Gold's Next Great Discovery Cycle

Written by Gerardo Del Real
Posted May 18, 2020

Last week I told you that M&A for visibility and liquidity’s sake was a precursor to what I see as the next great discovery cycle. One born out of necessity.

Gold has now surged to record highs in most currencies and has been rising beautifully alongside the dollar. A bull market I can trust.

Whether it’s rising tensions with China, dwindling reserves that need to be replaced now or later at much higher prices, or Fed Chairman — and asset-class sugar daddy extraordinaire — Jerome Powell preaching about the unlimited power of the digital printing press, the wind seems to be at gold’s back, which means we are likely due for a slight pause.

A pause is welcomed though I believe it will be brief.

The World Gold Council recently published Q1 figures showing gold-backed ETFs attracted the largest quarterly inflows in four years, sending holdings to a new record high of 3,185t. 

Not surprisingly gold coin demand increased 36% year-over-year while jewelry demand decreased by nearly the same amount (-39%). Not a surprise and a clear sign that demand for gold is being driven by capital seeking a safe haven. 

You’ve heard the billionaires lining up. Ray Dalio, Paul Tudor Jones, etc, heck even Warren Buffett might come around if he hasn’t already. Remember the late 90s when the Oracle cornered the silver… Never mind. Google it. 

Back to gold and the next great discovery cycle.

COVID-19-forced lockdowns drove gold production down to a five-year low of 795.8t at a time where it is clear that majors and mid-tiers — with share prices at levels they haven’t enjoyed in years — now have a green light to add to their reserve bases.

The appetite for reserves comes at a time where the market is finally rewarding exploration success.

Take Rupert Resources (TSX-V: RUP) (OTC: RUPRF), which last week announced a new discovery at its 100%-owned Pahtavaara project in the Central Lapland Greenstone Belt, Finland.

Rupert drilled 137.2 meters grading 1.8g/t gold from 10.8 meters.

The market has rewarded the company by nearly doubling its share price and sending its market cap near the C$300 million mark.

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Slowly but surely companies are getting back to work.

Well-capitalized companies with funded drill programs that deliver are going to be rewarded very richly because of the brutal nature of the bear market we are coming out of. 

You’ve seen the newsletter promotions (guilty) which highlight triple- and quadruple-percent gains from previous cycles that demonstrate the profit potential of the upcoming cycle. 

This is the part of the cycle where those lows used in those promotions are established. The next several years will be the part of the cycle where the comps (the large-percentage gains) are recorded.

If you’re going to speculate in one of the riskiest sectors in the world you should minimize that risk as much as possible by buying early (also guilty). 

Before gold touches the $1,800 level we need to see it break through $1,768. 

Maybe that happens later this month, maybe that happens next month. Either way, it’s happening.

Frankly, I hope gold pulls back a bit and shakes a bit of the hot money that has come in recently. It’ll allow me to add to the better names in the space and pick at the higher-risk, more speculative exploration plays I tend to personally gravitate towards. 

That pure exploration arm of the junior resource space is just starting to receive attention as most juniors are topping off treasuries to get back to work. 

You should already have a list of those companies in hand because, like the majors and mid-tiers looking to replenish their reserves, you’re either going to buy them at today’s prices or buy them later at much higher prices.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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