Each year, during the first week of March, investors, analysts, mining
executives, prospectors, geologists, government officials, and students
from 135 countries descend upon the Metro Toronto Convention Centre
in Canada to attend the world’s largest mining convention.
The Prospectors & Developers Association of Canada (PDAC) is the
world’s premier mineral exploration and mining event, which is packed
into four days of round-the-clock networking and attended by a
cornucopia of who’s who in the mining biz.
The companies in attendance usually make sure to send out press
releases during the two weeks leading into PDAC, so they have a recent
topic of discussion while trying to lure investors into making an
investment in their stock.
This flurry of news releases into and around the convention leads to an
inevitable news drought following it. When combined with seasonal
weakness that is common in the gold sector into Q2, we get what has
been regularly referred to as the “PDAC Curse.”
However, with the recent resurgence U.S. regional banking fears, I was
experiencing deja vu as I attended PDAC this week. Just as PDAC 2023
ended last March, the gold complex moved higher after the Federal
Reserve and Treasury Department bailed out Silicon Valley Bank and
Signature Bank, then extend lifelines to other troubled banks as they
threatened broader confidence in the banking system.
In fact, three of the four largest-ever bank failures have happened over
the last year, while the three banks that failed ranked among the top 30
U.S. banks by assets in 2023.
Yet, the urgency of last year’s March bank failures wore off by the end
of last year, as U.S. stocks continue to make all-time highs in 2024
despite being extreme overbought and overvalued.
Now a year on from those failures, we are seeing renewed weakness in
the banking system which has also sparked all-time highs in gold. This
time around, one of the rescuing banks from last year’s mini-crisis now
finds itself in significant trouble and in need of a new injection of
capital.
After a 45% drop in its stock Wednesday and a trading halt, the deeply
troubled New York Community Bancorp (NYCB) announced it was
getting an equity injection from the investment firm run by former
Treasury Secretary Steven Mnuchin and other funds.
According to commercial real estate and banking experts, while
a roughly $1 billion injection this week raises the bank’s Tier 1 capital by
more than 10% since September, questions remain about whether it
will be enough to offset NYCB’s woes.
“There is still a lot that we don’t know,” said Matt Reidy, director of
commercial real estate economics at Moody’s, adding that likely will
become apparent when the bank files its updated annual 10-K report
on financial performance.
The filing was delayed after the bank last Friday said it had “material
weaknesses” in its accounting protocols and disclosed other financialreporting issues, which sparked Gold Futures to breakout of a 3-month
symmetrical tringle to an all-time weekly closing high last Friday.
Following his accurate prediction of Silicon Valley Bank's (SVB) downfall
last year, financial analyst Bill Martin has now cast a concerning forecast
for NYCB labeling it as the next 'zombie bank.' Martin, known for his
keen insights into the banking sector's vulnerabilities, has intensified his
short position on NYCB. Given Martin's proven track record, the news
has signaled a lack of confidence in its financial health and sparked
widespread attention.
Whether the $1 billion cash infusion will be enough to save NYBC from
FDIC receivership remains to be seen. But if the troubled lender fails, it
could bring all the same fears that surged through markets at this time
last year. Only this time, the gold price has created a solid $2000 floor
as opposed to this important level being 12-year resistance last March.
NYCB's troubling predicament is also happening on the heels of the
Federal Reserve's Bank Term Funding Program (BTFP) ceasing
to make new loans as scheduled next Monday. News of the lenders
troubles has also come just after the U.S. banking sector saw its profits
drop by nearly half in the last quarter of 2023.
The 44% drop in profits came as large firms began paying hefty fees to
help recoup costs incurred by several bank failures last spring, the
Federal Deposit Insurance Corporation (FDIC) reported Thursday.
Roughly 70% of the 43.9% decline in quarterly bank profits was due to
specific, non-recurring expenses at large banks, primarily a special
assessment fee larger banks were ordered to pay to the FDIC to
replenish its deposit insurance fund. In all of 2023, bank profits were
down 2.3% to $257 billion, but remain above pre-pandemic levels, the
FDIC said.
While the stock market continues to make all-time highs, the significant
weakness within the banking sector balance sheets is being ignored by
investors. With U.S. stocks, Bitcoin, and the gold price rising to all-time
highs simultaneously, it remains to be seen which asset would become
the safe-haven of choice when/if the next banking crisis causes the Fed
to prematurely pivot on interest rates.
Could another banking crisis be the catalyst that finally bursts the stock
market bubble, or finally forces the Fed to start lowering interest rates
and returning to quantitative easing as the inflation rate remains well
above its 2% mandated target?
Although we have no way of knowing for sure, it is not out of the
question that another bank failure could lead to instability in financial
markets and speed up the arrival of the next recession. Just yesterday,
Federal Reserve Chair Jerome Powell said he expects to see some banks
fail due to their exposure to the commercial real estate sector.
“This is a problem we’ll be working on for years more, I’m sure. There
will be bank failures,” Powell said during a Thursday hearing on the
Fed’s monetary policy in the Senate Banking Committee. If NYCB fails,
the Fed may be forced to extend its BTFP during the next FOMC
meeting March 19-20.
The resurgence of banking fears, combined with rising geopolitical
uncertainty and inevitable rate cuts, has gold on the doorstep of an
historical breakout after nearly four years of frustrating consolidation.
A sustained post-fed breakout after a monthly basis close above $2100
later this month would support a notable rally into the third quarter
as U.S. election rhetoric heats up.
Meanwhile, the expected mean reversion of gold stocks, mentioned in
the space last Friday, may have begun just after my article was posted
the morning of March 1st. On the heels of Gold Futures having made its
fourth consecutive monthly basis close above $2000 last Thursday,
deeply depressed gold stocks quickly reversed course.
After gold stock shorts realized both GDX and GDXJ were about to close
with a third consecutive bullish weekly hammer from 14 month-long
strong support at $26 and $32, respectively, they began covering last
Friday.
On the upside, we need to see $32 in GDX and $39 in GDXJ taken out
with good volume to bring market confidence of a long-term bottom
being in place. I would expect this scenario to be in play on a technical
breakout in Gold Futures with a monthly basis close above $2100.
Many junior quality gold stocks have been popping higher one by one
this week. With the sector short-term overbought, this is a good time to
accumulate long-term holdings in quality juniors on expected near-term
weakness as most still have plenty of catching up to do.
The Junior Miner Junky service provides complete transparency into my
trading activities and teaches investors how to navigate this highrisk/high-reward sector. Subscribers are provided a carefully thoughtout rationale for buying individual stocks, as well as an equally
calculated exit strategy.
If you require assistance in accumulating a basket of quality juniors with
5x-10x long-term upside potential, and would like to receive my
research, newsletter, portfolio, watch list, and trade alerts, please click
here for instant access.
