Tag Archives: mining stocks

Time To Buy Gold And Silver On Every Pullback

The soaring paper gold open interest on the Comex is just one indication of a shortages developing in the physical gold bullion market. It’s no coincidence that just prior and accompanying the sell-off in gold this week that Exchange for “Physical” and Privately Negotiated Transactions (EFPs and PNT) volume spiked up on the Comex. EFPs and PNTs are “derviative” transactions which enable the bullion banks to settle futures with cash or some other form of gold derivatives like shares of GLD.

There are other indications as well, which Chris Marcus and I discuss this week on his Arcadia Economics podcast:

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I recently found another “golden nugget” large mining stock contrarian play the December 12th issue of my Mining Stock Journal. This stock should be an easy double over the next 6-12 months.  You can learn more about this mining stock newsletter here:   Mining Stock Journal information.

The Comex Is A Complete Joke

Comex gold contracts were brought to life in 1974. Correspondence between senior officials in, and advisors to, the Nixon Administration discussed the need to create an “investment” vehicle to “capture” institutional investment money directed into gold in order to prevent the rapid rise in gold after Nixon closed the gold window. If you are curious, the letters are posted in the GATA archive (GATA.org).  For instance:  LINK.

Since the introduction of paper gold, the Comex – gold and silver trading – has evolved into what can only be described as a caricature of a “market.” The open interest in gold contracts is nearly 10x the amount of physical gold reportedly held in Comex vaults; it’s 60x the amount of “registered” gold, or the gold designated as available for delivery.

Total open interest on the Comex as of last Thursday is 787k contracts representing 2,459 tons of paper gold.  Global annual physical gold production is around 2,700 tons.  The net short position of the Commercial trader category per the current COT report – “commercials” are primarily the banks which make markets on the Comex – is 134k contracts, or 418 tons of paper gold.

That the open interest in paper gold contracts is nearly equivalent to  the amount of actual gold produced yearly by gold mines is an absolute joke. The purpose of the Comex, period, is to give the western Central Banks – primarily the Fed – the ability to control the price of gold.  Based on the preliminary o/i report for Friday, the paper gold interest has spiked up to approximately 800,000 contracts.

But the good news is that rapid escalation of open interest in paper gold on the Comex is evidence that the banks are losing their ability to keep a lid on the rising gold price.  Bill Powers invited me onto this Mining Stock Education podcast to discuss this issue, my outlook for the price of gold in 2020 plus some of my favorite mining stocks:

A few of the stocks I follow, recommend in my Mining Stock Journal and invest in myself have doubled or more since the May 2019. Several more are poised for big gains in 2020. You can learn more about  Investment Research Dynamics newsletters by following these links ( a minimum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   Mining Stock Journal subscription information

NOTE:   I do not receive compensation from any mining stock companies and I do not accept any precious metals industry sponsors.  My research and my views are my own and I invest my own money in many of the stocks I present.

Money Printing And Physical Demand Will Drive Gold Higher

I’m growing more confident that we’re on the cusp of a big move higher in the precious metals sector because of the Fed’s massive money printing. Also, because the money printing and near zero interest rates are visibly not stimulating economic growth, we’re at the point at which unless the Fed continues increasing the amount of money it puts into the system, the melt-up in the stock market is completely unsustainable.

This is very similar to late 1999/early 2000 when Alan Greenspan tried to reverse his Fed’s massive money printing operation ahead of that notorious boogieman, the Y2k Bug. Not only did the tech stocks collapse then, but also the precious metals sector transitioned from the end of a 19 year bear market into the current secular bull market.

From what I’m hearing – and something that’s been referenced by Alasdair Macleod and Egon von Greyerz – a shortage of physically deliverable gold is developing in London. The action this past week fits the information. Given the size of the derivative short position (futures, LBMA forwards, leased gold, OTC derivatives, hypothecated gold) in London and New York, if obligated counterparties begin to default on delivery demands, the precious metals sector could become explosive next year.

The paper gold open interest continues to hit new all-time highs almost on a daily basis. The current open interest is 765.5k contracts. That’s 76 million ozs of paper gold. The quantity is a little less than double the average open interest on the Comex over the last 10 years.  The amount of open interest has nearly doubled since the end of 2018,  with record o/i levels almost every day since October 29th.

Never in the recent history (last 20 years) has the Comex  sustained this many open interest hit  record highs without being followed by a significant price take-down.  Hidden factors seem to preventing this as evidenced by the inability of the Comex banks to implement a run-of-the-mill open interest liquidation price attack operation. These used to be good for over $100 of downside in a short period.

The Comex gold vaults reportedly hold 8.6 million ozs of gold. That figure has remained fairly constant with perhaps 10% variability up or down for at least the last 10 years. If just 10% of the open interest  stands for delivery in any given month, there would be a short squeeze of Biblical proportions in the price of gold.

Notwithstanding that, the soaring open interest in paper gold in relation to the amount of underlying physical gold on the Comex is evidence of the degree of effort required for the banks to at least regulate the rate at which the gold price is rising.

Circling back to rumors of a growing shortage of physical gold in London – see this analysis for instance:  GATA – it’s interesting to note that every attempt to push down the price of gold when the LBMA and Comex trading floors are open is quickly repudiated.

But there are other signs.  I don’t monitor the LBMA a.m./p.m. fix on a daily basis, but I’m apprised of it when there’s unusual activity.  It required 19 iterations for Friday’s p.m. price fix operation to balance out heavy bidding with enough offerings.  The price of gold rose  from the start to the finish.  I have never observed even close to this many iterations needed to establish a price-fix in either the a.m. or p.m. sessions.   Some entity wanted to buy a lot physical gold on Friday afternoon and it took time and effort to find enough offerings to fill the bids.

Of course, smart money has been quietly accumulating large positions in the speculative micro-cap junior exploration stocks for the last three years via private placements or direct investments in many of these companies.  As well, there’s been a rise in gold and silver mining company M&A.

Just like in the early 2000’s, October 2008 and December 2015, we will wake up one day to the start of  a long streak of incessant daily gold and silver price moves higher in the overnight market. Those who are not positioned ahead of this will find themselves running for the train as the doors close and it pulls out of the station.

Part of the above commentary is an excerpt from the latest issue the Mining Stock Journal. You can learn more about this newsletters, which focuses on speculative junior exploration stocks as well as find in value in producing miners, here:   Mining Stock Journal info

 

 

Mining Stocks Are Historically Cheap

Early 2000 was the last time the the Amex Gold Bugs Index (HUI) / SPX ratio was as low as it is now. That bottom occurred as the tech/dot.com bubble was popping. Oh, what a coincidence.  By many indicators, the current stock market bubble will likely pop soon and it looks like the precious metals sector is on the cusp of a massive cyclical bull move.

While the micro-cap junior exploration stocks are by far the cheapest segment of the mining stock sector in terms of potential risk/reward, investor distaste and market inefficiency occasionally feeds prospecting mining stock investors an expected “golden nugget,” if you will.  Fortuna Silver is a current example. Chris Marcus invited me onto his Arcadia Economics podcast to discuss why I put a strong buy on FSM in July when the rest of the market was dumping the shares:

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I recently found another “golden nugget” large mining stock contrarian play the December 12th issue of my Mining Stock Journal. This stock should be an easy double over the next 6-12 months.  You can learn more about this mining stock newsletter here:   Mining Stock Journal information.

Fortuna Silver: An Incredible Value Play

I originally shared this analysis with my Mining Stock Journal subscribers in the October 17th issue.  I sent it to Peter Spina at Goldseek.com because I saw the idea from one of his tweets a few weeks earlier.   It’s rare when the market mis-prices a larger cap producing mining company, thereby allowing aggressive investors an opportunity to buy into a high quality operation at a level that can produce a rate of return that would be expected from much higher risk junior exploration stocks.

The market put this opportunity in investors’ laps earlier this year and the analysis below was my rationalization for buying this stock when it dropped to $3 (note, I followed this up after FSM dropped below $3 briefly on its Q3 earnings report with a detailed analysis in my Mining Stock Journal which explained why the market was wrong again and buying FSM at $3 would yield an extraordinary ROR).   Since Thanksgiving,  the FSM  is up 21%.

Value Play – Fortuna Silver – (FSM, FVI.TO – US$3.07) – Most of the stocks I follow are micro-cap junior “venture capital” plays. However, I’ll invest in a larger cap producing mining company if I believe the stock has been sold down irrationally to a price that offers superior upside risk/return potential.

Fortuna was founded in 2005 with a focus on acquiring precious metals projects in Latin America (“Fortuna” was Greek goddess of fortune). One of the co-founders and the current CEO, Jorge Ganoza, is from a Peruvian mining family. FSM currently has two low-cost mines in Peru and Mexico. In 2016 it acquired the Lindero gold project in Argentina, a large open pit, heap-leach gold project that should achieve commercial production in early 2020.

San Jose Mine – The 100% owned San Jose Mine, located in Oaxaca, Mexico, began production in July 2011. The mine produces silver and gold from a 3,000 tonne per day underground operation. In 2018 the mine produced 8 million ozs of silver and 53,517 ozs of gold. San Jose currently has a resource of 46 million ozs of silver and 375,000 ozs of gold. Most of the resource consists of proven/probable reserves.

In addition to the existing resource, FSM budgeted $4.3 million for 11,500 meters of brownfield and exploration drilling. “Brownfield” exploration encompasses looking for deposits near or adjacent to an operating mine. The property hosts a mineralization zone – the Victoria zone – that runs “sub-parallel” to one of the main veins (the Trinidad vein) currently being mined. A drill program from 2H 2017 – 2018 returned several high grade intercepts.

Caylloma Mine – The Caylloma Mine is a 100%-owned underground silver, lead and zinc mine operation in Arequipa, Peru. A small amount of gold is also extracted from the ore, the value of which is used to offset the cash costs of mining. For 2019, the mine is expected to produce around 1mm ozs of silver, 27 million lbs of lead and 40-44 million lbs of zinc.

Fortuna has owned the mine since 2005. On a silver-equivalent (AgEq) basis, the all-in sustaining cost of the Caylloma mine averages about $13/oz. Caylloma currently has five years left of reserves but the property hosts potential for step-out resource expansion.

Lindero Gold Project – In July 2016, FSM acquired Goldrock Mines Corp in an all stock transaction valued at $129 million. This gave FSM 100% ownership of the Lindero open pit, heap leach operation in Argentina’s Salta Province. The mine will process 18,750 ton per day over a 13-year mine life, averaging 100,000 ozs of gold annually at an all-in sustaining cost of about $750/oz.

Fortuna announced the start of pre-production mining at Lindero in mid-September. The first gold pour is planned for Q1 2020. This is an incredibly low-cost operation. Part of the reason for this is that the ore body is high grade with a low “strip ratio.” The strip ratio is the amount of waste rock required to be processed in order to extract a tonne of ore. For instance, a 2:1 strip ratio means two tonnes of rock needs to be processed per tonne of mineable ore. Lindero will have a strip ratio below 1 in the first year of operation.

Once Lindero is up and running efficiently, it will be a literal “cash cow,” especially if the price of gold continues to move higher.

The Company also has a of couple exploration assets. The Arizaro Project is situated in the Lindero land package. It’s a gold-copper porphyry project on which preliminary exploration and drilling was conducted by the previous owners and which was followed-up by Fortuna with a surface core drill program of 2,178 meters over 12 holes down to 200 meters. The results encountered near-surface gold-copper porphyry mineralization.

FSM also acquired a 24.2% in Medgold Resources, which owns the Tlamino Project, a high grade gold-silver project in Serbia. FSM has an option to earn a 51% interest in Tlamino by spending $3 million in development by March 2020. It can earn an additional 19%, or 70% of the project economics, by spending an additional $5 million and completing a preliminary economic assessment by March 2023.

Why FSM dropped in price – In the frenzy of the first 6 months of 2016, FSM traded as as high as US$9.50. Since then the stock has trended down to as low as $2.40 in early May 2019. Most of the decline, I believe, can be attributed to the general downtrend in the price of gold and silver from July 2016 through May 2019. In addition, the price of lead fell as much as 30% and zinc has dropped as much as 37% since early 2018.

You can read the rest of this at  Goldseek.com

In the latest issue of the Mining Stock Journal released last night, I have another similar large cap mining stock that I believe provides a similar opportunity as the market gift handed out on Fortuna.  You can learn more about this newsletter here:  Mining Stock Journal information

As The Financial System Melts Down Gold And Silver Will Soar

To the extent that some analysts reject the Fed/Wall St/Perma-Bull narrative that the Fed’s repo operation is needed to address “temporary” liquidity issues or was caused by the newer regulatory constraints, the only explanation offered up is that the financial system’s “plumbing” is malfunctioning.  But there has to be an underlying cause…

…The underlying cause is abject deterioration in credit instruments – largely subprime right now – is causing an ever-widening chasm between the value of these securities and the funding used to finance those asset values.  The banks have reduced their willingness to fund  the increasing demand for overnight collateralized loans because they see first-hand the degree to which some of the collateral has become radioactive (CLO bonds, for instance).  The Fed has had to plug the “gap” with its repo operations, several of which have maturities extended up to a month. This is de facto QE, which is de facto money printing.

As this slow-motion train wreck unfolds, more money printing will be required to prevent systemic collapse, which in turn will trigger an explosive move higher in gold, silver and mining stocks.  Chris Marcus of Arcadia Economics invited me onto this podcast to discuss these issues in a little more detail:

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Currently junior mining stocks are the most undervalued relative to the price of gold and silver as at any time in at least the last 20 years.  But several producing gold and silver mining stocks are extraordinarily cheap.  I featured one in my Mining Stock Journal that’s up nearly 14% since Thanksgiving.  I’ll be presenting a similar producing mining stock in the next issue released Thursday.

You can learn more about  Investment Research Dynamics newsletters by following these links (note: a miniumum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

The Path Of Least Resistance For Gold Is Up

The price of gold has held firm at the $1460 (front-month contract basis, not the Kitco “spot” price) level despite the constant price attacks that have been occurring overnight and into the Comex floor trading hours since early November.

On an intra-day basis gold has managed to hold continuous aggressive attempts to push the price below $1460 for the last 6 trading days, including today.  Interestingly, last Tuesday (November 26) and Friday, gold shot up during the Comex floor trading hours in the absence of any news or event triggers.

Zerohedge attributed Tuesday’s spike in gold to the jump offshore yuan vs the dollar. But that day gold started moving before the yuan moved.  On Friday, gold soared as much as $14 from an intra-day low of $1459 while offshore yuan declined vs the dollar.  Zerohedge’s explanation for the mysterious movement in the gold price on two days thus lacks evidence.

The open interest in the December Comex contract remained stubbornly high through first notice day last Friday. The banks, which have an extreme net short position in Comex gold have exerted an enormous effort to force hedge funds either to liquidate long positions or to sell December contracts and move out to February, which is the next “front month” contract.

If an unusually large number of longs decide to stand for delivery, it would place an enormous amount of stress on the warehouse stock of gold that has been designated as available for delivery in Comex vaults. In addition India has been importing an enormous amount of gold starting in late October. This has provided strong price support from the physical market.

Also, the gold price has withstood a 43,000 contract liquidation in Comex open interest, including a 1-day record 127k contract liquidation in the December contract, much of which “rolled” out to February.  Historically a draw down in Comex open interest of this magnitude would have removed at least $50 from the gold price.

In the chart above, gold appears to be establishing a strong base in the $1460 area. The MACD shows an extremely oversold technical condition as does the RSI.  With the Central Banks, including the Fed, printing money at a furious pace right now, the conditions are in place for potentially a big move in gold.

The commentary above is a partial excerpt from my lastest issue of the Mining Stock Journal. In this issue I present an opinion on the Kirkland Lake acquisition of Detour Gold that may surprise some mining stock investors. The junior exploration stocks have been relentlessly pounded lower during this latest sell-off in the sector, especially relative to the shares of the mid-cap and large-cap producing miners. I believe several junior exploration stocks are trading at a price level which significantly reduces the risk and increases the potential ROR in these shares.

The Mining Stock Journal  covers several mining stocks that I believe are extraordinarily undervalued relative to their upside potential. I also present opportunistic recommendations on select mid-tier and large-cap miners that should outperform their peers.  You can learn more about this newsletter here:   Mining Stock Journal information.

Gold May Be Set Up For A Pleasant Holiday Season Rally

In what has become a recent routinized pattern in the price of gold (and silver), the market rallies during peak Indian gold market hours and then sells off when London opens. After the customary price take-down when the Comex floor trading opens, gold and (and silver) typically recoup the overnight sell-off. In short, there seems to be epic price discovery battle going on between paper derivative gold and the physical gold market and that won’t take much to ignite a massive move higher.

The recent sell-off in gold has triggered massive gold demand from India. Recall that India had been dormant since June, when the Government increased the import duty by 25% on imported kilo bars. But the lower price of world gold, combined with India’s peak seasonal gold buying period has unleashed India’s gold importation beast.

Based on premiums being paid for gold after taking into account the import duty, Indian importation is running full-tilt.

Despite repeated attempts to take the price of gold lower, Indian physical demand has put a floor under the market, at least for now, and poses a potential threat to the record level of net short interest in Comex futures by the banks and hedgers…The rest of my commentary came be found at  Gold-Eagle.com.

Repo Operations, Money Printing, Gold And Mining Stocks

The Fed is printing money again – this time disguised as “repo operations” instead of “QE.” The price of gold and silver rallied over the summer anticipating an easier monetary policy. The economic problems and financial system excesses are two to three times larger than in 2008. This will necessitate a money printing/QE/balance sheet expansion operation that dwarfs the $4.5 trillion printed the first time around. Plus most of the money printed from 2009 to late 2014 is still in the banking system.

The scale of the inevitable money printing policy will not stimulate economic activity but it will act as rocket fuel for the precious metals market – gold, silver and mining stocks. Ten years of Central Bank money printing has pushed debt issuance, malinvestment, moral hazard and fraud to levels that well-exceed the levels when Lehman collapsed.

Craig “Turd Ferguson” Hemke invited me back onto his “Thursday Conversation” podcast to discuss the the Fed cranking back up its money printing machine and the implications for gold, silver and mining stocks. Click on the link above or the graphic below to listen:

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In the latest issue of the Mining Stock Journal, I review several junior mining stocks plus I recommend a larger cap silver/gold/lead/zinc producer that has been sold off irrationally and which will report great earnings in Q3 and Q4 vs the same quarters in 2018.

You can learn more about  Investment Research Dynamics newsletters by following these links (note: a miniumum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Fed Delivers More QE “Light” And Gold Responds

On October 4th, as I expected would happen, the Fed announced that it was extending its overnight and term repo operations out to November 26th (the November 12th two-week term repo matures on the 26th).

The Fed added 7 more 2-week  “term repos, ” plus a 6-day “term repo,” with the next three operations upped to $45 billion. It extended the overnight repos until at least November 4th.  Well then, I guess the “end of quarter” temporary liquidity issue with corporate tax payments was not the problem.

Follow the money -The Fed’s repo operation extension further validates the analysis in my last post in which I made the case that an escalation in the non-performance of bank assets (loan delinquencies and defaults and derivatives), caused by contracting economic activity, has created a liquidity void in the banking system that is being “plugged” by the Fed. The Fed’s balance sheet has increased $186 billion since August 28th.

Not only did the Fed end “QT” (balance sheet reduction) two months earlier than originally planned in January, the Fed has effectively reversed in the last 5 weeks all of the QT that occurred since March 28th.

The evolution of Orwellian propaganda terminology for “money printing” has been quite amusing. It seems that the Fed has subtly inserted the phrase “balance sheet growth” into its lexicon. While Jerome Powell referenced “organic balance sheet growth” in his press circus after the last FOMC meeting,  expect that it will be considered politically/socially incorrect to use “QE” or “money printing” instead of “balance sheet growth” in reference to this de facto banking system bailout.

Meanwhile,  thank the Fed for providing the amount of money printing/currency devaluation needed to offset China’s absence from the physical gold market for the last week:

Given the technical set-up in gold plus the enormity of the Comex bank/commercial short position in paper gold, many gold market participants, including me, expected a much bigger price-attack on gold during Golden Week than has occurred. In fact, gold has held up well, with the December future testing and holding $1500 three times in the last week. Business activity in China, including gold and silver trading, resumes tonight.

The Fed’s QE Light program will likely transition into outright permanent money printing before the end of 2019. The November meeting is scheduled for the end of this month (Oct 29-30). But I doubt the Fed will turn its repo money printing into permanent money printing – aka “POMO” or “balance sheet growth” – until the December FOMC meeting (Dec 10-11).