Brexit vote, when gold soared on the resulting uncertainty. While one day doesn’t make a trend, such a massive shift in gold investment buying is definitely attention-grabbing. If investors continue returning on balance, gold is heading way higher.

As this chart shows, gold is now within easy striking distance of a major bull-market breakout! It is not only nearing that vexing $1350 resistance zone, but has a high base from which to launch an assault. If gold-investment demand persists, gold doesn’t have far to run to hit new bull-to-date highs. Of course further stock-market weakness on balance would greatly help, but it’s not necessary with new-high psychology.

Blinded by apathy, not many traders realize gold still remains in a secular bull market. It was born from deep 6.1-year secular lows in mid-December 2015, the day after the Fed’s first rate hike in its latest tightening cycle. Over the next 6.7 months gold soared 29.9% higher in a massive upleg, entering new-bull-market territory at 20%+ gains. That left gold very overbought, so it crested at $1365 in early July 2016.

After strong bull-market uplegs big corrections are totally normal to rebalance sentiment, bleeding off the excessive greed at preceding highs. Gold consolidated high just under $1350 after that initial upleg, then fell to its 200-day moving average. It had resumed rallying in October 2016, but reversed sharply after Trump’s surprise election victory in early November. That pivotal event indirectly forced gold into a nosedive.

Gold plummeting in that election’s wake was the result of incredible euphoria, or Trumphoria at that time. Trump not only won the presidency, but Republicans controlled both chambers of Congress. So stock markets soared on hopes for big tax cuts soon. The SPX surged dramatically higher on truly-epic levels of euphoria, which in turn battered gold. Most investors shun gold when stock markets look awesome.

That greatly exacerbated gold’s normal correction to a monster 17.3% over 5.3 months! While very ugly and miserable, that remained shy of the 20%+ selloff necessary to qualify as a new bear market. Thus gold’s bull remained alive and well, albeit wounded by such a serious loss. Still gold recovered to power 20.4% higher over the next 13.3 months into early 2018, despite the SPX continuing to soar dramatically.

In late January 2018 gold peaked at $1358 just a couple days before the SPX’s own extremely-euphoric all-time-record high. While stock euphoria stunts gold investment demand, gold can still rally in lofty stock markets if it has sufficient capital-inflow momentum. But unfortunately buying was exhausted, then gold again consolidated high just under $1350 like it had done a couple summers earlier. It couldn’t break out.

A few months later gold was beaten down into another 13.6% correction over 6.7 months. It started on a sharp rally in the US dollar, which motivated gold-futures speculators to sell aggressively. Then the gold downside persisted on investors exiting as the SPX marched back up towards record highs after a sharp-yet-shallow-and-short 10.2% correction in early February 2018. Gold apathy and despair flared again.

But gold bottomed late last summer as extreme record gold-futures shorting exhausted itself, and started recovering higher again. That young upleg really accelerated when the SPX rolled over into that severe near-bear correction largely in Q4’18. That extended gold’s latest gains to 14.2% over 6.1 months as of that latest major interim high of $1341 in mid-February. Check out this gold bull’s resulting entire chart pattern.

After a strong start hitting $1365 several summers ago, gold couldn’t punch through to new bull highs. It tried several times, but stock-market euphoria and heavy gold-futures selling on U.S.-dollar strength kept batting it back down. Although gold couldn’t make new-high progress, it did carve a nice secular series of higher lows. While higher lows aren’t as exciting and attention-grabbing as higher highs, they are very bullish.

Flat highs combined with rising lows have created a gigantic ascending-triangle technical formation in gold over the past several years. That’s very clear above, gold coiling ever-tighter between climbing lower support and horizontal upper resistance. Ascending triangles are bullish chart patterns that are usually resolved with strong upside breakouts. Gold has spent recent years being accumulated behind the scenes.

No new bull-market highs along with gold being overshadowed by the stock markets surging to their own all-time-record highs in recent years has left this gold bull in stealth mode. Few investors realize it is still underway, and nearing a major bull-market breakout. But once that process become apparent, gold will quickly return to radars and become big financial news. Then gold enthusiasm will rapidly mushroom.

Any close over that vexing multi-year $1350 upper-resistance line will catch attention. But gold will have to break out decisively above there, exceeding $1350 by 1%+, to really attract the limelight. That would be $1364 gold. This Wednesday at the data cutoff for this essay, gold closed at $1331. That only left another 2.4% to climb to hit that decisive-breakout level. That’s trivial when investment capital is returning.

This gold bull’s first two uplegs averaged 25.2% gains. Today’s third upleg only ran 14.2% back in mid-February before the monster stock-market bounce’s extreme euphoria temporarily derailed it. All it would take for gold to extend to that key $1364 level is for this upleg to grow to 16.2%. That would still be modest, well behind the first two uplegs’ 29.9% and 20.4% gains. A decisive breakout is very close from here!

And once gold heads over its $1365 bull-to-date peak of July 2016, gold investment will start becoming popular again. Financial-media coverage will explode, and be overwhelmingly positive. Investors love chasing winners, and nothing motivates them to buy more than new bull-market highs. We’ve seen that in spades in the stock markets in recent years. Major buying from highs often becomes self-feeding.

The virtuous circle of inflows driven by new-high psychology can get very powerful. The more gold rallies, the more traders want to buy it to chase the momentum. The more they buy, the faster gold rallies. Gold hasn’t enjoyed positive capital-inflow dynamics like this since summer 2016. The potential gold upside from here as this unique investment returns to favor is big, supported by key tailwinds not enjoyed in years.

Starting from mid-August’s deep gold low, 20% and 30% total uplegs would catapult this metal way up to $1408 and $1526! Major new bull-market highs in gold would happen with a backdrop of dangerously-overvalued stock markets rolling over, greatly increasing the investment appeal of gold. And since the SPX is unlikely to keep surging to more record highs, stock euphoria shouldn’t arise to retard gold’s ascent.

The amount of gold buying investors need to do is staggering, as they are radically underinvested. Every investor needs a 10% portfolio allocation in gold and its miners’ stocks, period. Their current allocations to gold are virtually nonexistent per the leading proxy. For Americans it is the ratio between the total value of GLD’s gold-bullion holdings and all 500 SPX stocks’ collective market capitalizations. This is super-low.

At the end of April at the SPX’s latest peak, its stocks commanded a total $26,048.3b market cap. That is colossal beyond belief. Meanwhile GLD’s 746.7t of gold that day were only worth $30.8b at $1283. That implies American stock investors had a gold portfolio allocation around 0.12%, effectively nothing! Merely to boost that to even 0.5%, their gold holdings would have to quadruple. There’s vast potential for gold buying.

Another thing going in gold’s favor is the high U.S.-dollar levels. Its leading benchmark the U.S. Dollar Index hit 23.3-month highs in late April, then revisited those levels in late May. Gold-futures speculators tend to sell gold on a strengthening dollar and buy gold on a weakening dollar. The dollar is likely to drift lower in future months too, adding to gold’s momentum. The high dollar irks the Trump Administration, hurting U.S. exports.

So gold is nearing a major bull-market breakout that will change everything, wildly improving investors’ gold outlook and thus investment demand! The main beneficiary of higher gold prices will be the stocks of its miners. This chart shows the same gold-bull timeframe in the leading GDX VanEck Vectors Gold Miners ETF. I analyzed the latest Q1’19 fundamental results from its miners in depth just several weeks ago.

This article is focused on gold so I’ll discuss gold stocks in a future one. For our purposes today, note how GDX is positioning for a major breakout of its own above years-old $25 upper resistance. So far GDX’s current upleg is only 33.0% higher at best, small for this volatile high-potential sector. When gold powered 29.9% higher in essentially the first half of 2016, GDX amplified its gains with a monster 151.2% upleg!

So with gold on the verge of a major bull-market breakout, the beaten-down gold stocks are the place to be to greatly leverage gold’s upside. Since the gold-stock ETFs are burdened with underperformers at higher weightings, the best gains will be won in individual gold stocks with superior fundamentals. The kind of upside they can accrue during major gold uplegs is amazing, really multiplying wealth rapidly.

One of my core missions at Zeal is relentlessly studying the gold-stock world to uncover the stocks with superior fundamentals and upside potential. The trading books in both our popular weekly and monthly newsletters are currently full of these better gold and silver miners. Mostly added in recent months as gold stocks recovered from deep lows, their prices remain relatively low with big upside potential as gold rallies!

The bottom line is gold just surged near a major bull-market breakout. The $1350 resistance zone that has vexed gold for years is once again within easy range. All it will take to drive gold to new bull highs over $1365 is sustained investment buying. And that’s not a tall order with the stock markets starting to roll over again after record highs. GLD just enjoyed its biggest daily build in several years this past Monday.

Once gold gets to new bull-market highs, psychology will shift rapidly in its favor. Gold financial-media coverage will soar, and will be overwhelmingly positive. This will motivate investors and speculators alike to shift capital back into gold to chase its upside momentum. The potential gold and gold-stock gains with sentiment turning favorable are massive. It’s best to get deployed before gold’s breakout unleashes this.

Adam Hamilton, CPA

June 10, 2019

In recent days the market has moved from expecting a rate cut by January 2020 to now expecting as much as three rate cuts by then. As a result both Gold and gold stocks launched higher, forming a “three white soldiers” bullish reversal pattern.

Last week and in previous writings, we noted the importance of the actual rate cut for Gold and gold stocks. Their performance in both nominal and relative terms usually takes hold after the actual cut.

Now, the question is, is this a rally or a bull market? (There is a difference even though financial media talks about multi-year bull moves as “rallies.”)

The start of a new rate cut cycle hasn’t always produced a bull market in precious metals. For example, after the rate cuts in 1989 and 1995 Gold rallied by only 12% and 18%. Fortunately for us bulls, the current context is totally different but I digress.

The stock market will answer the question.

There has never been a real bull market in precious metals without Gold outperforming the stock market (excluding the 1985-1987 period during a 50% decline in the US Dollar).

The chart below plots Gold (red) and Gold against the stock market (blue).

As you can see, during the 1970s and 2000s, the Gold/S&P 500 ratio rose alongside Gold. That wasn’t the case in the mid 1980s, the mid 1990s and the past few years.

If the Fed rate cuts and other measures are able to successfully revive the U.S. economy and stock market then Gold isn’t going to receive enough capital inflows to sustain a bull market. On the other hand, if the U.S. economy slips into recession and the stock market experiences a real bear market then Gold should have enough fuel to retest its all time highs.

In the scenario in which the stock market and economy stabilize and recover, Gold can still perform well. Fed rate cuts and the like could push it past $1400/oz and potentially to $1500/oz.

How the Gold/S&P 500 ratio performs will inform us on the sustainability of that move. It will tell us if it’s just a rally or the start of a real bull market.

The gold stocks are nearly as historically cheap and hated as they’ve ever been. They could make quite a run on a clean breakout in Gold through the wall of resistance at $1375/oz, which we think is more likely than not. To learn what stocks we own and intend to buy that have 3x to 5x potential, consider learning more about our premium service.

Jordan Roy-Byrne CMT, MFTA

June 7, 2019

Standard Lithium Ltd. (TSX–V: SLL) / (OTCQX: STLHF) shares are caught up in a battery metals sell off, but is it warranted given recent positive developments, ongoing supply challenges in the Lithium Triangle & exciting near-term Company catalysts? Its Arkansas Project could reach commercial production by 2022, and ramp up to ~20K tonnes/yr. of Lithium Carbonate, bolting onto brine streams from 3 existing facilities, to feed a central crystallizer plant by the mid-2020s. [a crystallizer is standard equipment made by multiple manufactures, used in many commercial applications, to convert a solution into a solid material] In this case, the solid material would be a high-purity, finished lithium product.

After successful bench & mini-pilot scale testing, Standard Lithium is at Demonstration Plant stage. The Demo Plant being constructed by Zeton Inc. is a 20 m x 20 m x 11 m tall, industrial-scale modular facility designed to process tail brine from the Lanxess South Plant in southern Arkansas. Lanxess is a leading European specialty chemicals company with > 15,000 employees in 33 countries. It develops, manufactures & markets a wide range of specialty chemicals & plastics. Last year, sales were nearly C$11 billion.

The Demonstration Plant is based on Standard Lithium’s proprietary technology that uses a solid sorbent material to selectively extract lithium. The Plant is designed to continuously process a flow of tail brine at 50 gallons per minute from the Lanxess South Plant, equivalent to annual production of 100-150 tonnes Lithium Carbonate. The Demo Plant is designed to be expanded to commercial scale early next decade.

Dr. Andy Robinson, Standard Lithium President & COO, commented in a June 3^rd press release,

“The Standard Lithium team is very pleased with both the speed of execution and the exceptional quality and attention to detail that Zeton are bringing to our Demonstration Plant. We are very confident that we will be delivering a high-quality plant to the project site in southern Arkansas, and we look forward to integrating it into Lanxess’ brine operations. We are progressing very quickly on the ground, and hope to announce real progress in project implementation in the near-future.”

With all the doom & gloom around lithium pricing, even at current pricing of ~US$11.5K per tonne, 20K tonnes of Lithium Carbonate/yr. = US$230M = ~C$311M revenue at the Project level. There are possible scenarios to produce up to 30K tonnes/yr., for 25+ years by the 2H of the 2020s. Subject to a formal JV between Standard & Lanxess — in exchange for 100% funding of commercialization costs (hundreds of millions of CAD$ over several years) — by Lanxess; Standard Lithium will end up with 30%-40% of the Project. That’s a win-win for both companies in my opinion.

I believe that lithium carbonate pricing will improve early next decade, perhaps meaningfully, as forecasts for the global electrification of commercial & passenger transportation and the deployment of large-scale Energy Storage Systems, continue to rise.

On the other hand, long-term lithium supply is highly uncertain. Brine projects in Argentina & Chile are coming, but they’re delayed due to funding & other challenges. Claimed project capacities of 20-40K tonnes of Lithium Carbonate/yr. may never be attained, look at Argentina’s Orocobre Ltd., after 4 years, it’s running at ~72% of nameplate capacity.

Of roughly 12 potentially viable brine projects in Chile & Argentina, I assume 4 won’t make it and the other 8 are delayed by an average of 2 years. I then pencil in a 4-yr ramp up period to 75% of stated project capacity. Under those assumptions, if 450K tonnes/yr. was expected from the Lithium Triangle in 2025 — what we might see, instead, is 225K tonnes/yr. in 2028! This means security of supply (from the U.S., Canada & Australia) will be of critical importance. Speed to market will be rewarded handsomely with long-term contracts at strong prices.

In the chart below we see a review done by Orocobre of 2018’s expectations vs. reality, a combined 78% shortfall in hydroxide & carbonate expansions. 285.5K tonnes of new supply expected, 64K tonnes delivered. We see this year after year after year…. when will the market catch on? This can only be good news for lithium pricing going forward.

Any lithium company, be it brine, hard rock, clay or “unconventional;” that can reach production by early next decade, will be in the driver’s seat. I believe that Standard Lithium, with JV partner Lanxess could be in commercial operation by 2022. The Lanxess project has been de-risked in a number of important ways. I hope that readers & investors in lithium companies are starting to understand that risks avoided can add considerable value to a project. However, one risk still at large is technology & scale-up risk. With that in mind, I spoke at length with Standard Lithium’s President & COO, quoted above, Dr. Andy Robinson. Robinson has 20+ years’ experience as a Geoscientist and has a PhD in Geochemistry. No one is better suited to be in the position he’s in.

Please tell us about your background and what brought you to Standard Lithium.

I’m a PhD Geochemist who worked in the engineering consulting world for 10 years, and then as an entrepreneurial project developer in the mining & power space for the last decade. Robert (CEO Robert Mintak) and I worked together at Pure Energy. When we took over management of Standard Lithium in the spring of 2017, we had a very clear vision of what we wanted to build. We took our experience in the lithium business, both in terms of modern technology and project development goals, and looked for the ideal project. The ideal project had to have:

The right location for a modern approach,

Existing infrastructure at the project site – not 100’s of km away…

The right partner,

Minimal permitting & environmental risks, and

A globally significant resource

This was the only way we could realistically hope to get a project into commercial production within 5 years versus the usual 10 or more years.

How did your team choose a process technology to move forward with?

We took an agnostic approach to processing technology. The project drives the process. We started by understanding project fundamentals, then we developed a flow sheet that would work for our specific project in Southern Arkansas. Our process development work was guided by the philosophy that we didn’t just want it to work in a lab – we wanted a robust flow sheet that could work economically at commercial-scale.

Please describe the steps your team went through at the bench and mini–pilot plant stages.

At the bench-scale, we worked with large volumes of real brine from the project – we then tested a whole range of different technologies, ranging from those already in commercial use, through to novel and experimental technologies, to determine which general ‘suite’ of technologies would work best with our brine’s characteristics. We quickly determined that a modern alternative to the types of technologies developed in the 1970’s & commercialized in the 1990’s would be the ideal solution.

So, we spent the time at bench-scale solving chemistry problems of selectively extracting lithium from the brine – then we ran 2 programs of mini-pilot work to build our understanding of the process engineering. One was done at a batch-scale, then we scaled that up and ran it on a continuous basis. Now, in June 2019, we’ve just completed 2 years of test work on our southern Arkansas brines.

What were the key takeaways from each stage?

At the bench-scale – we learned that direct lithium extraction from the tail brine using a highly selective solid sorbent was the way to go. At the mini-pilot-scale – using both chemical & process engineers from a wide range of disciplines — allowed us to develop the simplest, most efficient flow sheet we could, at a reasonable cost. We’re using equipment and processes already in use around the world, at very large commercial-scale, in complementary existing industries.

Please describe Standard Lithium’s upcoming Demonstration Plant, what do you hope to achieve?

The upcoming Demonstration Plant will be final proof-of-concept for our Project – it’s a large Plant, that can be scaled directly to a commercial facility. It’s designed to process up to 50 gallons per minute of tail brine from Lanxess’ South Plant, and produce at a rate of 100-150 tonnes of lithium carbonate per year, so about 10 to 12 tonnes per month. We hope to scale our Demo Plant up to 9,000-10,000 tonnes/yr. during the first phase of commercial execution.

If all goes as planned, Standard Lithium could be in commercial operations in 2022? 2023? Do you have a goal?

We’re aiming for a commercial decision in the first half next year, and our goal is to be in commercial operations by 2022. I should add that 2022 is aggressive, but achievable – as opposed to the aspirational targets suggested by other brine projects. Some of those projects are years away from a Bankable Feasibility Study, and then will require several more years to design, permit, win over local communities, obtain funding, construct solar evaporation ponds, regional infrastructure like roads, and build a processing facility.

Many companies are suggesting 3-year ramp up periods to full capacity, but if history is any guide, it will probably be longer. So, Standard Lithium could reach initial commercial operations years before some, if not most, of the brine projects in the ‘Lithium Triangle.’ If true, we would hope to lock-in long-term contracts (through Lanxess) at very favorable pricing.

Might you be able to sell lithium output into specialty niche–markets that command premium pricing?

That’s a great question. If one looks at Lanxess’ business model, it centers around taking raw materials and converting them into a large variety of tertiary products that maximize the value obtained from their feedstock. They do these conversions using their global specialty chemicals expertise. Several niche lithium chemicals command high margins and typically are served by a small number of manufacturers. Lanxess is a leading global specialty chemical company, they know how to: a) build & operate a chemical plant, and b) extract maximum value from their chemical feedstock!

What would you like to say to readers who are still unsure about your operational flow sheet?

We think there’s still a general misunderstanding in the lithium industry about lithium processing technology. There’s a pervasive thought that evaporation ponds are conventional and therefore ‘safe,’ and that anything different is high-risk. In reality, each evaporation pond project is unique, each has initial, and ongoing, chemical & operational challenges; Orocobre is an example of taking the traditional approach and not delivering battery-quality, or nameplate capacity.

Interestingly, FMC (now Livent Corp.) has been successfully operating an ‘alternative’ lithium-selective sorbent technology (similar to ours) in Argentina since the 1990’s. Standard Lithium (TSX–V: SLL) / (OTCQX: STLHF) is not engaging in a high-risk processing technology – we’re simply making incremental improvements to what has already been done successfully for decades.

Once people see our onsite Demonstration Plant in continuous operation later this year, I think perceptions will change as to our technology being unconventional. We don’t have untested technology, we have customized technology, specifically designed with our project fundamentals in mind. The project drives the process. It took years of hard work and millions of dollars, but we think we’re about to cross the finish line regarding proof-of-concept. That should turn a lot of heads.

Peter Epstein

Epstein Research

June 6, 2019

Disclosures: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Standard Lithium, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Standard Lithium are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this article was posted, Peter Epstein owned shares of Standard Lithium and it was an advertiser on [ER].

The powerful sell signals I have in play for U.S. stock markets at my guswinger.com trading service show no signs of abating.
Please click here now. Double-click to enlarge this Nasdaq ETF chart.
U.S. President Trump unleashed a huge corporate tax cut early in his presidency, and that was very positive news for the stock market. Since early 2018 though, he clearly reversed course on taxes and has donned a ghoulish “Super Tariff Taxes Man” cape.
Trump now seems emotionally obsessed with tariff taxes, QE, rate cuts, and appears to have made no effort to reverse the massive growth in government size and debt.
U.S. population demographics are not good. An aging population is now trying to wall in an entitlements-oriented political system that depends on the dollar as reserve currency to keep it solvent.
Trump’s calls for more QE at the peak of the business cycle are something out of a “Twilight Zone” episode.
QE is supposed to be an emergency policy tool reserved for severe economic crisis, not for launch at the peak of the business cycle to empower ever-more government spending and debt!
Institutional investors are becoming very concerned (and rightly so) that Trump’s tariff taxes will push the U.S. economy into recession before the business cycle naturally does so.
For those of us who shorted the stock market as my QQQ-NYSE signals flashed though, Trump’s actions are “making us great”.
Please click here now. Double-click to enlarge this spectacular GDX daily chart.
In the summer of 2018 a lot of analysts predicted a stock market crash that would drag down gold stocks (like 2008). In contrast, I suggested a stock market crash was likely, but it would be accompanied by a surge in the price of GDX.
That’s what happened last fall, and it’s happening again now. GDX is surging higher as the US stock market nose dives!
Note my $25-$26 target zone for GDX on this daily chart.
Please click here now. Double-click to enlarge. My $25-$26 target zone is based partly on the weekly chart resistance in that price zone.
A Friday NYSE close above $23 for GDX, $36 for Newmont, $46 for Agnico Eagle, and $14 for Barrick are what I’m looking for to launch a major run higher for most gold stocks. That may or may not be accompanied by a move above $1370 for gold bullion and a fresh leg down for the tariffs-infested stock market.
Please click here now. Double-click to enlarge. That’s a look at my swing trade signals for GDX.
There are multiple gaps in play on the daily chart. That’s very rare in any market. In time, this GDX price action may be viewed as “legendary” in the face of the stock market rout….
If the rally continues and makes it to my target prices!
I issued a general gold stocks profit booking call for investors and traders yesterday, but not for JNUG, which I suggest investors hold for more glorious potential gains until I get a full signal for the sector.
Please click here now. On Sunday the Chinese government issued a white paper stating that Trump has backtracked in tariff tax negotiations. Now a travel warning has been also issued. This is going to generate additional concern for Chinese citizens who are invested in America. They pay close attention to official statements from their government.
SPDR (GLD-NYSE) tonnage surged to the 159 level yesterday. This is clear evidence that U.S. money managers are also going for the gold! Chinese investors are reporting buying additional gold because they believe Trump cannot be trusted in negotiations.
I predicted that Chinese investors would begin buying gold instead of investing in stock markets as the trust issue reared its ugly head, and now it’s happening. The bottom line: It really doesn’t matter whether Trump can be trusted or not.
What matters is what U.S. and Chinese investors believe, and they clearly believe that it’s time to go for the gold!
Please click here now. Double-click to enlarge what I believe is the most majestic-looking chart in the history of markets. All the price action taking place now is exactly what investors should expect to happen in the final right shoulder rally of a H&S bull continuation pattern. Gold’s fear trade in America and the love trade in China and India are in perfect sync, both technically and fundamentally. Investors need do only one thing now, and that is to bask in the golden glory of this historic moment in bull era time!

Special Offer For Website Readers: Please send me an Email to free reports4@gracelandupdates.com and I’ll send you my free “Golden Rockets To Pluto!” report. I highlight eight gold miners trading under $10/share that are poised for stage “multi-bagger” gains as gold breaks above $1370! I include key tactics to buy and sell each stock.

Stewart Thomson

Graceland Updates

Written between 4am-7am. 5-6 issues per week. Emailed at approx 9am daily.

https://gracelandjuniors.com

www.guswinger.com

Email:

stewart@gracelandupdates.com

stewart@gracelandjuniors.com

stewart@guswinger.com

Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.

Risks, Disclaimers, Legal

Are You Prepared?

The silver miners’ stocks have been pummeled in recent months, plunging near major secular lows in late May. Sentiment in this tiny sector is miserable, reflecting silver prices continuing to languish relative to gold. This has forced traditional silver miners to increasingly diversify into gold, which has far-superior economics. The major silver miners’ ongoing shift from silver is apparent in their recently-released Q1’19 results.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Required by the U.S. Securities and Exchange Commission, these 10-Qs and 10-Ks contain the best fundamental data available to traders. They dispel all the sentiment distortions inevitably surrounding prevailing stock-price levels, revealing corporations’ underlying hard fundamental realities.

The definitive list of major silver-mining stocks to analyze comes from the world’s most-popular silver-stock investment vehicle, the SIL Global X Silver Miners ETF. Launched way back in April 2010, it has maintained a big first-mover advantage. SIL’s net assets were running $294m in mid-May near the end of Q1’s earnings season, 5.6x greater than its next-biggest competitor’s. SIL is the leading silver-stock benchmark.

In mid-May SIL included 24 component stocks, which are weighted somewhat proportionally to their market capitalizations. This list includes the world’s largest silver miners, including the biggest primary ones. Every quarter I dive into the latest operating and financial results from SIL’s top 17 companies. That’s simply an arbitrary number that fits neatly into the table below, but still a commanding sample.

As of mid-May these major silver miners accounted for fully 94.4% of SIL’s total weighting. In Q1’19 they collectively mined 70.9m ounces of silver. The latest comprehensive data available for global silver supply and demand came from the Silver Institute in April 2019. That covered 2018, when world silver mine production totaled 855.7m ounces. That equates to a run rate around 213.9m ounces per quarter.

Assuming that mining pace persisted in Q1’19, SIL’s top 17 silver miners were responsible for about 33% of world production. That’s relatively high considering just 26% of 2018’s global silver output was produced at primary silver mines! 38% came from lead/zinc mines, 23% from copper, and 12% from gold. Nearly 3/4ths of all silver produced worldwide is just a byproduct. Primary silver mines and miners are fairly rare.

Scarce silver-heavy deposits are required to support primary silver mines, where over half their revenue comes from silver. They are increasingly difficult to discover and ever-more expensive to develop. And silver’s challenging economics of recent years argue against miners even pursuing it. So even traditional major silver miners have shifted their investment focus into actively diversifying into far-more-profitable gold.

Silver price levels are best measured relative to prevailing gold prices, which overwhelmingly drive silver price action. In late May the Silver/Gold Ratio continued collapsing to its worst levels witnessed in 26.1 years, since April 1993! These secular extremes of the worst silver price levels in over a quarter century are multiplying the endless misery racking this once-proud sector. This silver environment is utterly wretched.

The largest silver miners dominating SIL’s ranks are scattered around the world. 10 of the top 17 mainly trade in U.S. stock markets, 3 in the United Kingdom, and 1 each in South Korea, Mexico, Peru, and Canada. SIL’s geopolitical diversity is good for investors, but makes it difficult to analyze and compare the biggest silver miners’ results. Financial-reporting requirements vary considerably from country to country.

In the U.K. companies report in half-year increments instead of quarterly. Some silver miners still publish quarterly updates, but their data is limited. In cases where half-year data is all that was made available, I split it in half for a Q1 approximation. Canada has quarterly reporting, but the deadlines are looser than in the States. Some Canadian miners really drag their feet, publishing their quarterlies close to legal limits.

The big silver companies in South Korea, Mexico, and Peru present other problems. Their reporting is naturally done in their own languages, which I can’t decipher. Some release limited information in English, but even those translations can be difficult to interpret due to differing accounting standards and focuses. It’s definitely challenging bringing all the quarterly data together for the diverse SIL-top-17 silver miners.

But analyzing them in the aggregate is essential to understand how they are faring. So each quarter I wade through all available operational and financial reports and dump the data into a big spreadsheet for analysis. Some highlights make it into this table. Blank fields mean a company hadn’t reported that data by mid-May, as Q1’s earnings season wound down. Some of SIL’s components report in gold-centric terms.

The first couple columns of this table show each SIL component’s symbol and weighting within this ETF as of mid-May. While most of these stocks trade on US exchanges, some symbols are listings from companies’ primary foreign stock exchanges. That’s followed by each miner’s Q1’19 silver production in ounces, along with its absolute year-over-year change. Next comes this same quarter’s gold production.

Nearly all the major silver miners in SIL also produce significant-to-large amounts of gold! That’s truly a double-edged sword. While gold really stabilizes and boosts silver miners’ cash flows, it also retards their stocks’ sensitivity to silver itself. So the next column reveals how pure these elite silver miners are, approximating their percentages of Q1’19 revenues actually derived from silver. This is calculated one of two ways.

The large majority of these top SIL silver miners reported total Q1 revenues. Quarterly silver production multiplied by silver’s average price in Q1 can be divided by these sales to yield an accurate relative-purity gauge. When Q1 sales weren’t reported, I estimated them by adding silver sales to gold sales based on their production and average quarterly prices. But that’s less optimal, as it ignores any base-metals byproducts.

Next comes the major silver miners’ most-important fundamental data for investors, cash costs and all-in sustaining costs per ounce mined. The latter directly drives profitability which ultimately determines stock prices. These key costs are also followed by YoY changes. Last but not least the annual changes are shown in operating cash flows generated and hard GAAP earnings, with a couple exceptions necessary.

Percentage changes aren’t relevant or meaningful if data shifted from positive to negative or vice versa, or if derived from two negative numbers. So in those cases I included raw underlying data rather than weird or misleading percentage changes. Companies with symbols highlighted in light-blue have newly climbed into the elite ranks of SIL’s top 17 over this past year. This entire dataset together is quite valuable.

It offers a fantastic high-level read on how the major silver miners are faring fundamentally as an industry and individually. The crazy-low silver prices really weighed on operating cash flows and earnings in Q1, and the silver miners’ years-old shift into gold continued. These companies are having no problem just surviving this silver-sentiment wasteland, but they probably won’t be thriving again before silver recovers.

SIL’s poor performance certainly reflects the challenges of profitably mining silver with its price so darned cheap. Year-to-date in late May, SIL had already lost 12.2%. Silver itself was down 7.2% YTD at worst, starting to threaten mid-November 2018’s 2.8-year secular low of $13.99. And that just extended last year’s losing trend, where SIL plunged 23.3% amplifying silver’s own 8.6% loss by 2.7x. This sector looks ugly.

Silver’s weakest prices relative to gold in over a quarter century have continued to devastate silver-mining sentiment. Investors understandably want nothing to do with the forsaken silver miners, so their stock prices languish near major lows. Even their own managements seem really bearish, increasingly betting their companies’ futures on gold rather than silver. Silver’s Q1 price action further supports this decision.

During Q1’19 silver ground another 2.3% lower despite a 0.8% gold rally, bucking its primary driver. Q1’s average silver price of $15.54 fell 7.1% YoY from Q1’18’s average. That was way worse than gold’s mere 1.9% YoY average-price decline. The silver-mining industry is laboring under a pall of despair. Although production decisions aren’t made quarter by quarter, the chronically-weak silver prices are choking off output.

Production is the lifeblood of silver miners, and it continued to slide. The SIL top 17 that had reported their Q1 results by mid-May again mined 70.9m ounces of silver. That was down 3.1% YoY from Q1’18’s silver production, excluding Silvercorp Metals. SVM’s fiscal years end after Q1s, and it doesn’t report its longer more-comprehensive annual results until well after Q1’s normal quarterly earnings season wraps up.

It’s not just these major silver miners producing less of the white metal, the entire industry is according to the Silver Institute’s latest World Silver Survey. 2018 was the third year in a row of waning global silver mine production. This shrinkage is accelerating too as silver continues to languish, running 0.0% in 2016, 1.8% in 2017, and 2.4% in 2018! Peak silver may have been seen with this metal so unrewarding to mine.

The traditional major silver miners aren’t taking silver’s vexing fading lying down. They’ve spent recent years increasingly diversifying into gold, which has way-superior economics with silver prices so bombed out. The SIL top 17’s total gold production surged 10.9% YoY to 1387k ounces in Q1! This producing-less-silver-and-more-gold trend will continue to grow as long as silver prices waste away in the gutter.

Silver mining is as capital-intensive as gold mining, requiring similar large expenses to plan, permit, and construct new mines, mills, and expansions. It needs similar fleets of heavy excavators and haul trucks to dig and move the silver-bearing ore. Similar levels of employees are necessary to run silver mines. But silver generates much-lower cash flows than gold due its lower price. Silver miners have been forced to adapt.

This is readily evident in the top SIL miners’ production in Q1’19. SIL’s largest component in mid-May as this latest earnings season ended was the Russian-founded but UK-listed Polymetal. Its silver production fell 15.0% YoY in Q1, but its gold output surged 41.1%! Just 17.5% of its Q1 revenues came from silver, making it overwhelmingly a primary gold miner. Its newest mine ramping up is another sizable gold one.

SIL’s second-largest component is Wheaton Precious Metals. It used to be a pure silver-streaming play known as Silver Wheaton. Silver streamers make big upfront payments to miners to pre-purchase some of their future silver production at far-below-market unit prices. This is beneficial to miners because they use the large initial capital infusions to help finance mine builds, which banks often charge usurious rates for.

Back in May 2017 Wheaton changed its name and symbol to reflect its increasing diversification into gold streaming. In Q1’19 WPM’s silver output collapsed 24.4% YoY, but its gold surged 17.4% higher! That pushed its silver-purity percentage in sales terms to just 38.8%, way below the 50%+ threshold defining primary silver miners. WPM’s 5-year guidance issued in February forecasts this gold-heavy ratio persisting.

Major silver miners are becoming so scarce that SIL’s third-largest component is Korea Zinc. Actually a base-metals smelter, this company has nothing to do with silver mining. It ought to be kicked out of SIL post-haste, as its presence and big 1/9th weighting really retards this ETF’s performance. Korea Zinc smelted about 64.0m ounces of silver in 2018, which approximates roughly 17% of its full-year revenue.

Global X was really scraping the bottom of the barrel to include a company like Korea Zinc in SIL. I’m sure there’s not a single SIL investor who wants base-metals-smelting exposure in what is advertised as a “Silver Miners ETF”. The weighting and capital allocated to Korea Zinc can be reallocated and spread proportionally across the other SIL stocks. The ranks of major silver miners are becoming more rarefied.

SIL’s fourth-largest component in mid-May is Pan American Silver, which has a proud heritage mining its namesake metal. In Q1’19 its silver production was flat with a negligible 0.4% YoY increase, yet its gold output soared 74.2%! Thus PAAS’s silver purity slumped to 40.9%, the lowest by far seen in the years I’ve been doing this quarterly research. And it’s going to get much more gold-centric in coming quarters.

PAAS acquired troubled silver miner Tahoe Resources back in mid-November. Tahoe had owned what was once the world’s largest silver mine, Escobal in Guatemala. It had produced 5.7m ounces in Q1’17 before that country’s government unjustly shut it down after a frivolous lawsuit on a trivial bureaucratic misstep by the regulator. PAAS hopes to work through the red tape to win approval for Escobal to restart.

But the real prize in that fire-sale buyout was Tahoe’s gold production from other mines. That deal closed in late February, so that new gold wasn’t fully reflected in PAAS’s Q1 results. Now this former silver giant is forecasting midpoint production of 27.1m ounces of silver and 595.0k ounces of gold in 2019! That is way into mid-tier-gold territory and a far cry from 2018’s output of 24.8m and 178.9k. PAAS has turned yellow.

Pan American will probably soon follow in Wheaton’s footsteps and change its name and symbol to reflect its new gold-dominated future. As miserable as silver has been faring, I’m starting to wonder if the word “silver” in a miner’s name is becoming a liability with investors. The major primary silver miners are going extinct, forced to adapt by diversifying out of silver and into gold as the former languishes deeply out of favor.

In Q1’19 the SIL-top-17 miners averaged only 35.4% of their revenues derived from silver. That’s also the lowest seen since I started this thread of research with Q2’16 results. Only two of these miners remained primary silver ones, and their silver-purity percentages over 50% are highlighted in blue. They are First Majestic Silver and Fortuna Silver Mines, which together accounted for just 7.6% of SIL’s total weighting.

With SIL-top-17 silver production sliding 3.1% YoY in Q1’19, the per-ounce mining costs should’ve risen proportionally. Silver-mining costs are largely fixed quarter after quarter, with actual mining requiring the same levels of infrastructure, equipment, and employees. So the lower production, the fewer ounces to spread mining’s big fixed costs across. SIL’s major silver miners indeed reported higher costs last quarter.

There are two major ways to measure silver-mining costs, classic cash costs per ounce and the superior all-in sustaining costs. Both are useful metrics. Cash costs are the acid test of silver-miner survivability in lower-silver-price environments, revealing the worst-case silver levels necessary to keep the mines running. All-in sustaining costs show where silver needs to trade to maintain current mining tempos indefinitely.

Cash costs naturally encompass all cash expenses necessary to produce each ounce of silver, including all direct production costs, mine-level administration, smelting, refining, transport, regulatory, royalty, and tax expenses. In Q1’19 these SIL-top-17 silver miners reported cash costs averaging $7.39 per ounce. While that surged 23.6% YoY, it still remains far below prevailing prices. Silver miners face no existential threat.

The major silver miners’ average cash costs vary considerably quarter-to-quarter, partially depending on whether or not Silvercorp Metals happens to have edged into the top 17. This Canadian company mining in China has negative cash costs due to massive byproduct credits from lead and zinc. So over the past couple years, SIL-top-17 average cash costs have swung wildly ranging all the way from $3.95 to $6.75.

Way more important than cash costs are the far-superior all-in sustaining costs. They were introduced by the World Gold Council in June 2013 to give investors a much-better understanding of what it really costs to maintain silver mines as ongoing concerns. AISCs include all direct cash costs, but then add on everything else that is necessary to maintain and replenish operations at current silver-production levels.

These additional expenses include exploration for new silver to mine to replace depleting deposits, mine-development and construction expenses, remediation, and mine reclamation. They also include the corporate-level administration expenses necessary to oversee silver mines. All-in sustaining costs are the most-important silver-mining cost metric by far for investors, revealing silver miners’ true operating profitability.

The SIL-top-17 silver miners reporting AISCs in Q1’19 averaged $12.70 per ounce, 7.2% higher YoY. That remained considerably below last quarter’s average silver price of $15.54, as well as late May’s ugly silver low of $14.34. So the silver-mining industry as a whole is still profitable even with silver drifting near quarter-century-plus lows relative to gold. And those AISCs are skewed higher by SSR Mining’s outlying read.

Another traditional silver miner that changed its name, this company used to be known as Silver Standard Resources. SSRM has shifted into gold too, gradually winding down its old Pirquitas silver mine resulting in abnormally-high AISCs of $19.76 per ounce. Excluding these, the SIL-top-17 average in Q1 falls to $10.94 which is a much-more-comfortable profits cushion between production costs and low silver prices.

Interestingly SSRM has been ramping up a new mine close to its old Pirquitas mill, and is starting to run that ore through. That makes SSR Mining one of the rare silver miners that’s going to see growing output this year. It is forecasting a midpoint of 4.9m ounces of silver production in 2019, a 74% jump from last year’s levels! Higher production should lead to lower AISCs going forward, pulling the average back down.

As hopeless as silver has looked in recent months, it won’t stay down forever. Sooner or later gold will catch a major bid, probably on surging investment demand as these dangerous stock markets roll over. Capital will start migrating back into silver like usual once gold rallies long enough and high enough to convince traders its uptrend is sustainable. Since the silver market is so small, that portends much-higher prices.

At Q1’19’s average silver price of $15.54 and average SIL-top-17 AISCs of $12.70, these miners were earning $2.84 per ounce. That’s not bad for a sector that investors have left for dead, convinced it must be doomed. Being so wildly undervalued relative to gold, silver has the potential to surge much higher in the next gold upleg. The average Silver/Gold Ratio since Q1’16 right after today’s gold bull was born was 77.1x.

At $1400 and $1500 gold which are modest upleg gains, silver mean reverting to recent years’ average SGR levels would yield silver targets of $18.16 and $19.46. That’s conservative, ignoring the high odds for a mean-reversion overshoot, and only 16.9% and 25.2% above Q1’s average price. Yet with flat AISCs that would boost the SIL top 17’s profits by 92.3% and 138.0%! Their upside leverage to silver is amazing.

The caveat is the degree to which silver miners’ earnings amplify this metal’s upside is dependent on how much of their sales are still derived from silver when it turns north. If the SIL top 17 are still getting 35% of their sales from silver, their stocks should surge with silver. But the more they diversify into gold, the more dependent they will be on gold-price moves. Those aren’t as big as silver’s since gold is a far-larger market.

On the accounting front the top 17 SIL silver miners’ Q1’19 results highlighted the challenges of super-low silver prices. These companies collectively sold $3.0b worth of metals in Q1, which actually clocked in at an impressive 10.8% YoY increase. That was totally the result of these companies mining 10.9% more gold in Q1. Though it dilutes their silver-price exposure, shifting into gold really strengthens them financially.

But operating-cash-flow generation looked much worse, collapsing 55.1% YoY to $237m across the SIL top 17 that reported them for Q1. There was no single-company disaster, but Q1’s average silver prices being 7.1% lower YoY eroded OCFs universally. That led to these miners’ collective treasuries shrinking 22.9% YoY to $2.3b. That’s plenty to operate on, but not that much to fund many mine builds or expansions.

Hard GAAP profits reported by the SIL top 17 silver miners were very weak too in Q1’19, plunging 54.9% YoY to $123m. But there were no major writedowns from these low silver prices impairing the value of silver mines and deposits. Investors don’t buy silver stocks for how they are doing today, but for what they are likely to do as silver mean reverts higher. Silver-mining earnings surge dramatically as silver recovers.

Silver’s last major upleg erupted in essentially the first half of 2016, when silver soared 50.2% higher on a parallel 29.9% gold upleg. SIL blasted 247.8% higher in just 6.9 months, a heck of a gain for major silver stocks. But the purer primary silver miners did far better. The purest major silver miner First Majestic’s stock was a moonshot, skyrocketing a staggering 633.9% higher in that same short span! SIL’s gains are muted.

The key takeaway here is avoid SIL. The world’s leading “Silver Miners ETF” is increasingly burdened with primary gold miners with waning silver exposure. And having over 1/9th of your capital allocated to silver miners squandered in Korea Zinc is sheer madness! If you want to leverage silver’s long-overdue next mean reversion higher relative to gold, it’s far better to deploy in smaller purer primary silver miners alone.

One of my core missions at Zeal is relentlessly studying the silver-stock world to uncover the stocks with superior fundamentals and upside potential. The trading books in both our popular weekly and monthly newsletters are currently full of these better gold and silver miners. Mostly added in recent months as these stocks recovered from deep lows, their prices remain relatively low with big upside potential as gold rallies!

The bottom line is the major silver miners are still struggling. With silver continuing to languish at quarter-century-plus lows relative to gold, the economics of extracting it remain challenging. That led to slowing silver production and higher costs in Q1. The traditional major silver miners continued their years-long trend of increasingly diversifying into gold. Their percentage of sales derived from silver is still shrinking.

There aren’t enough major primary silver miners left to flesh out their own ETF, which is probably why SIL is dominated by gold miners. While it will rally with silver amplifying its gains, SIL’s upside potential is just dwarfed by the remaining purer silver stocks. Investors will be far-better rewarded buying them instead of settling for a watered-down silver-miners ETF. Their stocks will really surge as silver mean reverts much higher.

Adam Hamilton, CPA

June 4, 2019

We have written for over a year about the historical importance of the shift in Federal Reserve policy. We’ve noted that over the past 65 years in 11 of 13 rate cut cycles the gold stocks have enjoyed tremendous gains. The historical data shows an average gain of over 170% and median gain of almost 150%.

As of last Tuesday morning, the market showed an 84% chance of a rate cut by the Fed meeting in January 2020. That’s only 8 months away!

With that said, it appears odd that the gold stocks are struggling. The market tends to anticipate and discount potential news in advance. One would expect the gold stocks to begin to “price in” a rate cut, given that the market is nearly convinced a rate cut is on the horizon.

However, the historical data argues otherwise. The median and average bottom around the first rate cut is typically one and two months before that first rate cut.

The likely months for the first rate cut figure to be either September or December. If the Fed cuts rates in September, then the data argues for a bottom in August or late July. If the Fed were to cut in December, then its possible we could see a bottom earlier than a month before.

The timeline for a potential bottom in the gold stocks could line up well with the current technical outlook.

In the chart below we plot GDX along with the percentage of stocks that closed above the 200-day moving average (in the HUI) and the GDX advance decline (AD) line.

GDX is oversold on a short-term basis but remains weak. It’s AD line (an important breadth indicator) is showing a negative divergence.

Gold stocks are not oversold on a 200-day basis. As you can see, 47% of the HUI (GDX sans royalty companies) closed above the 200-day moving average.

Ultimately, I’d love to see GDX bottom around $18 in August with that aforementioned percentage below 20%. A double bottom prior to a Fed rate cut in September would trigger a strong run into year end.

In any case, the gold stocks could be setting up for a mid summer bottom and one that would be really significant if the Fed cuts rates in September. We continue to look at individual companies that are trading at excellent values and have important upcoming summer catalysts. To learn what stocks we own and intend to buy that have 3x to 5x potential, consider learning more about our premium service.

Jordan Roy-Byrne, CMT, MFTA
June 3, 2019

CONNECT WITH US

Tweets

Tweet with hash tag #miningfeeds or @miningfeeds and your tweets will be displayed across this site.

Tweets by MiningFeeds

MOST ACTIVE MINING STOCKS

Daily Gainers


Lincoln Minerals Limited	LML.AX	+125.00%
Golden Cross Resources Ltd.	GCR.AX	+33.33%
Casa Minerals Inc.	CASA.V	+30.00%
Athena Resources Ltd.	AHN.AX	+22.22%
Adavale Resources Limited	ADD.AX	+22.22%
Azimut Exploration Inc.	AZM.V	+21.98%
New Stratus Energy Inc.	NSE.V	+21.05%
Dynasty Gold Corp.	DYG.V	+18.42%
Azincourt Energy Corp.	AAZ.V	+18.18%
Gladiator Resources Limited	GLA.AX	+17.65%

CONNECT WITH US

Tweets

MOST ACTIVE MINING STOCKS

Daily Gainers

Articles

FOUND POSTS

Abitibi Metals (CSE:AMQ) Advances B26 Deposit Understanding with Completed Phase 1 Drilling

Q2 Metals (TSXV:QTWO) Announces Assay Results at Mia Property in Quebec From 2023 Inaugural Drill Program

Solaris Resources (TSX:SLS) Reports Early Drill Results from 2024 Drilling at Warintza Project with 150m of 0.67% CuEq within 384m of 0.51% CuEq and 284m of 0.53% CuEq from Near Surface

Patriot Battery Metals (TSX:PMET) Reports High-Grade Lithium Results from 2023 Drilling at CV5 at Corvette, including 133.9 m at 1.21% Li2O and Extending Strike to 4.6 km

Gold Terra Resource (TSXV:YGT) Advances Exploration with Results from Con Shear Target as Hole Progresses Toward Campbell Shear Target

CONNECT WITH US

Tweets

MOST ACTIVE MINING STOCKS

Daily Gainers

Articles

FOUND POSTS

Abitibi Metals (CSE:AMQ) Advances B26 Deposit Understanding with Completed Phase 1 Drilling

Q2 Metals (TSXV:QTWO) Announces Assay Results at Mia Property in Quebec From 2023 Inaugural Drill Program

Solaris Resources (TSX:SLS) Reports Early Drill Results from 2024 Drilling at Warintza Project with 150m of 0.67% CuEq within 384m of 0.51% CuEq and 284m of 0.53% CuEq from Near Surface

Patriot Battery Metals (TSX:PMET) Reports High-Grade Lithium Results from 2023 Drilling at CV5 at Corvette, including 133.9 m at 1.21% Li2O and Extending Strike to 4.6 km

Gold Terra Resource (TSXV:YGT) Advances Exploration with Results from Con Shear Target as Hole Progresses Toward Campbell Shear Target

Download the latest Solaris Resources (SLSSF) Investor Kit