Five ways to play the new Aussie gold rush

Thursday, 12 December 2019
Melbourne, Australia
By Bernd Struben

  • Markets
  • Hunting for rocks

We’re in the middle of Victoria’s next gold rush. The increase in spending on Victorian exploration and huge growth in jobs means confidence in Victoria’s minerals sector is high.’

Resources Minister Jaclyn Symes

I’m writing to you from our head office in Albert Park today.

It’s good to be back in Melbourne for a few days. And good to touch base…face to face…with Port Phillip Publishing’s editors and analysts again. Alongside all the other staff working behind the scenes so we can send you our best investment ideas. Ones you won’t find anywhere else.

Though I’m still adjusting to the whacky local time zone. My computer tells me it’s 9:00 am, South Australia time. But the office clocks insist it’s 9:30. ‘Mini-jetlag!’

Anyhow, at risk of sounding like a broken record (remember those?) I want to draw your attention back to gold.

As mentioned yesterday, gold’s pulled back just over 6% in Aussie dollars since hitting an all-time high in early September. That’s also seen the share price of most Aussie gold miners slide.

If you bought in near the peak, that’s not the best of news heading into the Christmas holidays. But despair not.

Having canvassed our editors I found they are almost united in their conviction that gold will move to new highs in 2020.

(If you’re wondering, Vern Gowdie is one of the few dissenters. He does view gold as an excellent investment…but not until after the almighty market crash he sees on the horizon.)

Our head of research, Greg Canavan keeps a close eye on the gold market. Here’s his latest analysis:

In my view, gold will fall to at least US$1,430 before this correction plays out. Having said that, a firing up of the tariff war could put a rocket under it. But for now, the odds suggest the correction will continue.

If the current trend continues (and I think it will) gold will likely hit support… in early 2020. That will likely be an outstanding buying opportunity.’

At today’s gold price of US$1,475, Greg’s forecast calls for another 3% or so downside for gold before the next big upswing.

Over at Rock Stock Insider — the new investment service launched by our friends at Fat Tail Media — Aussie gold guru Shae Russell also sees gold stalling for a few more weeks. Then — tariff war or not — she expects it to rocket, with US$2,000 an ounce well within reach.

Mainstream analysts, as you’d expect, are a bit more…well…mainstream. It can be scary, after all, to wander too far away from the herd.

But even most mainstream pundits are predicting another big leg up for gold next year.

I’ve covered some of them for you earlier this week. Goldman Sachs and UBS Group both forecast gold to hit US$1,600 next year.

Today Commonwealth Bank commodities and energy analyst Vivek Dhar joins the pack. According to The Age,Mr Dhar says the prospects of the spot gold price hitting $US1,600 per ounce next year are “reasonable”.’

How’s that for going out on a limb?

Look. whether gold pops to US$1,600 per ounce or all the way to US$2,000 it will mean good news for investors holding physical gold…and gold stocks. Not to mention government coffers.

South Australia and Victoria are already in the early stages of a new gold rush.

From The Age:

Gold is among the most significant contributors to Victoria’s resources sector, rising 18 per cent to $613.3 million in 2017-18…

The total amount of gold extracted in Victoria reached 364,225 ounces in 2017-18, an increase of almost 17 per cent on the previous financial year.

State authorities expect the growth in gold to continue.

Now there are a lot of companies…big and small…out there hunting for gold. A few will strike the motherlode. Many others will come up empty.

That’s why Shae Russell has developed a unique process for vetting gold stocks before she even considers recommending them to her subscribers. That doesn’t mean every one of her recommendations will strike it rich. But it does help eliminate a large swathe of gold explorers Shae believes are searching the wrong patches of dirt.

In her new report, Shae makes five recommendations that offer you four ways to gain exposure to gold’s new boom time.

  • As a short-term trade…
  • As a longer-term income play…
  • As a play on a possible explosion in demand for physical gold…
  • As a hedge against a financial or stock market crash.

And I haven’t even mentioned her gold USB stick yet. That’s packed with useful insights and interviews with some of the world’s top names in the gold sector.

Like Rick Rule.

(Details here…)

I’ll share an excerpt with you right after we check in on the markets…

Markets

Overnight, the Dow Jones Industrial Average closed up 29.58 points, or 0.11%.

The S&P 500 closed up 9.11 points, or 0.29%.

In Europe the Euro Stoxx 50 index closed up 15.57 points, or 0.43%. Meanwhile, the FTSE 100 gained 0.03%, and Germany’s DAX closed up 76.02 points, or 0.58%.

In Asian markets Japan’s Nikkei 225 is up 51.221 points, or 0.22%. China’s CSI 300 is down 0.11%.

The S&P/ASX 200 is down 42.74 points, or 0.62%.

West Texas Intermediate crude oil is US$58.92 per barrel. Brent crude is US$63.72 per barrel.

Turning to gold, the yellow metal is trading for US$1,474.88 (AU$2,146.84) per troy ounce. Silver is US$16.87 (AU$24.56) per troy ounce.

One bitcoin is worth US$7,197.92.

The Aussie dollar is worth 68.70 US cents.

Hunting for rocks

You’ve probably heard of Rick Rule.

He’s the CEO of Sprott US Holdings. And widely acknowledged as one of the world’s foremost authorities on all things gold.

As Shae says, ‘When it comes to companies hunting or digging up rocks, Rick knows what to look for.

Shae managed to snare Rick of an exclusive interview. I can’t tell you everything they said. That’s all captured on the golden USB stick I mentioned earlier, reserved for subscribers.

But here’s an excerpt:

Shae:

Now, first of all, what I want to do is I want to talk about your views on gold and how you see where gold fits with the US dollar. Is gold essentially challenging the validity of the US dollar at the moment?

Rick:

I think there was a point in time when gold did challenge the US dollar, likely before you were born in the 1970s — well within my memory span.

Looking back, in 1981, the market share of precious metals and precious metals securities in the US investment universe was around 8%, which is a different way of saying that gold’s market share was 8% of all investible assets in the United States.

Today, the same number is between one third of 1% and one half of 1%. The three-decade mean is about 1.5%.

I will argue, if given the chance, that over the next five years or so, while gold won’t recoup its former market share, it should, in my opinion, revert to the mean. If that happened, demand for gold in the largest investment marketplace in the world would quadruple or quintuple.

So, I’m not one that’s going to suggest that gold would win the war against the US dollar, but I believe it’s going to lose substantially less badly than it has in the last 10 or 15 years.

Shae:

So, as you just pointed out then, in that argument, there’s been a massive reduction of people allocating precious metals to their investment portfolios. Why do you think that is?

Rick:

In my opinion, gold reacts to many stimuli, but the most important stimulus is confidence.

In particular, on a global basis, global confidence in the continuation of the purchasing power of the US dollar.

The US dollar is expressed probably best in the context of the US 10-year Treasury, which is institutionally the world’s benchmark security.

I would argue that people who are versed in arithmetic, rather than people who are versed in narrative, would suggest that investors today are confusing liquidity.

The fact that there’s lots of cash in the system worldwide with solvency. Our ability to service and repay the debts that we owe each other on an individual level, on a corporate level, but particularly on a governmental level.

I think people are conflating the fact that there’s lots of cash in the system with the fact that the debts that we owe each other are probably arithmetically unsustainable.

Shae:

Given that the arithmetic favours gold, do you think there’s sort of been an active campaign to lead investors away from gold and into other supposedly more liquid assets? Encouraging people to get into the stock market and get into bonds or to move into cash?

Rick:

I’m not one of these who believes in ongoing thorough conspiracies.

Shae:

Yes.

Rick:

Certainly, all markets are manipulated.

If big financial interests, as an example, can manipulate a market as large as the labour market, they can easily have their way with gold, where the paper trades can exceed the physical trades by 500 times, not percent.

Certainly, you see circumstances where, at periods of the day when the trading volume is the weakest, people sell immense amounts of gold.

Obviously, that’s not the action of a profit-seeking trader with a gold position.

It’s somebody that’s trying to influence a physical position with a paper position. Obviously, it’s manipulation.

Now, the idea that the biggest banks in the world, the US government and all these people had a 30-year conspiracy to depress the price of gold, I mean, on the face of it it’s silly.

These are the guys who can’t deliver the mail, can’t educate the kids, lost the war on poverty, lost the war on drugs, lost the war in Vietnam.

We’ve got nothing to fear from them. The truth is that gold has traded inversely to confidence and we’re in an extremely confident period.

There was no need to manipulate the gold price relative to the US dollar because the US dollar was kicking the stuffing out of gold.

I think that’s about to change.

You have to appreciate Rick’s dismissive take on government. And his complete ambivalence to conspiracy theories.

But the biggest takeaway here is his view that the lengthy run of the US dollar ‘kicking the stuffing out of gold’ is about to change.

And that, as Shae points out, still offers you a timely opportunity to invest before the boom.

You can get the full scoop here.

Cheers,
Bernd