Dave Erfle – Prior Macroeconomic Headwinds Are Now Tailwinds For The Precious Metals Sector
Dave Erfle, Founder and Editor of the Junior Miner Junky, outlines his technical outlook on the precious metals sector, and which macroeconomic drivers will continue be in focus as this year unfolds. We start off reviewing the general consensus that gold, silver, and the PM mining stocks bottomed in Q4 of last year, and that a new upleg is underway in the sector. Dave shares key resistance levels he is watching for in gold, as well as GDX and GDXJ, and that while we may see a short-term corrective move, the larger trend is still higher.
Next we focus on the macroeconomic factors shaping 2023 from the lingering inflation, continued stagflation, the potential for a worse recession and deflation (like we are seeing in manufacturing, housing, and general equities), central bank policies, and geopolitical tensions. Barring some unforeseen black swan event creating a panic selling scenario, the set up is there for the general markets to keep correcting down in an orderly fashion, where the precious metals sector continues to diverge by outperforming.
We wrap up with getting Dave’s thoughts on the gold mining stocks, from the potential for producers to have their margins expand this year, to the high probability of the junior mining stocks to get re-rated higher closer to historic norms.
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(THX) (THXPF) Thor Explorations Announces Q4 2022 Operating Update and 2023 Operating Guidance
9 Jan 2023
https://ceo.ca/@newsfile/thor-explorations-announces-q4-2022-operating-update
Amex Exploration Inc. (AMX) (AMXEF) Highlights Accomplishments From 2022 And Reviews Exploration Plans for 2023
9 Jan 2023
“Amex conducted a total of 104,639 metres during 2022, which was one of the largest drilling programs conducted in Canada.”
https://ceo.ca/@newsfile/amex-exploration-highlights-accomplishments-from-2022
I’m anything but worried about the POG, with China socking away 30 tonnes a month, we could see a rivalry between India and China as to who has got the deeper pockets. Something interesting is going on in Washington the GOP is presenting a motion to dissolve the IRS. Canada had better listen up, it looks like there is a whiff of change going on in The US state capital. Boy, do we need change!
Just thought I would let you guys know that my penny dreadfulls are starting to move. Maybe they will move along with the producers this time instead of waiting their turn. That would be nice for me, when the little guys move it can get pretty interesting in the stock market. Check this acronym out! B DOUBLE O TY! LOL! 😍
Yeah, to Dave’s point in todays interview, some of the juniors are so bombed out, that they could pop and get rerated higher regardless of the trends in GDX or GDXJ.
Hi Ex, thanks for the reply, I guess you noticed Superior Gold had a nice little climb today. I am really feeling positive about the trends that I see happening, it should drive traffic to your site. DT
I just had a look at Superior Gold, (SGI-TSX-V) and they are in negotiations with Catalyst Metals an ASX listed stock. (in respect of a potential transaction) Today’s news release piqued my interest. Maybe Terry knows something he is over in Australia. DT
Catalyst has also made an offer to buy Vango(VAN), an Australian penny dreadful.
Right now I’m more interested in S2R which has two huge land packages, one around Fosterville and the other in the Central Lapland Greenstone Belt.
Catalyst wants to consolidate that Marymia/Plutonic area with purchase of Vango and Superior.
Hi DT – Yes, I’ve been following the news and market chatter, but there doesn’t seem to a be a consensus on exactly what the transaction may be from investors. Good thoughts and responses from Terry on the matter as well.
It definitely is an interesting situation with Superior and Catalyst (and Vango as a 3rd party company intertwined with the other 2 with the paper they hold in both stocks), and people are wondering if it is going to be a takeover of Superior by Catalyst. It could also end up being one of those merger type of transactions where there is just a pro-rata ownership of the newly formed company from both sets of investors in the prior company. One other scenario I think is still likely is if there was a toll milling agreement between the 2 companies where Catalyst would process their ore at Superior’s mill and processing center. Maybe that would just be too complicated though, and maybe the easiest thing is just for Catalyst to acquire Superior with their paper.
Unfortunately I missed the pop in Superior today (which must have been based on expectations that Catalyst could acquire Superior) as I had exited the position last year when they fired the labor company that was staffing their mining operations, to restructure and get a new strategy together.
My reasoning was that we’d likely see more dilution in SGI as they had to invest in the new strategy, a new labor team, and their production was going to be down dramatically for 6 months.
Ironically (and tragically), I was considering adding back my Superior Gold position the end of last week and on Monday when the news broke, and had a post-it-note on my desk that said [Buy Superior Gold ?]. As the saying goes, “he who hesitates loses.”
Catalyst Metals (ASX-CYL) controls over 75 km. in Victoria, look at the eye-popping grades, they have a market cap of $206 million. Their stock is selling for $1.20 Australian.
https://catalystmetals.com.au/wp-content/themes/catalyst/images/7-corporate_profile.pdf
What’s crazy is Superior Gold (SGI) used to have that same type of market cap, but they’ve really fallen apart the last few years. That is why (prior to them firing the labor contractor and halting operations a their mine), and based on prior discussions with management about their growth profile expanding, that I thought they could be such a good “ugly duckling” turn-around story.
Really they still can be that turnaround company, although, the markets have lost a lot of faith in the Superior management team. I guess maybe it makes sense for a larger company to consolidate the operations from both companies under one roof, and properly capitalize and run the operations through the larger entity. This will rob current or long-standing SGI shareholders of the epic rerating they could have experienced, but at least it would be an exit strategy at a premium to where the stock is currently trading, or they could hold on for the growth profile of the new combined company.
Hi Ex, I want to say thanks to Terry for the feedback. We might see some sort of merger between Catalyst and Superior, depending on how they play it but I’m sure Catalyst metals would like a listing on the TSX-V as well as the ASX. We will see how this plays out tomorrow. We should see a bit of a higher rating for Superior. DT
Catalyst is run by James Champion de Crespigny whose Father founded Normandy Mining, developed it into the largest gold producer in Australia and sold it to Newmont.
CYL has the wherewithal to make this consolidation happen.
Good additional context on Catalyst Terry. Thanks for the heads up.
The fugly dollar is about to break important fork support that goes back 18 months.
https://stockcharts.com/h-sc/ui?s=%24USD&p=D&yr=2&mn=1&dy=0&id=p36118534583&a=1203033284
That kind of a move down would make the greenback even more fugly, but that would be a nice tailwind for the precious metals and commodity sector.
Top secret docs expose smoking gun to Biden criminal enterprise. Watch markets YAWN tomorrow….
My call on wti months back remains intact. I don’t see any bounce coming and it’s going to get fuglier going into spring/summer..
As mentioned the recipe for the miners could not be better aligned as of now. Oil down and dollar down creates the margins and gold up!
Santacruz, SCZ, this is what it looks like when you screw up production expenses and depletion rates… I haven’t owned any since the news came out, the first time in years. Maybe a new buy point coming but it may still be a laggard.
Santacruz was one of my best performers in 2019, 2020, 2021, and earlier in 2022. It trounced most of the other silver producers or developers over that timeframe, and much of that outperformance was because they were delivering on operational success.
Look, they made a large acquisition from Glencore of all their Bolivian assets mines, mills, power stations, and have only had 1-2 quarters to sort out what they have and the production process, so I wouldn’t say they “screwed up production expenses and depletion rates.” That makes it sound like some chronic mismanagement, which is simply not the case. Yes the Q3 numbers looked bad at looked at from a year over year perspective, but they are a totally different company now, sorting out multiple mines, and I figured Q3 and and Q4 still to report, were going to reflect some growing pains. Still, I see them set up as a serious mid-tier silver and base metals producer for 2023 and that they are still very undervalued considering all the assets they now have under their umbrella.
I sold out of my Santacruz in early December of last year to book all the gains I had in SCZ and wash them out against other losses in the PM sector for last year, (not something that was the case in many of the PM stocks). I added my first tranche back the first week of January, and would love the opportunity to add back even more if silver corrects for a bit.
>> Here is the 5 year chart of Santacruz for context of how they have been performing the last few years:
I’m thinking that Q4 results (that likely get reported next week) will underwhelm market expectations, and that this may hit the stock a bit as retail investors that don’t understand the larger picture and then capitulate. Personally, I’ve been expecting things to get a bit messy for their first 2 real quarters of production from the 2nd half of last year, and hoping to capitalize on any market confusion.
I’ll be looking for that kind of over-reaction from retail, possibly paired with further weakness in Silver, to scoop up some more SCZ on the cheap in a 2nd tranche later next week or later this month. If Santacruz gets stuck in a longer down draft for a few months, then I’ll likely add a 3rd tranche into any extreme oversold conditions.
Thanks for the informative rebuttal, I learned from it, haha… I think it will be a laggard directly for the timing of it’s poor quarterly report. It is very unfortunate that it has fallen while many other micros and the CDNX (bellow) have risen nicely in the last month.
Yes, agreed Dan. It likely does have a bit more weakness to move through.
Yes, it may have been a laggard in the very recent past, compared to other stocks, but over the last few years, it outperformed the rest of the sector handsomely, and it has blown away most of the other PM producers or developers.
This operational takeover of Glencore’s Bolivian silver/base metals mines, may make for a bit more friction with investors, as it will likely take them another quarter or 2 to get it all sorted, but again, medium to longer term, I see and weakness to come as an attractive spot to build my position back up again into the confusion and F.U.D. from retail investors.
I don’t want SCZ to get creamed bad or anything, as that would be counter-productive, but in a way, I am hoping it sees a bit more weakness this month on the Q4 numbers being released, as retail punters keep capitulating, so that I’ll be able to buy some more from the weak hands, for a position trade over the next 1-2 years.
Hi Ex, I’m glad you have bought some more Santacruz after you sold it for tax loss season. That is so Cool! Keep up the good work, you are a stalwart! DT
Thank DT! Yeah, it was actually a tax gainer when I sold it, but I had other losses to wash it out with in December. I’m back in now with 1 tranche (at a better price than I sold it for), but would like to add 2 more tranches, and preferably at even lower price points. Watching and waiting for the right time to strike….
Karora Resources is another stock I’ve been thrilled to have been in the last few years, and it had a nice move from the pandemic crash through the middle of last year (basically a 6 bagger), and then sold off hard in the middle last year, only to turn around and surge again for the last few months of the year into present.
(KRR) (KRRGF) Announces Record Annual Gold Production of 133,836 ounces and Record Gold Sales of 132,047 ounces in 2022
11 Jan 2023
https://ceo.ca/@newswire/karora-announces-record-annual-gold-production-of-133836
Perfect bullish pull-back in November: https://postimg.cc/ns23TNSw
Good eye BDC.
Yes, a perfect 38.2% Fib retracement in November for KRR, and then the next blast higher.
Gotta love it!
Gold Continues to Climb a Wall of Worry into 2023
David Erfle – Friday January 6, 2023
“After two years of consolidating huge gains made during the early stages of the pandemic in 2020, the gold price comes into the new year climbing another wall of worry. Gold’s time-tested role as a safe-haven returned in late Q4 2022 and has been carried over to January with investors seeking shelter from what has been forecast to be another challenging year.”
“To begin 2023, Gold Futures have risen towards its next resistance level at $1880 after a Ukrainian strike on New Year’s Eve destroyed a temporary barracks in a vocational college in Makiivka…”
“Gold has historically performed well during periods of severe economic stress, geopolitical risks, and stagflation. All of which the world is expected to experience in 2023, heightening investor uncertainty that will likely keep the gold price elevated.”
https://mailchi.mp/7701a1b4ba40/david-erfle-weekly-gold-miner-sector-op-ed-1601545