PDAC 2019 EVENT HIGHLIGHTS
The 2019 Prospectors & Developers Association of Canada’s (PDAC) Convention proved to continue on its’ annual path of success.
Attendance during the week was quite strong with a definite buzz of high energy.
I once had again had the opportunity to speak at the newsletter writer’s presentation organized by Sprott Inc. and Peter Bojtos on the first day of the Convention. This year, the focus of my presentation was the cyclical propensity of the gold market relating to economic variables with a brief comparison to the tech and cannabis markets. Excerpts of my speech are below.
Later that evening, I enjoyed the hospitality of Rick Rule as he sponsored a dinner for about twenty people that included a number of Sprott Fund Managers as well as other newsletter writers. As always, the dinner was a great opportunity for interesting conversation.
The next three days were filled with networking and media events.
Everything throughout the Convention was really well organized and here is a shout-out to the organizers. I am looking forward to PDAC 2020 and moving forward in 2019.
|HIGHLIGHTS OF MY TALK:
The gold sector is one that is very cyclical. Currently, gold has been pretty silent. A major part of the stock market hype has recently been focused on the emergence of the cannabis sector.
Here is what I predict and these are just my own opinions. As always, please do your own due diligence: we are entering a period of economic demise. I believe a stock market demise may will occur by the end of this year into 2020, and 2021 may even be more dreadful. Gold should prosper.
The next up and coming crisis could be a debt crisis – government, consumer and corporate. Unlike 2008, this up-coming crisis, should be a “meltdown” as it spreads. I am speaking of the overall health of the economy including major geo political structures.
In regards to interest rates, during the downturn, the Feds may launch another round of Quantitative Easing once its too late and realize the economy is spiraling downward but that may make a bad situation even worse. It may have the affect of decreasing stock market and a real estate collapse. So ironically, the Fed may be fighting inflation and an economic collapse – sounds like some sort of stagflation to me.
It will be hard for the Feds to continue raising interest rates unless inflation really goes out of whack because currently, they have a 21+ trillion dollar debt and a mere 1% increase would amount to $200 billion+ per year in extra interest payments.
Currently the epi-centre of economic war is in Europe and filtering itself into North America and beyond.
As the European market may begin to experience a deep descension, some European monies may pour into the North American markets as they currently deem it safer but I believe that will be short lived before the potential debt crisis strangles our markets here.
I hope my predictions are wrong on the economy – but if I am right – how can we protect ourselves? Buying gold could be one of the responses.
Let’s take a quick look at some historical periods of financial crisis.
First the stock market crash of 1929. Millions of Americans were on a high, crazily over-buying stocks resulting in stocks selling for prices higher than they were worth. Ultimately, the market came crashing down. Professional investors and other people lost their life savings. By 1933 nearly half of American banks had failed and unemployment reached epic proportions of 30%. (History.com: 2010)
In a bid to end the wild stock market speculation, the Feds raised interest rates. The US economy went into recession and the Great Depression. The ensuing bear market lasted 4 years.
The financial crisis of 2008 is considered to be the worst economic period since the Great Depression. It began in 2007 with a crisis in subprime mortgages, thanks to a slashing of interest rates in 2001 from 6.5% to 1.75% and further in 2003 to 1%, followed by increases beginning in 2004 until they reach 5.25% in 2006. Housing prices and starts declined leading to a crisis in subprime mortgages and subsequently the situation developed into a full-blown international banking crisis with the collapse of Lehman Brothers on September 15, 2008. (Wikipedia & Manoj Singh (2017))
Faith in the US economy was shattered and gold shot up from the low to the high $800’s. Three short years later, in 2011, it hit an all-time record high of over $1900 an ounce in response to concerns that the US would default on debt. Gold was seen as a safe haven.
When the economy started to improve and inflation rates remained low, gold prices once again fell.
Coming into play against the US economy are the gold-backed currency tactics of China and Russia.
In an attack against the dominance of the USD as a global currency, China and Russia began to work together to help put an end to the US/Western currency supremacy.
Both countries’ Central Banks, in the early 2000’s, began stockpiling gold to add to their reserves. By June 2018, China’s precious metal reserve was valued at USD $74.1 billion. As of December 2018, Russia’s gold reserves stood at USD $86.9 billion. (RT (2019))
On March 26, 2018, China began trading their gold-backed currency, the petroyuan. Within the first hour over 23,000 crude oil futures contracts had traded with a US dollar value of 1.5 billion. (Tyler Durden (2018))
By doing this they bypassed the USD, trading directly in Chinese currency. And not being backed by gold, there was nothing the US could do about it as other countries made an easy decision to favor gold over the dollar.
Let’s look at the recent demand for gold.
At the beginning of the cannabis market, everyone wanted to have a part of it. Then we had the downslide at the end of 2018. Lately, the movement has started to pick up a bit of momentum, but it will likely come and go in waves.
Comparing the gold market to cannabis, a lot of stocks in that sector have just ballooned in market cap. That’s also what happened in 2010 with a lot of the junior mining stocks. As a result, that particular sector can gain favour and focus, leaving other sectors to the side for the moment.
And this is what could happen again to junior mining stocks. When the commodity is in favour, the underlying investment in companies that specialize in the commodity is in favour.
That’s what was experienced in the gold sector in the early 2000’s after the tech rally came to an end as well as in 2010 to gold and gold related stocks. Gold started off the year in January at USD 1317.60 and by the 3rd quarter was hovering just above the UDS 1200 mark, ending the year higher at USD 1282.62 but under the year beginning. Bullion Rates (2018). This trend is in keeping with the rising of the US dollar in 2018.
There are certainly similarities with between gold and cannabis. The majority of gold stocks are listed on the Canadian exchanges. Unlike tech which is broad around the world, the world comes to us and to our market. You may have the chance at the first crack at it, again, before outside money starts to pour in as it has in the cannabis market.
So, if you think that you missed the opportunity on cannabis, I think that next year and more importantly the year after, we may be talking about the run in the precious metal sector.
Let’s take a look at another commodity – silver. Silver is noted as the poor man’s gold but it does a lot better when gold is going up as a percentage basis and visa versa.
So, this may be the perfect time to play the silver market. The problem is that there are not a lot of junior silver companies where shares will go from 10 cents to 50 cents or whatever the number may be. I’m willing to take the chance if I know there is a bull market coming in commodities to invest in a 10 cent stock where it could go to 5 cents but conversely has the potential to exponentially grow much higher.
This is what we are talking about now, investing over the next 2-3 years or however long the bull market will take to run because timing is the hardest part, but I think we are in the 1st inning or the pre-warmup of the junior mining sector partly because they have been beaten up so badly.
In conclusion, precious metals investors have been waiting for the gold price to increase. The metal generally moves favourably when the economy is in turmoil. While we may experience an increased economic downturn in late 2019 going into 2020 it doesn’t mean that the stock market for the early-mid part of 2019 is going to experience wild increases.
If history repeats itself, and if my opinion on the stock market decreasing in late 2019 into 2020 and 2021 proves to be correct, then gold may really shine as the benefactor of the market.
Dr. Kal Kotecha
 History.com (2010) Stock Market Crash of 1929 https://www.history.com/topics/great-depression/1929-stock-market-crash
2 Wikipedia : Financial Crisis of 2007 – 2008 https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008
3 Manoj Singh (2017) : The 2007-08 Financial Crisis in Review https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp
4 RT (2019) Russia’s Gold and Currency Reserves Surge for Third Consecutive Year https://www.rt.com/business/448930-russia-foreign-reserves-growth/
5 PetroYuan Futures Open – Over 10 Billion Notional Trades in First Hour https://www.zerohedge.com/news/2018-03-25/petroyuan-futures-open-over-10-billion-notional-trades-first-hour
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