Categories: Base Metals / Precious Metals
Topics: General Base Metals / General Precious Metals

Mickey Fulp, the Mercenary Geologist, on 2020 Outlook for Gold & Copper and a Few of His Top Resource Stock Picks

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the Mercenary Geologist, Mr. Mickey Fulp. Mickey, Happy New Year. How are you, sir?

Mickey Fulp: I am doing very well, Gerardo. Un placer otra vez. It's been quite awhile since we've actually talked.

Gerardo Del Real: Siempre es un placer, Senor Fulp. Yes, it's been a bit since we chatted. I believe the last time we chatted, publicly anyway, was back at the Beaver Creek Precious Metals Summit in, of course, Beaver Creek in Colorado.

There, at that time, gold was looking to hold the $1,500 level if I recall correctly. You and I had a conversation there about what we thought would happen to close out the year in Q4. You opined that tax-loss selling would accelerate and that people would front run the season. You were 100% accurate about that.

That's exactly what happened, but you also thought that 2020 was going to be a much better year at the very least for the commodities. I want to take it one commodity at a time. Let's start with gold. We can't talk bull markets in the junior resource space without talking about gold. I would love to hear your thoughts about this $1,573 level we're at right now and whether or not we're due for higher prices here, the remainder of the year.

Mickey Fulp: Well, we've had quite a run up. It's seasonal. We've done a lot of work on the seasonality of metals and stock indices. We certainly expected gold to run. We did not expect a geopolitical wild card to come into play. And that really has come into play and given gold this last rise up from – it was around what $1,510-$1,520 maybe – so the last $50 I think is directly due to the geopolitical tensions between the U.S. and Iran.

But once again, this is the time for the seasonal rise of gold. From about mid-December until the end of February is no doubt the best time for gold, year after year after year. So this run up was expected. The length and breadth of it so far is possibly not expected, but we'll see where it goes from here. You got to be bullish on it.

That said, I think it's probably gone up too hard, too fast. We would expect some consolidation as profits are taken here. So will it retain this $1,570-$1,575 level? Who knows? But there's reason to think it's due for a step back.

Gerardo Del Real: Let's talk some of the non-geopolitical factors, and those should not be dismissed. They're very serious ones obviously with the escalation in the Middle East. But let's talk some of the monetary headwinds and tailwinds, frankly, that gold has going for it.

We've seen a weakening of the dollar recently. I personally don't think that will hold up in the next quarter or so. But I want to get your take on the monetary factors affecting gold. The ECB has a new head in Christine Lagarde, who is notoriously dovish, right? And has very clearly stated that she is all for continued easing, continued dovishness. So I think we can anticipate that from the ECB.

Here in the U.S. we just passed a trillion dollar defense spending bill that surprise, surprise, both sides of the aisle got to agree on, right? They can't agree on anything except for spending taxpayer money.

Mickey Fulp: Except to fund never-ending wars, right?

Gerardo Del Real: Exactly. Funny how that works. So I'd love to get your take, Mickey, on the monetary factors in play and whether you think that'll benefit gold here later in the year.

Mickey Fulp: Well, certainly a weaker dollar always benefits gold. The dollar over the course of the past year was basically flat and range-bound. I think it moved about 4% total up and down over the course of the year.

There's little reason I think for that to change. Trump is on board for a weak dollar. We're sitting at 97 flat this morning, as we speak. But certainly when the dollar goes down, gold generally goes up with a negative correlation. The fact that everybody is continuing to increase the money supply. Call it whatever you want, quantitative easing or buying your own treasuries, whatever.

Gerardo Del Real: Overnight repo operations, right? Call it anything but QE.

Mickey Fulp: Yeah. That was the buzz. That was so 2010s, Gerardo, the quantitative easing as government speak or whatever news speak, whatever you want to call it. So we can't call it that anymore. But the Fed's been buying overnight repurchase agreements from the bank. So they're basically increasing the money supply overnight.

There's reasons why gold goes up from mid-December or the end of December. Number one is all settlements are done in U.S. dollars in the last month of the year. So that tends to flatten out gold or knock it down in early December. And then you see this kind of steady rise up as we go into the new year. So I expect that to continue. Where's gold going this year? Really, I have no idea. Will it make $1,600? Will it go higher? Well, possibly.

But once again, we like to see markets that go in two steps forward, one step back, for good markets. Markets that go exponential like palladium, those are not sustainable. So probably the big story last year was palladium up 55% over the year, but that's been going on for a while now. Palladium, since January of 2016, when all the metals and oil, all the commodities hit their decade lows or thereabouts, palladium's up almost 300%.

Gerardo Del Real: Sure. Let's talk a market that I know you and I agree on, has great mid to long-term fundamental, sustainable fundamentals. That of course is the copper market.

I would love to hear your short-term take on copper, which has obviously been affected by geopolitical factors. Of course the China-U.S. trade deal, which has yet to be signed as of January the 7th but is supposed to be signed any day now, every day now, right? Mickey, what are your thoughts on copper, here in the short term?

Mickey Fulp: Well, we agree on the mid to long-term supply-demand fundamentals, both very bullish on copper. Short term is still equivocal. I think that agreement is scheduled to be signed on the 15th, so that's a week from tomorrow. That's the guidance I seem to remember from the get go. That certainly is going to give some clarity to the copper market.

Copper has been stronger for the last five to six weeks, but I don't think we can expect it to move upward as we both expect it to at some point based on these compelling supply-demand fundamentals, even in the short term with inventories very low, until there's some clarification of what this trade deal actually means and what it means going forward. The base metal complex, in my opinion taken as a whole, will become very bullish once there is some real movement in this trade snafu.

Gerardo Del Real: And the bottom line, right, Mickey, is that we need clarity. Governments need clarity to pencil out budgets and get into the infrastructure development plans that many countries have put on hold. So you think that once we get that clarity and some stability in that aspect of it, you think that then the governments will step up and we'll see some infrastructure stimulus?

Mickey Fulp: Well, we would hope so. Although I doubt if the current Congress is going to do anything until after the election. There's just a standstill. Hell, they can't even try the guy in the Senate after the House impeached him. We'll see if they even choose to do that. So there's lots of muddling, meddling. I don't see that changing in the U.S. until after the election and we get some ideas to what kind of government we're going to have for the next four years.

China keeps trying to do some sort of infrastructure build out. But realize that copper demand is really dependent on the last phases of infrastructure build out. To build a building or a highway or anything, you've got to put the steel and the concrete down first and the finish work is where the demand for copper comes in. Some people argue right now that China is in a recession. I certainly don't think that their 6% annualized growth they come out with every month is real.

But I think we've got to wean ourselves from the idea that the world commodity demand is completely dependent on China. China has had its run up and it is no doubt slowing down. It's been about 4 and 1/2 years since I've been to China and I was in cities at that point. But when I was there a decade ago, I was quite impressed by the amount of infrastructure that had been built that was completely unused and I think that's still the case. So they've overbuilt, they've stimulated their economy with infrastructure build out as opposed to the Western world, which stimulated their economies with creating money and buying it back.

Gerardo Del Real: Agreed. Agreed. Let's pivot to the junior resource equities. We talked gold and copper, the actual commodities. How does that translate into the juniors? Mickey, do you see a V-shaped rebound in the sector or do you think it's going to be company specific? I suspect I know what you're going to say but I want you to say it anyway.

Mickey Fulp: Well, as this bear market in the Toronto Venture Exchange continues, and I will argue it's continuing, we had something on the order of a 1% gain in the Toronto Venture Exchange index. In 2019 1% to 2% despite the fact that gold was up 18%, I don't see that changing. It's increasingly apparent to me that the Toronto Venture Exchange, which is what you and I both trade and make our profits on, other than probably our astounding returns on our IRAs over the last couple of years.

That market is bifurcated between the haves and have nots and the haves prosper and they certainly will prosper with higher gold prices and hopefully higher copper prices, higher oil prices. But then you have the have nots and there are more and more of those, it seems, as time goes on. I don't see them coming out with anything out of this. There's only maybe 200 or 300 good projects in a world. When you have 1,200 juniors, that means that 900 to 1,000, what is that? 70% to 80% of them don't have projects that will attract legitimate dollars or "in the know" dollars, let's put it that way.

So I'm increasingly bearish on the great number of juniors, but probably quite hopeful and cautiously optimistic, if you will, about the haves on the Toronto Venture Exchange.

Gerardo Del Real: So a stock pickers market is what it sounds like you're saying, Mickey.

Mickey Fulp: Well, we're both stock pickers. So we got to talk our own books, right?

Gerardo Del Real: I love it. Let's pick some stocks then, Mickey. What do you like right now? Give me two or three names of companies that are on your radar that you would encourage people to further due diligence on.

strong>Mickey Fulp: I own and cover three companies right now and I'll stick with those. First off is Ely Gold Royalties (TSX-V: ELY). We picked that in February of 2018 at $0.09. It's trading at $0.44 today. It's been as high as $0.47. It's being rebranded as a royalty company. It has a revolving line of credit with Eric Sprott to the tune of $6 million bucks. So we continue to expect that company to prosper as it is revalued with its junior gold royalty peers. It's about halfway there in market cap right now and so continue to be bullish on that stock.

I continue to be bullish on Trilogy Metals (NYSE: TMQ), which we picked in May of 2016 at $0.65 US, trades mainly on the New York American exchange. It has been trading in the mid-$2.50 range, now. It has catalysts coming we expect very soon. The final EIS decision on building of the Ambler District road in Northwest Alaska. The company has the two best, highest grade, giant, undeveloped copper deposits in geopolitically safe jurisdiction, that being Alaska, in the world. And so I remain quite bullish on that stock. At some point, I think that South32, their 50% joint venture partner, will make a move to take that stock out and I'm waiting for that takeout.

And then finally a private company, Real Gold Resources, should be public very soon. It's going through the final approval from the Toronto Venture Exchange. We covered that in mid-September on the anticipation that it would be public in due course, it's getting very close. A Carlin-type play in the Kyrgyz Republic. For my accredited subscribers – and my subscription service is free – there's a private placement that you can get into and that private placement is $0.35 with a half warrant, if memory serves, at $0.50. So that's available and once that company is trading, we'll come out with a full blown report on that.

Gerardo Del Real: Excellent. Mickey, a pleasure as always. Where can people find your work and insights?

Mickey Fulp: The website is mercenarygeologist.com. I run a sponsorship model. All the companies I just mentioned pay a sponsorship fee to be on my website. I own all those stocks. It helps to be a free subscriber because then you get my stock picks. If you're not a subscriber, you do not have access to my stock picks. We have 7,000 subscribers now and we also have over 51,500 Twitter followers @mercenarygeo.

So I encourage you to follow us on Twitter and get some insights about the markets and various other things including my beloved sports teams from St. Louis, Missouri.

Gerardo Del Real: We'll definitely be talking Cubs-Cardinals come this late spring and summertime. It should be a heck of a year. A word to the wise, I appreciate the disclosure there on the sponsorship model as a rule of thumb, everybody, because there's going to be a lot of new eyes in the sector this year, you should always assume that when you hear us or anyone else for that matter talk that the people talking are biased because the bottom line is if we weren't biased, we likely wouldn't be talking about the companies or the people that we're talking to. I think that's a good rule of thumb. There are a lot of companies out there that don't merit attention or due diligence. So if we cover a company or choose to highlight a company, we probably like them for a reason. Fair enough, Mickey?

Mickey Fulp: I think that's fair enough. We should admit that we talk our own books. We have skin in the game, and I think that's very important. I may be talking my own book, but realize when you prosper, I'm prospering too and vice versa.

Gerardo Del Real: Well, cheers to a prosperous 2020. Mickey, thank you so much.

Mickey Fulp: Thanks a lot, Gerardo.