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Gold: the real thing? (by Simon Catt)

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Guest post: Simon Catt is a director of Arlington Group Asset Management Limited. He has over three decades of investment banking and capital markets experience between Canada, the UK and Australia.

April 17th at 1600 London, 1100 New York you are invited to “Gold. The Real Thing” Zoom webinar (invite link) hosted by Arlington and Mining Network when we will hear from three “mining billionaires”. More on event details below.


The (financial) heroes of tomorrow are heretics today. Buying Nvidia in 2024 will not make you rich just as buying Cisco Systems in 2000 was popular but costly.

Back in April of 2020 in the midst of Covid reflation we published a piece of research titled “The Fed Goes to Tokyo: Gold $3000/oz. We said:

“The US Federal Reserve – central bank to the world – is turning Japanese. The Fed’s historic and unlimited stimulus to do ‘whatever it takes’ to replace collapsing aggregate demand will unleash the Great Commodity Bull Market of the 2020’s led by gold….and send gold over US$3,000 per ounce before the end of 2021.”

Only 4 years too early. Hopefully wiser.

So, in April 2024, is gold the “real thing”?

Gold has been reinvented, no longer just an inflation hedge, it is now a sovereign insurance policy.

Gold’s revival as a monetary asset began when the US confiscated US$300 billion of Russian assets after the invasion of Ukraine in February 2022 — every sovereign nation not an ally of the United States suddenly reached for their wallet.

For example, China and Russia became “friends without limits”, meaning their common monetary enemy was the US. Russia, as the world’s largest oil exporter, and China, as the world’s largest manufacturer and exporter of goods, immediately began trading in roubles and yuan and urged their BRICS+ trading partners to do the same, trading in their own currencies backed by gold.

China is the world’s largest gold producer at 370 million tonnes per year, with Russia and Australia tied as the second largest gold producers at approximately 310 tonnes per year. Put another way, China and Russia can mine their own foreign reserves. The world’s major central banks have turned net sellers of US treasuries or foreign reserves, and turned into buyers of gold.

Macro commentator, Luke Gromen, from FFTT, LLC., captures this new trend with his insight that “gold has become an oil currency”. Oil is the world’s leading export. The oil market is x12-14 larger than gold, so as more oil is traded in currencies other than US dollars, so demand for gold rises.

Gold shares are only just waking up to record high gold prices. Newmont, the world’s largest gold miner, trades today around US$40 per share compared to US$78.89 per share all time highs in April 2022.

For the first time in a year folk are calling me (instead of crossing the road to avoid me) to ask my best gold (and silver) ideas. They ask:

“Is that Mexican gold deal you were doing still open? Do you still like Coeur [Mining]?”

“I haven’t seen the inflows yet but the enquiry rate has definitely picked up. A lot could change in a month.”

The opportunity is significant, to say the least. Measured against stocks, gold has basically not budged in 50 years.

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In the meantime, Hartnett from Bank of America observes US government debt is increasing at US$1 trillion every 100 days with the US Government interest payable at stable rates accelerating in a “debt spiral”.

It’s not new news that the US has an debt problem but, as the charts below highlight, gold and the national debt are highly correlated.

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We think the guy who has the best answer to why this is accelerating gold’s rise today is Luke Gromen, who explains the BRICS adoption of gold over USD as its reserve asset to facilitate bilateral trade, better than anyone we know:

“As Chinese people buy record amounts of gold (as is happening), and energy suppliers sell energy in CNY and then discharge CNY net surpluses in gold, gold prices rise in CNY terms, increasing the CNY-denominated wealth of energy supplier FX reserves, allowing them to buy still more CNY-denominated Chinese goods…while rising gold prices also increase Chinese consumer well-being and presumably, demand for Gulf nation commodities (in CNY). This is a virtuous cycle that can only be stopped if China stops buying Russian commodities, and it should continue to drive gold relentlessly higher, to the confusion of many western economists. Let’s watch”

— Luke Gromen, from FFTT, LLC

Luke’s observations show up in World Gold Council Statistics published April 3rd:

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And it’s not just gold.

Michael Oliver, founder & chief analyst at Momentum Structural Analysis, highlighted two significant opportunities with both gold and silver in his April 7th “360 degree” weekend newsletter:

“Silver momentum: “Breakout”. The outcome is dramatic and much of it occurs in the next two quarters. We expect that before the 2024 [United States] election there’s a solid chance  silver will be well above its $50 [per ounce] price highs of the past fifty years.”

Newmont Corp (the world’s largest gold miner)

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“This long-term (quarterly) momentum chart defines a trend structure that traces back to the mid-2020 momentum surge highs. It has been overcome. Yes, you might wait for a monthly close over the zero line, but given the massive breakouts registered by gold and silver and by GDX and SIL’s annual momentum structures (not shown here), waiting for a monthly close from NEM might be costly.

The 3-qtr. avg./zero line this quarter is $38.25. Any monthly close above it this quarter will take out all closing readings since mid-2022 on momentum as well as be above the downtrend structure.

We bet that when Stanley Druckenmiller bought into Newmont (and Barrick Gold) and cut his technology stock position in mid-February, many other fund managers probably smirked and chuckled. Back then Newmont was about 20% below where it’s trading now. We also bet that as the tectonic events unfold in the coming month or two, more asset managers (non-gold-bug managers) will begin to make a portfolio shift in measured phases, lessening their positions in the US bubble market and moving into gold and silver miners.

While most gold investors are focused on the decline in NEM since 2022 (a major decline), also be aware that there are times when miners underperform and then vastly outperform gold. Note the price advance in NEM from its 2018 lows to 2022 high-a 186% gain. During that same time gold enjoyed a 78% gain. It goes both ways.

MSA’s assessment is that we are once again about to see a period in which vastly undervalued miners (relative to gold and relative to the stock market) will shift into dynamic outperformance status vs. gold. We’re monitoring our GDX vs. gold spread.”

— Momentum Structural Analysis

Silver: annual momentum

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“Breakout.

The red horizontal on momentum is plotted through pivotal low closing readings (2021) and then pivotal high closing readings (2022 to 2024).

We’ve studied this situation archivally, and when we find major horizontal long-term momentum structures (in this case a flat horizontal structureI encompassing several years of basing action), the outcome is dramatic and much of it occurs in the next two quarters.

And that move is almost always a massive percentage gain for silver and gold.

We’re also monitoring our silver/gold [ spread (report sent April 4th). The breakout of that dynamic will echo and enhance (!) this breakout.

We expect that before the 2024 election there’s a solid chance silver will be well above its $50 price highs of the past fifty years. Yes, there will likely be at least one major wobble in that move, and we’ll try to identify that event in advance. And, yes, there will no doubt be many daily wobbles/ selloffs too. Our focus will be on a potential (and premature) profit-taking wobble that involves a month or more of adverse action, not just two days here or there. Stay tuned.”

— Momentum Structural Analysis

If you want to get rich then running against the herd can be wildly profitable if you get your timing right.

Do I believe this gold run is the real thing? With my own money I own: Couer Mining, IAMGOLD, Discovery Silver, Ausgold and Mithril Resources. I am at maximum margin, personal overdraft drawn and Her Majesty’s Revenue & Customs will be paid eventually.


EVENT INVITE

April 17th at 1600 London, 1100 New York you are invited to “Gold. The Real Thing” Zoom webinar (invite link) hosted by Arlington and Mining Network when we will hear from 3 “mining billionaires”, ie men that manage US$1 billion or more of mining investments, one of North America’s most followed momentum and structural analysts, and the “macro man of the moment” that can explain why Gold IS The Real Thing.

Eric Sprott, a legend in the world of mining investment with a $ billion family office, founded Sprott Securities and Sprott Asset Management. Eric’s influence across Canadian mining finance is as significant as anyone alive today.

Pierre Lassonde, founder of the worlds largest and most successful gold royalty company, Franco Nevada and philanthropist, is sometimes known as ‘the Fire Starter”. When your name becomes a noun aka “The Lassonde Curve” describing the typical lifecycle of a junior mining company you know you have had an impact on your industry.

Ned Naylor-Leyland, fund manager of the Gold & Silver Fund at Jupiter Asset Management in London is, we think, the foremost silver bull and expert in the world with the possible exception of Eric Sprott.

Luke Gromen, macro commentator and founder of “Forest For The Trees” connects the dots better than anyone we know explaining how and why The US Treasury and Federal Reserve policy interacts with BRICS+ determination to create an alternative to US dollar reserve asset base backed by gold.

Michael Oliver, founder of “Momentum Structural Analysis”, is one of North America’s best followed technical analysts in his April 7th 2024, 360 degree Weekend Report said: “We expect that before the 2024 [United States] election there’s a solid chance  silver will be well above its $50 [per ounce] price highs of the past fifty years.”


Guest post: Simon Catt is a director of Arlington Group Asset Management Limited. He has over three decades of investment banking and capital markets experience between Canada, the UK and Australia.


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The Oregon Group is an investment research team founded by independent capital markets experts, Anthony Milewski and Justin Cochrane.

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