Markets caught what-for last week as the last vestiges of greed turned into abject fear. The reason: an emergency 50 point rate cut by the Fed—one that telegraphed panic from the gatekeepers of the U.S. economy—brought about by the pressure COVID-19 is exerting on corporate profits and earnings forecasts.
During the tumult, U.S ten year money traded below 1%—a move never before witnessed. The U.S. ten year note is currently yielding 0.50% as I type this piece.
On the other side of the pond, Germany’s benchmark 10-year Bund yield fell to a six-month low of (negative) -0.739%—that’s very near the all-time lows registered last Fall at the height of the Sino-U.S. trade war.
The European Central Bank meets next week. An additional rate cut is expected, but with rates already firmly in negative territory, one has to wonder what good it will do.
One really should ask oneself, “have declining bond and note yields not already factored these cuts in?”
The current thinking is that the Fed will cut rates 75% BPS at their next meeting on Mar. 18 (you can’t make this shit up).
Still on the subject of COVID-19, I just picked up the following headlines over at Tommy Humphreys ceo.ca:
- Saudi locks down Qatif as coronavirus surges in the Gulf
- Saudi Arabia suspends all schools until further notice amid coronavirus concerns
- State Department urges US citizens to avoid cruise ship travel(the travel industry is already on its knees)
It would appear the only thing immune to the virus is gold
To many, gold is a no-brainer, especially in this environment of radical 911 interest rate cuts.
The “gold is a barbarous relic” argument doesn’t hold H2O anymore—it’s also immune to counterfeit via accommodative fiscal policy.
As my colleague over at Equity Guru is oft heard to say…
Why is all this debt good for gold?
Because 100% of the debt is based on fiat currency (paper money), and it is very easy to manipulate supply. The U.S. – for instance – just fires up the printing presses when it can’t make an interest payment.
Gold supply is finite. No act of Congress can magically make a tonne of gold appear on the lawn of the White House.
Well crafted Mr. Kane.
Technically, the metal is in a bull market.
This is classic bull market action: an initial powerful surge launched late last May is met with a multiple-month consolidation, after which it breaks out hard to the upside.
Subsequent selloffs quickly lose momentum and the accumulation resumes creating a series of higher highs and higher lows.
As I type away on my keyboard, the metal is testing upside resistance at $1690 to $1700 in overseas trade.
Also overseas, the nearby S&P futures contract is trading down 4%, and then some.
Obviously, gold’s safe-haven status is well intact.
Stink bids
With the expectation of continued market volatility and the fact that margin clerks factor in to the selling pressure large, there’s never been a better time for stink bids.
The stink bid… entering a bid so far below the current price that under normal market conditions, it will never get filled. But during periods extreme market volatility, that lowball of lowball bids, suspended out in the middle of cyberspace, gets taken out when markets crumble, and prices gap down.
Almost all of the high-quality entities we follow here at Highballer stocks were impacted by the sweeping volatility experienced in recent sessions.
Zones representing solid support were violated with tremendous force during the Feb. 28 session. A-list companies blew through support zones like they didn’t exist, before surging higher at session end. Those who were nimble and recognized the opportunity were rewarded with solid gains as the Feb. 28 session ground to a close.
We noted some of these opportunities last week. One other A-list company I meant to highlight was Metalla Royalty and Streaming (MTA.V). There was a glorious opportunity to pick up shares in this top-shelf royalty co at a huge discount.
For those not familiar with Metalla, I cover them over at Chris Parry’s Equity Guru. The following link is good for a few insights:
Metalla Royalty & Streaming (MTA.V) – aggressively growing its royalty and streaming asset portfolio
Turning to PDAC, I wasn’t there—I backed out at the last minute after re-injuring my ribs during a mine site tour. But sitting on the sidelines, I caught an episode of BNNs Market Call where the venerable Brent Cook and Joe Mazumdar named our HighGold Mining (HIGH.V) at Top Pick.
If you’re unfamiliar with HighGold, my maiden article six weeks back will more than bring you up to speed:
Quoting Joe Mazumdar from the BNN episode: “its exploration, but with a known deposit, and what do we like? …we like high-grade, but we like continuity, and we like thick deposits… and this (HighGold) is that.”
As Brent Cook was keen to note, there’s good geological evidence that a hefty chunk of the deposit was displaced by a fault, and the company has a very good idea of where it lies. This displaced portion of the deposit (NE Offset on the map below) will see a good amount of drilling this summer.
Cook also noted that there’s a huge alteration zone that has never been tested.
“It’s pretty interesting” stated Cook.
I view Cook and Mazumdar as rock stars in the junior exploration arena. I like it when my insights are aligned with theirs (no apologies for the puns).
Importantly, HighGold has established a good working relationship with the local indigenous community in the area.
If you’re still on the fence regarding this A-list company, expand your due diligence. Consider that with all of this geological potential, the company has only 40 million shares out and roughly $14M in the bank.
That’s a tight share structure and $14M will buy a lot of exploration.
And as we highlighted last week, the company is not a one-trick pony. They have just embarked on a 5,000 meter diamond drilling campaign along the Abitibi Greenstone Belt.
HighGold Mining Commences 5000-Meter Winter Drill Program on Timmins Area Gold Projects
A two rig, 5,000-meter dd campaign is a fairly aggressive program.
This program will target:
- known zones of high-grade gold mineralization;
- areas of surface geochemical and geophysical anomalies;
- flexures along major regional structural breaks which are known to host gold within the greater Timmins gold camp;
- potential intrusive-related gold prospects.
“Particular emphasis will be given to the Munro-Croesus property and its historically mined, high-grade gold mineralization. Past diamond drilling by the previous owners in 2011 intersected 18.79 g/t Au over 4.1 meters in the hanging wall to the mined Croesus Vein and recent geological interpretative work by HighGold indicates there may be an opportunity to identify unmined portions of the historic Croesus Vein within close proximity of surface. The Company also plans to drill test other gold bearing quartz vein systems mapped on the Munro-Croesus property as it develops a property-scale exploration model. The majority of these vein systems have had no prior drilling.”
As you can probably guess, I’m rather enamored with the short to medium-term prospects of this company.
This next video is a presentation captured from Eric Coffin’s (another rock star) Metals Investment Forum.
Final thought
Without a doubt, there’s more volatility in store in the days and weeks ahead.
If you have dry powder and are cognizant of the values present in the junior exploration arena, you are in an enviable position.
Buying on weakness while placing stink bids well below the market could pay off handsomely as this bull market in gold gains traction.
We stand to watch.
END
Greg Nolan.
Postscript: taking a look at trading overseas, gold tagged and is trading above $1700.
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