Gold has had a pretty good year to date, and has kept pace reasonably well with the market since the last major sell-off we've had in the beginning of 2016. For all of the daily news headlines, the charts suggest a quiet, "normal" asset return.
That said, it all depends on which chart you look at. Five years isn't gold's best look, while starting at the beginning of the millennium catches gold's upswing and outperformance.
All of this is on the surface, and with gold, there's a lot to, ahem, dig into below the surface. While the metal goes unchanged, the costs of extracting it, the sentiment in the market, and the alternatives available to investors are moving targets. There's a lot to keep track of, in other words.
To get a handle on things, we asked seven of our gold-focused Marketplace authors to join us for a Marketplace Roundtable. They share their approaches to investing in gold, to studying the metal and its ups and downs, and their favorite ideas. They all also handled well the tricky question of making predictions about the future of gold.
- Geoffrey Caveney, author of Stock & Gold Market Report
- Tom Luongo, author of Stocks, Shocks, & Rocks
- Itinerant, author of Itinerant Musings
- Gold Mining Bull, author of The Gold Bull Portfolio
- Simple Digressions, author of Unorthodox Mining Investing
- Viking Analytics, author of Commodity Conquest
- SomaBull, author of The Gold Edge
Seeking Alpha: The price of gold has been rangebound for 3-4 years. Without predicting the direction (yet!), how do you follow the gold and metals cycle, and what are you watching for in trying to assess where we are in it?
Geoffrey Caveney, author of Stock & Gold Market Report: The obvious big factors are of course geopolitical turmoil and global financial market turmoil. The long gold bear market finally ended, and the new gold bull market began, during the weakest point of global financial markets in January-February 2016.
Since last summer, the renewed strength of the global stock bull market has been the biggest obstacle holding back the gold market. Yes, sometimes stocks and gold can rise at the same time, but if stocks are outperforming gold, it's hard for anyone to get excited about the gold market. Therefore, I keep a close eye on the Gold/S&P 500 ratio. I would like to see a strong uptrend, with that ratio rising, above the 200-day moving average, and the slope of the 200-day MA also rising, to get more excited about the gold market again.
Tom Luongo, author of Stocks, Shocks, & Rocks: After many years of watching gold like a man obsessed, I’ve come to the conclusion that gold responds positively to governmental chaos and negatively to periods of relative faith in government institutions. That sentiment is then mixed with real world liquidity of the banking system since gold is the easiest thing to sell to raise cash in any kind of market under repo collateral or liquidity stress.
We are rapidly approaching a moment in time where sentiment is turning against governments, especially in the U.S. and the EU and years of central bank largesse have created a bubble in sovereign debt which will become illiquid at the slightest provocation, despite the trillions sloshing around.
Itinerant, author of >Itinerant Musings
>Itinerant Musings: I am actually slightly ambivalent with regards to the term “cycle” as it implies a bull market following on the heels of a bear market. It does not really allow for a lengthy period of sideways trading, i.e. the kind of market we saw in the mid-90s. However, apart from semantics, and in response to your question, I pay attention to events with potential to influence metal prices and use chart signals to govern my entry and exit points. Apart from that, I try to identify strong stories with ample downside protection when investing in miners. Ideally, an idea will work even in the event of headwinds created by the price of the underlying metal.
Gold Mining Bull, author of The Gold Bull Portfolio: I look at gold supply and demand. The World Gold Council puts out quarterly reports. I'll look to see if central banks are still adding to reserves, total bar and coin demand from investors (which was up 13% in Q2 2017, year over year), and if investors are still adding to GLD positions. Jewelry is still the main contributor to demand.
To be honest, I don't pay close attention to short-term price movements in gold as I'm more focused on where I think the metal will trade over the next 5-10 years rather than the next 5-10 months (I touch more on this on the bottom question).
Simple Digressions, author of >Unorthodox Mining Investing
>Unorthodox Mining Investing: Logically, I look at the financial markets (gold included) from two main perspectives: long and short term. In the long term, I follow a number of economic measures, as, for example, real interest rates or physical demand for gold. In the short term (I speculate in gold futures actively), I follow a set of my self-invented trading measures - most of them are discussed in my weekly reports published on Seeking Alpha.
Viking Analytics, author of Commodity Conquest: I have two basic approaches in my precious metals investments. First of all, I view physical gold and silver as an insurance product that can protect me and my family from systemic financial risk. I do see the worldwide fiat monetary system as tenuous and, as a result, have decided to purchase vaulted physical metals to protect against the possibility of a financial “re-set.” I believe that it is reasonable to allocate 5-10% of one's investable assets. I never worry about today’s or next week’s value of these physical metals, and quite frankly, I hope that I never have to rely upon them in a financial crisis.
The second way that I invest in precious metals - both long and short - is related to some of the information that I provide in my Seeking Alpha premium service. I swing trade gold and silver based upon the five factors that I track in a decision matrix. Specifically, I consider:
- The short-term momentum trend,
- daily trend signals,
- value indicators that I have created myself,
- option expiration magnet values that tend to influence price particularly as we get nearer to option expiration dates, and
- commercial positioning that can be found in the weekly Commitment of Trader and other reports.
A recent summary of my five indicators is included below.
SomaBull, author of The Gold Edge: While the price of gold is at the same level it was at certain points in 2013-2014, there was an exhaustion event in the sector in 2015 where selling climaxed and the trend changed from bearish to bullish. Gold has been in uptrend since that time and is starting to recover losses from the 2011 highs. While this can be labeled a new bull market, it could be considered simply a resumption of the bull that started back in the early 2000s. That would mean what took place from 2011 to 2015 was just a cyclical bear inside a secular bull super-cycle.
There is also an eight-year cycle low pattern in gold that has established itself over the last 4-5 decades. However, statistically speaking, there is still not enough data to label this a definitive and predictive pattern. The most recent low in this cycle was expected around late 2016, but occurred in late 2015. Metal super cycles are also tough to predict in terms of their length. Given uncertainty in these patterns, I don’t rely on cycles to ultimately determine where the gold sector is headed. Rather, I’m looking at supply and demand, where the cost of production is at the moment relative to the price of gold, the level of money supply growth and inflation (here in the U.S. and globally), and other factors. Basing my analysis on the aforementioned factors allowed me to time the bottom well in late 2015/early 2016.
SA: What component of your portfolio is in gold typically, and how do you view the gold component of your portfolio, i.e. what role does it play?
Geoffrey Caveney: The first thing is to hold around 8% of the portfolio in physical gold. That number could be 6%, it could be 10%, but certainly no less than 5%. This is the biggest simple mistake that most investors are making right now, to not have this basic allocation to gold.
The role of this basic allocation to gold in one's portfolio is to protect oneself against all kinds of disastrous scenarios that could possibly happen to the rest of one's portfolio: (1) A stock market crash and/or (2) hyperinflation that destroys the value of the U.S. dollar and Treasury bonds are the two most dangerous financial scenarios, in which your basic allocation to gold is most likely to preserve and protect the value of your wealth.
Tom Luongo: Gold to me is savings. And by gold, I mean physical gold. Mining shares have counter-party risk; they are investments. As an Austrian economist, I make the distinction between my pool of real savings and my investments. This has caused me problems in the past with people on Seeking Alpha because we live in this environment where everything is an investment.
Gold, like cash, is savings. Today I would put the major cryptocurrencies - Bitcoin, Litecoin, Ethereum - in that category as well. With your pool of savings, you decide how to deploy that into taking on counterparty risk. These are the assets which you use to determine your own level of reserves just like the central banks mandate of the member banks.
During times of societal stress raising your holdings of these assets makes the most sense. But they aren’t investments. We call them defensive assets, but defense against what? Very few seem to understand and this is why gold engenders such virulent discussions among market observers.
Itinerant: I hold between 5% and 10% in physical precious metals, and I see that as a buy-and-hold position for the very long term. In a best case scenario, I might even pass this stash on to my children one day in the distant future.
In addition, I hold about 50% of my other investments in miners, with precious metals miners making up the majority of positions (using the term “miners” loosely here, including explorers and developers). This is my field of expertise when it comes to investing, and I typically look for growth stories with time frames ranging from a few months to a couple of years. I’ll be more than happy to let those positions run if a gold bull market eventuates, but I wouldn’t want to rely on such a bull market as the sole thesis for my investments in the miners.
Gold Mining Bull: I have an entire portfolio dedicated to gold stocks which I've called The Gold Bull Portfolio. It's comprised mostly of junior miners, developers and explorers, with the purpose of gaining leverage to gold prices, but also outperforming gold ETFs such as GDX and GDXJ. I have non-gold holdings in another portfolio (mostly energy stocks, REITs which I've covered on the site), and a retirement account with a basic target-date fund (Vanguard).
As a sum of my net worth, however, the gold portfolio makes up about 20% which I think is quite substantial. This is money I'm willing to risk because of the upside I believe gold has; I view it as a 5-10 year bet on higher gold prices.
Simple Digressions: Generally, 100% - I am totally focused on the precious metals market. In my opinion, the gold trade is a trade of these times (I do not want to distract myself from this core issue). On the other hand, to diversify risks, I actively speculate in a few futures markets (for example, U.S. equities or the U.S. dollar).
Viking Analytics: I hold 5-10% of investable assets in physical gold and silver. When the “stars are aligning” for a long position in gold, silver or miners, I might allocate 5-15% of assets for a long or a short position. The higher my confidence, the more I will allocate. My swing trading positions might last anywhere from 1 day to 2 weeks.
As I mentioned above, I consider my core position as an insurance policy.
SomaBull: I don’t own the physical metal at the moment, rather, I’m invested in the precious metal stocks instead. I have significant exposure to the sector, but I’m also very well diversified within it. Many view gold (and the miners to an extent) as a sound inflation hedge, and I would agree with that notion. But that’s not the only reason for my current positioning, as I also saw deep value in late 2015, and still do today.
Too many investors analyze gold and gold stocks without enough objectivity. Many consider them only something to buy when there is chaos/uncertainty in the world. There are polarized opinions when it comes to the precious metal, as the sector has been divided into two camps: 1. Gold bugs and 2. those that detest gold and see no value or use. There isn’t much of an “in-between.” But at the end of the day, gold is still an asset class that becomes highly overvalued and undervalued at times. If those who see no value or use for gold were to drop their conceived notions of the metal, they will find an asset class that not only has strong supply/demand fundamentals working in its favor at the moment but also incredible value based on those fundamentals. That’s what I see when I analyze this sector, and it’s why I bought in heavily at the beginning of last year. For me, the gold sector is a value play, and there is the benefit of an inflation hedge as well.
SA: One of the challenges with gold would seem to be that there is a lot of sentiment driving gold pricing in either direction. How do you manage that in your investing?
Geoffrey Caveney: Sentiment drives everything in global financial markets to a certain extent. I try to ignore short-term sentiment when making long-term allocation decisions. The need for a basic allocation to gold in one's portfolio should not depend on whether gold just went up or down $50 or $100 per ounce on strong or weak sentiment. Overpaying $100 per ounce now will not be a huge issue if and when the gold price skyrockets many $1000s per ounce in a financial crisis.
Tom Luongo: As I said before gold trades on dangerous mix of public confidence and short-term liquidity issues. This is why its trading is so misunderstood. It’s also why correlation studies with it are, at best, temporary. Because gold’s sentiment is determined by different psychological cycles than other sectors, and so pet theories (even ones I used to subscribe to) are only good for short-periods of time.
This is why I focus my work on the big geopolitical picture to gauge this sentiment; where we are in that cycle. Because that cycle is the one that governs all of the others. I’m not a human computer, I can only focus on one thing. And, for me, watching the breakdown of policy initiatives and rising and falling waves of public satisfaction are what truly moves markets in the long run.
Gold has always sat at the heart of that interplay, it is the asset that forms the base of Exter’s inverted pyramid and, watching it technically, from all time frames tells you where we are, regardless of price distortions brought on by Central Bank interference.
Itinerant: Sentiment doesn’t come out of the blue; it builds and is influenced by fundamental events. Consequently I pay attention to potential catalysts while weeding out the noise as best as possible. Ultimately, sentiment translates into chart patterns and therefore I watch and analyze the metal price charts. And with the miners, I look for stories providing sufficient downside protection even if the gold price moves against me.
Gold Mining Bull: I don't pay too much attention to short-term price movements or sentiment, however, I do sometimes trade in and out of my positions to lock-in profits and take advantage of sell-offs.
First, I have a rule that whenever a holding has doubled, I take profits no matter what, such as 10% or 20% of a holding. It's just a good idea for any investment in my opinion. If the stock doubles again, I do the same thing. If the investment thesis has changed, I'll also take profits and adjust positions accordingly.
Second, I think it's a good idea to add to gold positions when gold is oversold and sell/take profits when gold is overbought. For example, as I pointed out to subscribers recently, I took some profits in
Kirkland Lake Gold (NYSE:KL) because the stock had doubled,
but also because gold is nearing overbought levels on the relative strength index with a 64 reading (70 indicates overbought).
So, right now, the portfolio is made up of some cash (but not that much) which I'll look to re-invest more of when gold is nearing oversold levels (nearing a 30 reading).
Simple Digressions: I am using the Commitments of Traders (COT) report - it is a weekly database disclosing the positions held in gold/silver futures (and many other instruments) by a few classes of traders (for example, hedge funds). What is more, I have invented a number of sentiment indices based on the COT data - these indices help me in identifying the overbought/oversold market conditions where a relatively low-risk, medium-term (1-6 months) trade on the long/short side may be triggered.
Viking Analytics: I will periodically check sentiment indicators, but it is not one of my top five indicators. The DSI sentiment index, for example, uses such things as put/call ratio to determine investor sentiment. I believe that my OPEX Magnet is actually a more precise gauge than DSI, because I actually calculate the optimal option expiration settlement price that optimizes the put and call options in the gold market. Whereas the DSI might have “fuzzy math,” the OPEX magnet takes into consideration the actual value of every single near-the-money option to determine the optimal settlement price.
SomaBull: In the end, the fundamentals for gold will ultimately determine its direction. Just like with any stock or asset class. However, just like all assets, the precious metal isn’t going to trade in lockstep with its fundamentals at all times. Sentiment is the reason we have major divergences in the market. Gold is a highly volatile sector, particularly in the gold stocks. It’s not unusual for these miners to move up or down 3-5% each day. Sentiment can swing drastically in this sector, but that’s when you get those great opportunities (i.e. extreme differences between fair value and current value). When I believe that negative sentiment is out of line with the fundamentals, I will look to take advantage of the discount in the market. Strong fundamentals + negative sentiment is a powerful combination in terms of making sizable returns.
SA: I've used gold so far without mentioning miners. How do you invest in gold - ETFs, physical gold, miners, junior miners, other? What's your reasoning?
Geoffrey Caveney: For the basic allocation to gold, I prefer physical gold stored with a reliable party such as the Hard Assets Alliance, or for a market-based alternative I prefer PHYS, the Sprott Physical Gold Trust. I do not trust the GLD ETF because I do not think the HSBC Bank vault in London is the safest or most secure method to store gold, and because in an extreme financial crisis, there is the risk that the banks that administer GLD could liquidate the ETF, converting investors' holdings into cash against their will, and leaving investors without ownership of any gold investment at a critical moment when it is most necessary to own gold. This scenario may be very unlikely - but the reason to own gold in the first place is precisely to protect oneself against the risk of unlikely scenarios.
I also prefer a modest level of investment in gold mining stocks, including junior miners. I say modest because gold miners are very volatile and risky, and if you invest too much in the wrong miners or at the wrong time, you could lose a lot of money. I am afraid that I have seen many investors making this mistake. 5% of one's portfolio in gold mining stocks is a fine, acceptable level. I can understand going up to as much as 10%, although I think that is too high right now. But when I see small investors with 20% or 30% or 40% of their entire wealth invested in junior gold mining stocks, that is just a hugely risky mistake - I urgently caution investors not to make this mistake.
Tom Luongo: I have almost zero interest in gold ETFs. They are yet another layer of financial friction that gets in the way of price discovery. I recommend physical gold and individual miners/exploration plays. For ETF-style investors, royalty companies like Franco-Nevada (NYSE:FNV) are the way to go.
Within the sector I have two favorite stock types. The first is high-quality exploration plays. There are hundreds out there to choose from, but only a handful are worth considering. It is such a risky business everything has to go right. But I’ve had a good track record with being very picky about my gold explorers. But, if you do your homework right, know the people involved in the project and understand the economics of the deposit, there are great opportunities to turn speculative bets into multi-baggers.
The second part of the market I like are companies that revive legacy mines, abandoned when 10 g/tonne was bad grade. Today, 1 g/tonne is good grade. So, companies that use an existing mine’s revenue to organically grow its mine portfolio I’m a big fan of. There are a few like that. The problem with them is that it’s hard to make money in a bear market in them. All gold miners suffer in a bear market. But these firms will have the best leverage to a new bull market versus the majors which dominate the AUM of the ETFs.
I don’t believe in welfare for bad management.
Itinerant: I hold physical gold and silver bullion. And I hold a good mix of gold mostly junior miners and developers, plus Agnico Eagle (NYSE:AEM) as the only larger gold miner. Juniors typically offer the best growth stories, and this is what I mainly look for with these investments.
Gold Mining Bull: The Gold Bull Portfolio is made up mostly of juniors
(small and medium cap companies as opposed to multi-billion gold miners).
These stocks generally provide more leverage to gold prices,
outperforming when gold does well. However, instead of just buying an ETF made up of gold juniors such as GDX or GDXJ, I hand select my positions, focusing on the highest quality companies and weeding out the losers from these ETFs. There are a lot of crappy gold companies to be honest, and few good ones; the performance in these ETFs is dragged down by poor performers. I also major producers that are weighed down heavily by debt/poor fundamentals, high-cost operations and a general lack of focus by management (there are more than a few majors that fit the bill).
What I look for: I place a heavy emphasis on the quality of the management team (have they had previous success and are they experienced), if insiders are buying or own a substantial amount of shares (I like if they have skin in the game), if mine production is low cost or if the gold project carries low CAPEX and low projected costs (higher likelihood of profitability, or a takeover from a mid-tier or major producer), politically-favorable mining jurisdictions
(I avoid South Africa and Tanzania entirely, for example), if major gold producers have made an investment in the company (as this is a third-party validation of the company and signals the potential for a future takeover), and if the project is located near existing infrastructure or close to operating mines, among other factors.
Also, when I feel a gold junior is on the verge of a takeover or some positive news is about to be released (such as an updated feasibility study or a new resource estimate), I may look to increase my position to profit more (if I'm right), which was the case with Avnel Gold (OTCPK:AVNZF) before the takeover by Endeavour (OTCQX:EDVMF) was announced.
Simple Digressions: I am focused on small and mid-tier gold/silver producers. On my Marketplace service I am running a portfolio of up-to-ten mining picks (precious metals and base metals producers) selected using the following criteria: quality of mining assets, management’s quality (its track record), a set of self-invented financial measures, market valuation, near-term risks and catalysts, just to name a few. The reasoning is simple - I am looking for interesting, very often unpopular, high-quality producers with near-term catalysts (as, for example, a new mine to be put online shortly or a new brown field discovery that should lift up a company’s production soon). Quite often a mining company I am betting on is not covered by other analysts (for example, Dundee Precious Metals (OTCPK:DPMLF) - a company that, besides operating decent mining business, also runs a smelter).
Viking Analytics: I have created several proprietary indicators to determine my optimal precious metal allocations. One of them is what I call the Viking Gold & Miner Indicator. I use this indicator as a tool to decide which investment - gold or miners - has a better risk-reward profile. At the moment, I believe that miners have a better risk-reward profile than gold itself, and if I were bullish on gold, I would be allocating funds to GDXJ or GDX rather than GLD, for example. I have another indicator that compares the relative value of GDXJ to GDX.
SomaBull: As mentioned earlier, I don’t own any physical gold at the moment as I’m more focused on the individual gold miners. I originally bought the physical metal in 2003-2004 (along with physical silver). I held both for many years and finally sold around 2010 - making a very good return on these investments. The valuations of gold miners became so depressed in 2014-2015 that this time around the risk/reward heavily favored the miners much more than the physical metal. Especially when combined with the leverage that gold stocks provide due to margin expansion in a rising gold price environment.
In articles that I wrote on the market back in 2014-2015, I discussed how I thought the gold sector would be bottoming soon and the real returns would be made in gold stocks - not the metal. Gold and the NYSE ARCA Gold Bugs Index (or HUI) hit their bear market lows right around the start of 2016. Since then, gold is up 20% while the HUI is up almost 80%. Many individual gold miners are up 200-300% or more from the bottom, and they were even higher in the summer of last year. This year, the miners are showing gains but they are underperforming the metal on average. This is because of the GDXJ rebalancing (which had a large impact), some weaker fundamentals in several gold stocks, and technical related selling due to breakdowns on some gold miner charts. However, many mining shares are doing very well, and I continue to believe that gold stocks offer far more value and upside than the physical metal due to their leverage and extremely low valuations. My focus is mostly concentrated on the small to mid-caps, as these offer the most compelling risk/reward in the gold stock space.
SA: Where do you think gold is by the end of 2017, and by the end of the 2018, roughly? Why?
Geoffrey Caveney: If I had to guess, I would guess that gold remains range-bound between $1,200 and $1,299 per ounce by the end of 2017.
I expect that 2018 will be a very volatile year in global financial markets in general. However, that volatility could go in many directions, including an unexpected stock market BULLISH boom up to 3,000 or 3,500 on the S&P 500. On the other hand, such a bullish boom may not last all the way until the end of 2018. If stocks are still in a bull market at the end of 2018, I would still expect range-bound gold around $1,200. If stocks falter into a potential bear market by the end of 2018, gold could rise to $1,400-$1,500.
Tom Luongo: Gold’s bull market will begin once we get the sovereign debt crisis to unfold in Europe. This will send European assets into U.S. markets and the dollar. There is now more than $8.6 trillion in negative yielding debt out there. A lot of it denominated in dollars.
It’s looking like Q1 2018 is the most likely beginning. Between now and then there will be both a breakdown of public trust and a liquidity problem. Handicapping what gold will do is difficult.
It will want to rise on political chaos and fall sharply on dollar liquidity concerns. I expect a sharp selloff but the question is from what level? $1400? $1300? $1200? That will determine both the 2017 and 2018 price.
I will say this. I will not be surprised to see gold trading near its all-time high by the end of 2018 as a prelude to much higher prices.
Itinerant: I don’t see gold exceeding the 2016 high this year, and I am slightly more optimistic for 2018. However, I am cautious as I see a certain possibility for gold getting trapped in a sideways trade reminiscent of the mid-90s.
Gold Mining Bull: I don't make short-term predictions on gold prices because no one really knows where prices will go in the short term; prices are volatile and can be driven by fear and noise in both directions. However, in the long term, I am definitely bullish based on supply and demand.
I think the supply and demand picture is very favorable here as mentioned. Gold output has definitely peaked and I don't think we'll ever reach the level seen a few years back. Producers' gold reserves and production are falling, and it's getting very hard to replace both. When gold prices fell from $1,900 to around $1,100, operating mines were put out of business and many projects were scrapped. Honestly, there just aren't many economical gold deposits and projects out there with gold trading at current prices, and it would take much higher prices for some of these projects to get built. I see a lot of juniors touting million ounce gold deposits that will likely never get built because of huge upfront capital requirements and high projected cash costs or AISC (or a combination of both), permitting issues, high country risk, or some other issue. If you look at the average gold price performance dating back 15 years to 2002, gold prices have risen on average 11.2% per year. I am expecting prices to rise at that pace (at a minimum) over the next 10 years. So, you can say that I expect gold to finish the year around $1,400 per ounce, $1,540 an ounce by the end of 2018, and reach $2,000 per ounce by 2021-22, if it holds the pace of 11.2% average gains per year. I don't have a crystal ball, but I think we'll see $2,000 an ounce gold in the next five years.
Simple Digressions: Firstly, I have no idea where gold is by the end of 2017 (nobody can predict financial markets). However, it looks like gold is still in its secular bull market phase that started at the beginning of this millennium and the reasons supporting gold (artificially low real interest rates, huge debts carried by major Western economies or strong Chinese demand for gold bullion) are still intact. As long as these factors are at play, I am a gold bug.
Viking Analytics: I believe that gold is fundamentally under-valued due to long-term price suppression by central banks and commercial banks. This is not a “conspiracy theory,” it is a fact based upon a lot of evidence. I wrote an introductory article entitled Introduction To Gold Market Manipulation that might be an interesting place for a reader to begin their research on this topic.
If the price of gold continues to be suppressed, then it will likely remain range-bound between $1,200 and $1,300. If price suppression ends, then I believe it is reasonable for gold to move much, much higher. In the meantime, I will look to ride the waves up and down between $1,200 and $1,300.
SomaBull: Despite all of the negativity and bearish calls on gold lately, it’s still up 11% for the year. I believe that it will add to these gains and finish the year strong. For a few reasons: 1. Gold hit a high of $1,370-$1,380 in the summer of 2016 and has been consolidating since then. From the looks of the chart, it appears ready to breakout above the short-term range it’s been in over the last several months. If that occurs, then the next area of resistance will be the summer 2016 highs. That’s where I’m expecting gold will rise to by the end of 2017. 2. August and September are typically very strong months for the gold sector, so you have seasonality working in the precious metal’s favor over the next 1-2 months. That seasonal strength could help jump-start this breakout and add more fuel to the rally.
It’s difficult to predict with great accuracy where gold will finish 2018, but I will say that momentum should carry over into next year as the bull market becomes more entrenched. I’m expecting the precious metal to hit $1,450-$1,550 level at some point in 2018, but it might not finish the year at those prices. There will likely be some consolidation should my price objectives be reached.
SA: What's your favorite gold-related play? What's the story?
Geoffrey Caveney: Actually, I think platinum and palladium are excellent precious metal plays right now! Clearly right now platinum is lower compared to gold than its long-term average, and palladium is higher. But on average, the two metals together are relatively cheap compared to gold, and I think they have a lot of room to run much higher and outperform gold over the next 1-3 years.
Caution: Sprott's SPPP fund is now heavily weighted toward palladium and against platinum, because palladium has gone up much more since the fund was created. I prefer to buy and store physical platinum and palladium with the Hard Assets Alliance.
Tom Luongo: My favorite play is still Pretium Resources (NYSE:PVG). Valley of Kings is an incredible deposit, 13 g/tonne. The management is top-notch. It's built a $700 million mining facility with a pay-back time of just two years… at current prices.
And it is entering full production now at the end of a grinding bear market. The majority of this mine’s life will occur during a rip-your-face-off bull market as we approach the major breakdown of faith in our political systems.
Gold will shine here, so will silver. Pretium has both since Valley of Kings’ ore is mostly electrum. All-in-sustaining-cash costs should come in, even with a stronger Canadian dollar, under $500 per ounce. That’s simply fantastic in this market.
Right now, the market hates the stock. Even better, more to accumulate.
Itinerant: Detour Gold’s (OTCPK:DRGDF) thesis is still very much intact (Detour Gold: Teenage Nervous Breakdown), and I hold a good position in this mid-tier recovery story. As for developers, I like Falco Resources (OTCPK:FPRGF) for the quality of the asset as much as for the team behind it. That’s a story I am following closely for my subscribers, and it has already triples since I recommended it for the first time (Falco Resources: Meet Malartic Version 2.0). Falco still has a long way to go, I reckon. And finally, another step back on the development path, I like Treasury Metals (OTCQX:TSRMF) for all the reasons outlined here (Treasury Metals Inc. Will Come Back Into Fashion) and the developments since publication of the article.
Gold Mining Bull: It's no secret that I'm a huge fan of Kirkland Lake Gold. It was my top overall gold stock pick for 2017 and it's a real-life holding. It's gone from being a junior with a $700 million market cap to a mid-tier producer with a $3 billion market cap. Shares have more than doubled this year compared to a 10% gain in GDX. The stock has tripled dating back to 2015. While I took some profits recently (b/c of my strategy of always taking profits when a holding has doubled), I think the stock certainly could have more upside this year
based on recent positive news, which I discussed in a recent article.
Simple Digressions: Definitely Kirkland Lake Gold - it is a mid-tier gold producer run by excellent management and owned by Eric Sprott, one of the best resource investors. Last year the company merged with an Australian gold producer, Newmarket Gold, doubling its assets base. Now this miner holds two exceptional, ultra-high-grade mines: Macassa located in Canada and Fosterville in Australia. Interestingly, according to a few valuation metrics, Kirkland shares are still very cheap.
Viking Analytics: I believe that the streaming companies provide a compelling story. They essentially pay upfront cash for a long-term supply of gold and silver at below-market prices. If and when the price of gold and silver moves to fair value, it is reasonable to assume that the streaming companies will benefit to a greater extent than the individual mining companies themselves. I recently had an interesting conversation with Frank Holmes, who is CEO and CIO of U.S. Global Investors. Mr. Holmes’ firm recently launched a new ETF (GOAU) that has developed a unique approach to selecting individual miners based upon a “best of breed” approach that includes a heavy allocation to streaming companies. When the market cap and liquidity of GOAU improves, then I would prefer GOAU over GDX or GDXJ for my mining company investments.
SomaBull: I have several top picks at the moment in the gold stock space. I save most of them for subscribers. However, there was one I discussed back in May in a PRO article on Seeking Alpha. The company I’m referring to is Argonaut Gold (OTCPK:ARNGF). The stock is up 30% since then, and the valuation still remains extremely compelling. The company has many positive catalysts at the moment: Gold production is expected to increase 60% over the next two years, it has zero debt and $53 million in cash on the balance sheet (which is a higher than expected cash position at this time due to strong cash flow), all-in sustaining costs are under $900 per ounce and will likely drop even more in 2018-2019, and the stock price is breaking out above key technical levels.
Its operations are in Mexico, and it also has a couple of development projects that it is advancing (which the market seems to be giving little to no value to as the NPV of these projects is higher than Argonaut's current market cap). The company also has a very strong management team that is focused on cash flow generation and balance sheet strength. It’s not a company without risks, as the labor market in Mexico is more challenging than it has been in the past, and Argonaut still needs to hit its production targets over the next 1-2 years for this investment thesis to remain intact. But it’s a good story and so far continues to play out as expected.
Thanks to our panelists for joining us, and we hope you found this useful in your gold investing! If you're interested in following any of these authors or checking out their services, have a look at the list below.
- Geoffrey Caveney, author of Stock & Gold Market Report
- Tom Luongo, author of Stocks, Shocks, & Rocks
- Itinerant, author of Itinerant Musings
- Gold Mining Bull, author of The Gold Bull Portfolio
- Simple Digressions, author of Unorthodox Mining Investing
- Viking Analytics, author of Commodity Conquest
- SomaBull, author of The Gold Edge
Follow this account to stay on top of the Marketplace. We've had a great summer and are excited to continue growing through the end of the year, and we'd love to have you on board! We're continuing to publish roundtables and interviews through the coming weeks; following this account will get you alerts for those articles.
Coming soon: Darren McCammon
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclosures from the authors in the article: Geoffrey Caveney: I am long PHYS, gold, platinum, and palladium. Tom Luongo: I own physical gold and silver, Litecoin and Ethereum. Itinerant: Long AEM, DRDGF, FPRGF, TSRMF. Gold Mining Bull: I own shares of KL. Simple Digressions: Long GDX. Viking Analytics: none. SomaBull: long shares of Argonaut Gold (ARNGF).