Richard Postma - The Doctor Is In – Thu 23 Mar, 2017

Gold stocks – 2016 was the appetizer, 2018 could be the main course

Doc and I review  a great comments made by a new commenter on the site FundamentalAnalysis. They brought up a number of factors that will both help and hurt gold and gold stocks in the next 1-2 years. We look at many of these factors which extend from economic data to US markets and into gold stocks.  I have copied the full comment below for everyone to read if you missed it.

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Here is the comment…

Gold in the short and possibly medium term (1-2yrs) given current conditions has no real reason to continue heading higher or lower. A Weaker dollar or lower real interest rates could off course break this neutral trend… but the fact is the fed is relatively hawkish this year, and we will probably see at least one more rate rise which could put a lid on gold prices moving upwards too quickly, infact more hawkish messages will probably cause the gold prices to overshoot once again on the downside before normalising after the actual rate rise occurs and yellen talks cautiously once more (common theme past couple of years). Inflation also seems to be creeping in (in the data that is) which will put a floor on the gold price, keeping gold to a reasonably neutral level. Moving to the general economy with reference to the UK stockmarket there is definitely weakness in the wider economy with indebtness being the main issue for corporations but even more so individuals. I’ve been analysing sectors outside the mining sector in Europe, and I’ve seen quite a number of sharp drops in share prices due to profit misses especially in the retail sector. I’m talking about ftse 100/250 firms dropping 30-70%+. Growth is becoming ever more sluggish, and the entire cycle after 2008 has only occured due to cheap debt financing but there is only so much you can squeeze from a debt cycle and we are nearing the limits (par going to negative interest rates of course or big inflation). The debt levels are therefore definitely holding back growth, and one risk for gold (which may even be a positive) is if deflationary forces start creeping back in due to the debts, as people reduce spending, and begin winding down their debts especially if they fear future rate rises. However should that happen, the central banks will intervene, because they CANNOT HAVE DEFLATION at least for too long. The system is designed such that deflation is seriously destructive for everyone given debt levels and demographics, so central banks will eventually (LONGER TERM) resort to tools to force inflation and keep us in a slightly negative real interest rate environment, (perhaps lower rates once again, bring back QE, introduce helicopter money etc etc….)….As a whole if I’m taking a 10year view I am absolutely bullish on gold (putting aside tail events like extreme legislation for example confiscation of gold etc…), however in the near term I can make a case for not being bullish on gold and just remaining neutral, which to me seems like a contrarian and therefore more likely view for perhaps (1 to maybe even a few years). If a recession hits during that period gold could rise, unless its a more destructive deflationary recession then it could fall in the near term, central banks would then have to intervene, extreme measures should it be required could then lead to a flight to safety to gold….and gold would move as a fear trade bit like the 70s as central banks start going all in, to reflate the economy whilst keeping rates as low as possible.

I agree that if you are trading/speculating in this market, you have to take money off the table and my understanding of gold prices being range bound potentially for now forces me to do that.

In fact looking at a lot of the gold companies I’ve analysed in particular the producers. $1200-$1250 gold and $17 silver is quite destructive, companies are not generating the free cash flow they need, which means shareholders in a lot of the companies are getting fleeced the longer they hold. I’m not surprised with how a lot of these companies have moved recently, I don’t see them as undervalued unfortunately, I see them as the market now valuing them more rationally. Mining companies are now raising money successfully, but in todays environment that capital is slowly being destroyed. (Producers are doing equity/debt financings because quite frankly they are not making enough money, the LOW AISC has been driven by not only decreasing exploration (i.e destroying future growth) but AISC itself being a flawed numbers as it excludes tax on profits and interest on debt etc..). If precious metals don’t move sustainably higher to at least $1300+ or $20+ silver within the next 5 years some companies (especially those without significant metal credits will continue destroying shareholder value.)….The 90s had a long period of neutral gold prices and although conditions are different, there is no reason not to believe that this recovery could be a drawn out U shape (which means neutral prices in the interim)…..hence I always like to warn everyone betting on a lot of producers just based on price action is a bet on just sentiment or buy low/sell high and not what the company actually has….some of those producing companies really shouldn’t be popping up to the levels they get to as gold moves up about $100 or silver moves up $3. like they did from I.e Dec 16 to Feb 17.

Anyway enough ranting…….

All I can say is rant away buddy 😉


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Comments:
  1. On March 23, 2017 at 10:11 am,
    CFS says:
  2. On March 23, 2017 at 10:37 am,
    b says:

    What I get from this article is jr miners are overvalued not worth what people are paying for them, sentiment (psychology) causes price spikes.

    Psychology can not be underestimated, cant remember the name of the book Bob recommended awhile back,but has lots of examples over years that show plainly psychology can be worth a fortune. Madness of Crowds?

    Anyway, I recall Oleary saying he always keeps 5% phyzz gold and would never own a PM miner, he feels they are horrible business managers and always looking for cash proves that.

    I tend to agree, but psychology can make a person a shekel or two.

    Sell in May and go away, buy in Sept? little psychology there I think.
    Bet people do exactly the same thing as they always have, unless of course…its different this time.

    • On March 23, 2017 at 12:26 pm,
      Cory says:

      I agree with your sentiment comment b. That is one factor that can quickly and easily drive PM stocks further than makes sense. Just look at what happened last year. As for right now I like to focus on the management teams that have gotten a good back for their buck in the past. Stocks might be under some pressure int he short term but they do have some very nice upside down the road.

  3. On March 23, 2017 at 1:27 pm,
    jf lan says:

    DOC on GOLD and Silver i Can’t only agree ! Thanks we all need same Positive thinking ! Whats you’re NR 1 Gold stock and NR 1 Silver stock ! All the Best !

    • On March 23, 2017 at 3:07 pm,
      RICHARD/DOC says:

      jf Ian; that’s a tough one to answer—I’ve a number of them I’m purchasing. I can give you a couple: I like SSRI as a silver company and OSK.TO as a gold company—they are 2 of the many I own. OSK.TO continues to move higher and I wouldn’t be aggressive here but would wait for a pull back. These are not investment advices but 2 I personally like out of many I hold.

  4. On March 23, 2017 at 2:37 pm,
    Blue says:

    Hi Ex!
    Thank’s a lot for your opinion and info regarding SLL the other day. I couldnt agree more that well run experienced Lithium companies is to prefer.I didnt pull the trigger this time.

    Right now I have a lot of Tinka Resources shares, I believe like many others that zinc is the place to be and Tinka feels like a very good exploration company with a lot of positiv catalysts this year.

    https://m.youtube.com/watch?v=n_tinZ01q5I

    John Kaiser on Zinc:

    https://m.youtube.com/watch?v=Ypxa9getXUg

    And Cory I appreciate that you did the interview with Brad Kitchen of Secova Metals, one of my favourite new rookie explorers in a hot mining district in Quebec. I didnt know that SEK was a sponsor but thats good which mean that you’re gonna have
    more updates in the future about Secova.
    John Kaiser is bringing up the hot golddistrict area where Secova is involved:

    13 min into the interview he talks about how Osisko is investing a lot of money in their neighbours goldprojects.

    https://m.youtube.com/watch?list=PLCrz-HEf8_0CFwUHv_13glX9NDIxgrBg5&v=SP0aH3iTVDA

    Todays news release:
    http://secovametals.com/secova-metals-more-than-triples-the-size-of-its-eagle-river-gold-project-quebec/

    • On March 23, 2017 at 2:45 pm,
      Cory says:

      Hey Blue,

      I will be chatting with Brad from Secova tomorrow. Is there anything you would like me to bring up with him?

      • On March 23, 2017 at 3:04 pm,
        Blue says:

        Nice to hear Cory!
        It would be nice to know little more abot their New Cobalt project. Whats the time horizon to get involved with their new Cobalt project? A lot of investors and speculators are waiting for Secova to start drilling, when is the question?

  5. On March 23, 2017 at 4:19 pm,
    clare says:

    Hi Doc,
    Uranium doesnt seem to be doing too much lately. I just wondered what your charts are telling you? thanks

    • On March 24, 2017 at 6:02 am,
      RICHARD/DOC says:

      Clare, I’m purchasing uranium stocks here on this pull back. Uranium is a long term hold for me and like the precious metals, you’ll have to wait for the real winding up of the bull. It’ll certainly happen as demand will eventually outstrip supply. For me, I add a little whenever one of the stocks I hold come back to support levels. You’re going to have to be patient over the next few months.