“Mining Gold on Wall Street"

Posted On Jul 12, 2016 By Dave Gonigam

  • Gold tumbles and we don’t care
  • The most important gold chart you’ll see all year
  • Byron King on the biggest “shortage” propelling select gold miners
  • After record highs, what next for U.S. stocks?
  • Is the glass half-full or half-empty for small business?
  • A postscript on HSBC and “too big to jail”… a pointed inquiry from a new reader… “greed” and our newest service… and more!

Whelp, we knew gold had to pull back a little bit sometime.

After holding the line on $1,350 for most of the last week, the bid has pulled back to [checking our screens] $1,334 as global markets are in a generally “risk-on” mode — about which more shortly.

But that doesn’t alter the longer-term picture. Even now, gold is higher than it was before the “Brexit” referendum on June 23. “This is a sign that the gold rally is bigger than the Brexit vote,” Jim wrote to readers of RickardsStrategic Intelligence this morning, “and is being driven by fundamental forces that will be with us for some time.”

We could show you a chart of how well gold is holding up despite today’s pullback. But the following chart is a lot more important and revealing…

It’s not the first time we’ve shared a chart like this… comparing gold’s rally since 2000 with the epic run from the 1970s.

This version comes from In Gold We Trust, the much-watched annual report by Ronald Stoeferle at Incrementum AG, an asset manager based in the tiny European nation of Liechtenstein — one of those “offshore tax havens” the do-gooders like to complain about.

As you can tell, the time frames don’t match up exactly. Gold’s nasty pullback from $200 to roughly $100 in the ’70s lasted about 16 months. Gold’s nasty pullback from $1,900 to $1,050 this decade took three times as long to play out — 51 months.

But once you compress the 21st century on this chart, things start to line up rather neatly, no?

Still… with gold up $300 in six months… just what are those “fundamental forces” that will continue to propel the 2016 gold rally?

Back to Jim Rickards: “These forces include negative interest rates (gold has zero yield, but zero is higher than -0.50%, so gold is a ‘high-yield’ asset). Other forces propelling gold are that it is good insurance against cyber and political risks, and gold is a traditional safe haven in times of insecurity.

“Finally, there are good old-fashioned fundamentals. Demand for gold is growing from Russia, China and Western ETFs. At the same time, supply has flat-lined because new mining projects were shuttered or delayed during gold’s lean years from 2012–15. Those new projects can’t turn on a dime; it can take five years or longer to launch a new mine.”

The “lean years,” Jim says euphemistically. Or as our Byron King calls it, the “Mining Zombie Apocalypse” — when, as we showed yesterday, junior gold firms in Canada were trying to diversify into medical marijuana. Anything to bring revenue through the door.

“We’re still early in the recovery cycle,” says Byron. ”Share prices are still badly wounded, even now, after the winter-spring run-up. There’s much upside left in many companies’ share price, certainly as gold prices move up.”

Byron is eyeing more than a dozen juniors as our resident geologist for Rickards’ Gold Speculator. Among the factors he’s weighing — their takeover potential. Are they buyout bait for a major producer like Newmont or a midtier firm like Yamana?

There’s much discussion right now in the boardrooms of these major and midtier players. Byron sums it up like this: “Do you use your own cheap shares now to buy another low-cost company? Or wait and hope that your shares rise, so that you can buy more of the target company for fewer shares? But what if the smaller firm’s shares rise as well?”

One thing’s for sure. The major and midtier guys aren’t doing much to “prove up” new ounces of gold in far-flung locations.

They’re leaving that job for the juniors. Any new production on the books of the big guys is likely as not a case of “mining gold on Wall Street,” as the saying goes. It’s analogous to biotech, in which Big Pharma does little research and development anymore, preferring to buy out the small fries that do the hard work.

Return to the example we cited yesterday of Kaminak Resources. That’s a junior that was bought out by Goldcorp three days after Byron recommended it in May to charter subscribers of Rickards’ Gold Speculator — good for a quick ’n’ dirty 37% gain.

A few weeks later, the trade publication The Northern Miner revealed Kaminak had two other suitors before shaking hands with Goldcorp.

“In other words,” says Byron, “there’s a shortage of high-quality prospects for partnership or buyout.

“Three companies made runs at Kaminak. Goldcorp won the race, and thus do the best-of-the-best ideas command the highest premiums. Our goal in Gold Speculator is to identify the best takeover targets, whether exploration plays, development ideas or early-stage producers.”

As it happens, Byron has been in Canada’s remote Yukon Territory the last few days — getting a firsthand look at a tiny gold player, deciding whether it’ll make the cut for Gold Speculator.

It took three jumbo jets, a puddle-jumper and a helicopter to reach the site…

We’ll spare you the suspense: He’s coming back more than impressed. He’s got Jim pumped up, that’s for sure. Byron’s wrapping up his research right now, and in less than 48 hours, he and Jim will reveal the name and ticker symbol to their readers.

As a reminder… small mining plays like this have the power to move much higher and much faster than the price of gold — 10 times, 50 times, even 192 times the gold price.

That’s why Jim is so excited… and that’s why he’s willing to do something extreme to get you on board with his next pick. Click here and see what’s in it for you.

OK, about that risk-on trade: It is taking the classic form this morning — stocks up, bonds and gold down.

As noted earlier, gold rests at $1,334. Sinking bond prices are pushing yields up; as we write, the 10-year note is 1.5% — a meaningful move up from 1.42% at this time yesterday.

The Dow industrials are following the S&P 500 into record territory. At last check, the Big Board was up two-thirds of a percent, at 18,351.

The S&P, which set a record close yesterday, is even stronger than the Dow — up more than three-quarters of a percent, at 2,154. “Overhead resistance has vanished,” says Greg Guenthner of our trading desk.

“Remember how the S&P 500 would turn back every time it crossed 2,100 over the past several months? Each time these levels were rejected, this area became more important….

Description: StocksBreakout-2.png

“Now that the S&P has crossed the threshold, we should expect a wild move higher — especially since most folks have been caught off guard.”

And Greg wrote that before the open this morning…

Small-business owners are feeling surprisingly sanguine as spring turns to summer. The monthly Optimism Index from the National Federation of Independent Business clocks in at 94.5 for June. The number has risen three straight months, to its strongest level since last November.

That said, it’s still well below historical norms… and stuck in a downtrend going back to late 2013.

“Uncertainty is high, expectations for better business conditions are low and future business investments look weak,” says NFIB chief economist Bill Dunkelberg, opting for the glass-half-empty interpretation. “Our data indicate that there will be no surge from the small-business sector anytime soon and prospects for economic growth are cloudy at best.”

On the “single most important problem” part of the survey, taxes are now clearly in the lead — cited by 23% of survey respondents. Regulations are cited by 19%… “quality of labor” by 15%… and poor sales by 11%.

So now we have a little more insight into the “too big to jail” culture that afflicts Washington, D.C.

During a congressional hearing three years ago, then-Attorney General Eric Holder was asked why no criminal cases had been brought against large banks for myriad offenses.

“I am concerned,” he replied, “that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”

A year later, he ventured to say, “There is no such thing as too big to jail” — but there was no putting the proverbial toothpaste back in the tube. (Holder has since returned to the white-shoe law firm from whence he came.)

Yesterday, congressional Republicans issued a report confirming too-big-to-jail was in fact the policy applied by Holder when deciding not to pursue HSBC for money laundering in 2012. Holder’s minions at the Department of Justice recommended prosecution, and Holder overruled them.

“Senior DOJ leaders were concerned that prosecuting the bank ‘could result in a global financial disaster,’” said the report.

Another choice tidbit: British finance minister George Osborne “intervened in the HSBC matter by sending a letter to Federal Reserve Chairman Ben Bernanke… to express the U.K.’s concerns regarding U.S. enforcement actions against British banks.”

Not noted in the congressional report, but something we documented in The 5 a year ago: When he was deputy attorney general under Bill Clinton, Holder wrote a memo arguing officials should bear in mind the “collateral consequences” of prosecuting corporate crimes.

In the end, HSBC paid a cost-of-doing-business fine of $1.9 billion — about five weeks of profit. The sweetheart deal was arranged by U.S. Attorney Loretta Lynch — who succeeded Holder at Justice. Oy…

“Is this merely a way to try to sell us more services, or is this a service that is supposed to provide some real recommendations?” writes one of many readers who got The 5 for the first time yesterday.

The 5: First of all, welcome aboard. We’ve had a consistent policy since our executive publisher/fearless leader Addison Wiggin launched this e-letter in April 2007. As he wrote in 2010, “From an ethical and commercial standpoint, our analysis is free, but the recommendations remain the province of paying readers.”

That said, we’re a little troubled by the either-or nature of your inquiry. We like to think there’s some value to what we do here, even in the absence of “some real recommendations.”

Yes, we’re going to advocate passionately on behalf of our editors. Addison has assembled a crackerjack team — most recently including some of the crew from Wall Street Daily. Why wouldn’t we play them up?

Of course, we’d be delighted if you saw something in The 5 that spurred you to subscribe to a new newsletter or trading advisory in addition to whatever you’re reading already. But that’s not the yardstick by which we measure our success. Ultimately, we succeed if at the end of each episode of The 5

  • you learn at least one interesting thing you didn’t know before
  • you decide to come back the next day.

“From the ‘letters that you won’t print’ file,” a reader writes…

[Note for new readers: One of our running gags is when we publish reader emails that say, “I dare you to print this!” Give today’s reader points for mixing up the formula a bit…]

“For years, Byron King had the most profitable investment record of all investment newsletters with his Outstanding Investments, which concentrated on ‘hard asset’ types of things. I bought a ‘lifetime’ subscription.

“A few months ago, he teamed up with Jim Rickards and folded Outstanding Investments into Jim Rickards’ newsletter, to give us the best of the big-picture thinking of Jim Rickards along with the ‘boots on the ground’ mining insight of Byron King.

“So now we have Jim, who is predicting $10,000 gold, teamed up with Byron to tell which miners to buy. Wow, I’ll bet that new newsletter will give some great picks!

“Wrong! To get those great picks, you have to pay for a premium new service of Jim and Byron’s called Rickards’ Gold Speculator.

“Greed. It is so sad. I think that they both could have made very nice livings, just giving us those picks in their regular letter… but alas! Greed wins, again.”

The 5: We’re not sure what it is you’re missing from Byron’s contributions to RickardsStrategic Intelligence — which you now receive in lieu of Outstanding Investments.

In the course of just two monthly issues, he’s made four gold-themed recommendations. They’re kicking tail, too: Yesterday, Byron raised the buy-up-to-prices on three of them.

Now, Rickards’ Gold Speculator With Byron King is a different animal. It’s not an entry-level newsletter; it’s a premium advisory. It focuses on speculative junior gold names — higher risk, much higher reward. And yes, we charge a much higher price for it.

That’s because most junior gold shares are thinly traded. If we put those names in RickardsStrategic Intelligence and made them accessible to 70,000 subscribers, the share prices would instantly reach the stratosphere, only to come crashing back to Earth.

That would be bad for readers, and bad for us. The higher price we charge for a premium advisory serves as a natural brake on that phenomenon. It also serves as a barrier to entry for people who don’t fully appreciate the risks that come with the potential reward. Those folks are much better off with a junior gold ETF like GDXJ.

By the way… Shuttering Outstanding Investments — with a sterling 16-year history, and Byron as editor for more than half of that span — was an agonizing decision for us.

But we couldn’t keep it going for the sake of nostalgia. The commodity bull market that took off around the time of OI’s launch in 2000 might not be dead, but it’s on life support — even as we know the patient will revive at some point. For the moment, however, a deflationary gale blows across the globe and we as publishers have to adjust our sails to the prevailing winds.

At the same time, as Jim Rickards has pointed out here, gold has ceased to function like a commodity and instead is reverting to its time-honored role as money. Thus we added Byron to Jim’s stable along with Dan Amoss and Nomi Prins, made him a contributor to RickardsStrategic Intelligence and launched Rickards’ Gold Speculator With Byron King. Win-win for everyone, especially readers, we think…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Going into this morning, 13 of the 15 open positions in Rickards’ Gold Speculator With Byron King are in the green. Those gains include 87%… 95%… 104%… 114%… 145%… and 152%. And we launched the service only two months ago.

Jim and Byron’s next recommendation is due this Thursday — two days from now. Jim has so much conviction behind it, he’s ready to double his “free gold” offer to get you started. Check it out right here.


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