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PDAC Attendees Much More Cautious This Year

Commentaries & Views

Earlier this week, I attended the annual Prospectors & Developers Association of Canada (PDAC) conference in Toronto. It is the premier destination for mining companies to mingle with suppliers, customers, potential investors, consultants, and analysts. Not only is this a must-attend event for professional mining investors such as myself, PDAC can also be a very good gauge of sentiment in the gold space. After speaking with many of the best minds in the sector, I can usually paint a much clearer picture about how to craft my investment strategy into Q3.

During last year’s event, I witnessed a very jovial crowd which was very eager to put more money to work in the sector. However, the event this year had a cloud of confusion hanging over the Metro Toronto Convention Centre as the miners continue to underperform with gold firmly above $1300. While speaking with many of my acquaintances in the mining space, the enthusiasm of last year had been replaced with a feeling of being hesitant to commit more capital until they see some clarity in the sector. 

On the deal side, many junior developer and exploration CEO’s I spoke with informed me that most global miners, while still being interested in high-margin projects, have become more tepid in their interest. I came away with the feeling of fewer Confidentiality Agreements (CA’s) being signed between juniors and the majors this year as well. So, it appears the underperformance of the miners in relation to the metals prices has also affected the interest in the deal space, as well as the investment space.

Another sign of tepidness in the deal space is we saw just one high-profile finance being announced in the mining sector while the conference was taking place this year. The fact of global miners having to replace high-grade ounces has yet to cross over into more mergers and acquisitions in the mining space as well. While being convinced of M&A heating up later this year, I am content to hold my current positions until confirmation of a solid bottom in the mining sector has been seen before committing more capital to precious metal stocks.

I believe the $21 level in the GDX has become synonymous with the $1300 region in gold. This critical support level in the major miner ETF has twice been breached very briefly over the past month of trade, with the gold price having remained above $1300. We witnessed intra-day, up-side, short-cover reversals on both of the breaching’s of $21, while the bears were unable to push gold below the strong support level of $1300.

As we head into the new Federal Reserve Chair, Jerome Powell’s first FOMC meeting speech on March 21st at 2pm EST, these levels may be broken into Q2 as the U. S. dollar is showing signs of rising further after the White House indicated that key trading partners could be exempt from the steel and aluminum import tariffs it proposed last week. The dollar is back above 90 on the Cash Settle Index and the buck has been the key driver of gold prices recently.

Moreover, the U.S. Non-Farms Payroll Report (NFP) for February released this morning added 313,000 new jobs, the biggest increase in a year and a half and more evidence of an economy firing on all cylinders. Despite the big increase in hiring, wage growth moderated after the early-year scare about inflation and the strong report makes it a virtual lock that the Federal Reserve will increase interest rates when senior officials meet later this month.

Furthermore, the U.S. equity market has the appearance of stabilizing while possibly creating a bullish ascending triangle in the daily chart of the S&P 500 index. Consolidation triangles in bull markets often break out to the upside and Powell would have more leverage to aggressively raise interest rates if the stock market continues to rise. If this is indeed the case, the gold sector could experience more short-term pain.

In anticipation of this possibly short-term gold bearish scenario, it is not advised to sell quality miners and juniors due to the continuation of extreme under-valuation in relation to the gold price. However, I strongly advise miner investors to remain cautious and patient with some cash until we see signs of stability in the gold space.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.