Waiting For Gold Rally Is Like Waiting For Godot; Will It Ever Come? Beaver Creek Guests Weigh In
Sentiment in the metals markets was mixed at the 2018 Precious Metals Summit in Beaver Creek. Some miners maintained that markets are seeing a turning point, especially after the announcement of one of the largest mining mergers of all-time between Barrick and Randgold expected to renew investor interest in the sector.
Analysts and geologists held different opinions; while some saw the negative real rates as a tailwind to gold prices, others said that much more investor sentiment is still needed to push prices higher from the investment demand side.
This year's Beaver Creek summit was filled with expert opinion from all spectrums of the debate. Here are summaries for ten of the interviews:
Samuel Pelaez, CIO of Gallileo Global Equity Advisors, told Kitco News that last quarter's U.S. GDP numbers were artificially boosted by "one-time" events like the corporate tax cuts that are unlikely to repeat in the near future.
"So I think there have been one-off situations that have helped the U.S. economy look more healthy this year than it actually is," he said.
A lower growth rate for the economy, coupled with negative real interest rates, should see gold prices rise.
With production having peaked in gold and the major miners having a harder time increasing their mining output, investors would be wise to instead look for companies prioritizing exploration over existing production, said Brent Cook, expert geologist of Exploration Insights.
"What you've got to look for is major companies doing generative, grassroots exploration work," Cook told Kitco News.
He noted that majors can engage in exploration work either by themselves or by funding juniors that have deposits coming along that are low cost.
Corvus Gold CEO, Jeffrey Pontius, is confident that $1,200 an ounce is a good price for gold miners.
"In my perspective, $1,200 gold is a good price…our project performs well at $1,000 gold, so I don't see gold price as a problem," Pontius said.
The gold exploration CEO added that while miners may still be profitable at current gold price levels, a rally in the yellow metal would still be needed to renew investor interest.
An Australian invasion may be underway, according to Joe Mazumdar, co-editor of Exploration Insights.
"I guess what we're seeing is of the people coming to the Denver Gold show, as well as the Precious Metals Summit in Beaver Creek, one of the increase has been the Australian contingent of companies," Mazumdar said.
He added that Australian miners themselves are more keen on Australia, due to its advantages, rather than the Pacific when looking for expansion opportunities.
Gold has not been behaving as would be expected. Ahead of the Federal Reserve meeting and the decision to hike rates on September 26, gold has shrugged off dollar declines, yet dropped dramatically whenever the dollar advanced.
David Erfle of JuniorMinerJunky.com joined the ranks of analysts who correctly predicted that the Fed would raise rates, and that gold's mild oscillation was just setting the stage for a possible bigger move following the rate hike announcement.
"The tariff news is pretty much priced in. We've got Powell coming up speaking next Wednesday and we know he's going to raise, but we don't know if he will hint that they might not raise in December," Erfle told Kitco News.
Not quite literally invisible, but one mining CEO pointed out that even as investor sentiment has been weak, some parts of the mining sector have been doing very well.
"The S&P's up 45% since the beginning of 2016, the Dow's up 50%, and our own gold stock's up 80%," said Rob McEwen, chief owner and chairman of McEwen Mining.
McEwen, who previously helmed Goldcorp, said that while the broad market isn't paying attention to this, several other gold stocks have been moving higher.
"I wasn't surprised. Barrick's been spending the last six or seven years working its balance sheet out, selling assets, and at some point in an industry in which you got to replace your ounces, they had to be starting to buy or look at merger opportunities," said Darren Blasutti, president and CEO of Americas Silver and former senior VP of corporate development at Barrick Gold.
The deal, one of the largest in history and would create the undisputed largest gold miner on Earth, was announced on Monday.
Blasutti noted that this deal should serve both parties well; investors agreed with this assessment as the announcement was immediately followed by stock rallies from both companies.
Gold and mining stocks will not rally unless investors get more "greedy," said Derek Macpherson, VP of mining analysis, Red Cloud Klondike Strike Inc.
"Greed comes from big share price performance, when you have exploration holes, and when stocks get taken out, and that's what gets people excited about junior mining," Macpherson told Kitco News.
Macpherson argued that investors don't jump into gold mining stocks to make 100% return; they do it for the prospect of making 1000%, and right now, we're just not seeing that risk-taking appetite that is needed in the space.
…Not just between giants like Barrick and Randgold, but for juniors as well, according to Steve Todoruk, investment executive at Sprott.
As the senior miners have largely recovered from the commodities bear market of the last few years, they now have the cash to go shopping for juniors.
They want new deposits. They'd ideally want to make their own discovery, it's a lot cheaper than having to go pay top dollar to take over a junior," Todoruk said.
A new world dynamic is coming, thanks to Trump's tariffs and the international protectionist response, said Doug Groh, portfolio manager at Tocqueville.
As the world drifts farther apart from one another on trade, investors will flock to safe havens to shelter from the rising global uncertainty.
"We've benefited over the last 25 years from globalization and I think as a result of that we've seen investors find other opportunities in the world. The world may become a little bit smaller in terms of opportunities and I think gold benefits from that if investors are cut off from other parts of the market on a global basis," Groh said.
The portfolio manager puts his money where his mouth is; his fund at Tocqueville is currently overweight gold.