Below, please find an excerpt from this week’s edition, in which Gerardo and I discuss a transitory week for gold and what we see happening next.
Publisher, Resource Stock Digest
Gerardo Del Real: Gold had an interesting week last week, especially because it was down below $1,700 and ended up moving higher than that. It closed last week at $1,725.
And what was interesting to me is that it did so with the dollar moving up a bit, and then the ten-year yield up a bit as well. So, when we look for correlations, we look for the way one thing trades against the other thing. We've talked at length recently about the correlation between real rates and the dollar and gold. I'm really curious to see if this week it's followed up with a move higher.
Having the dollar higher, having rates higher, and having gold bounce back was encouraging to me. I don't think we're, as Keth McCullough would say, in a new quad yet, but I think it's clearly starting to show signs of a change in trend and direction. And that may take months to play out.
But it’s a hell of a buying opportunity if you're somewhat patient.
Nick Hodge: It was a transitory week. It was a bit confusing because, as you say, the typical correlations that we've been seeing started to break down a little bit. This comes after a bit of a rocky road the week before in the markets. But we talked about it not being the end of the world, right? Because we were watching the VIX and the VIX hadn't spiked up, but you did get into true correction territory with the NASDAQ, albeit briefly. And we've also talked about, or at least I've definitely written about, how things are happening faster now. So a correction that takes typically weeks to play out, you just saw play out in a matter of a couple of trading days.
But more importantly, what I was writing about is you got that little chink in the armor now. So it's not just straight up like it has been, you've had that little bit of pullback, a lower high, and then it is confusing because the rates have frankly completely turned around to start the year. If you look at a year to date chart of yields, I'm talking about, it's going straight up.
But if you pull it out farther, you can see that the trend for rates is still down. So, like you say, it's going to be interesting to see if this is going to be a reversal of what we've been seeing, or if it's going to be more of the same old, where we see the dollar start to back off a bit and rates start to come back down. That's obviously what we're watching. And it's a bit uncertain, frankly.
So I took a bit of profits last week, which I was writing about in my premium publications. In Foundational Profits we took 40% profits on the energy sector, for example. And we're sitting on a bit of cash, because I'm interested to see exactly if this is the turn of a cycle, or if this is just a short term blip.
Gerardo Del Real: I tell you who wasn't waiting, Newmont (NYSE: NEM) wasn't waiting. And we said a couple of weeks ago, I wrote an article, you've written several about how we expect these depressed equity prices in the gold space to be taken advantage of by cash-rich producers.
And sure enough, Newmont decided to expand its footprint in British Columbia’s Golden Triangle with a C$393 million purchase of GT Gold (TSX-V: GTT). It was done at a substantial premium. And again, I think this is just the absolute start of what's going to be a merger and acquisition cycle that leads to a drastic rerating of the better companies, companies like Revival Gold (TSX-V: RVG)(OTC: RVLGF) and Perpetua Resources (NASDAQ: PPTA)(TSX: PPTA) and Magna Gold (TSX-V: MGR)(OTC: MGLQF) that either have a short timeline to production, are in production, or have a short timeline to a permit on a world-class asset.
The premium was pretty robust, 38% premium to the 20 day volume weighted average price of GT Gold shares. Good deal for shareholders. Newmont's likely going higher. And if it wants to continue to produce at its current levels, it's going to have to go out and make more acquisitions, as are the other companies.
Nick Hodge is the co-owner and publisher of Resource Stock Digest. He's also the founder and editor of Hodge Family Office, Family Office Advantage, and Foundational Profits . He specializes in private placements and speculations in early stage ventures, and has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world.