Gecko Research gives its take on the U.S. Presidential Election and precious metals, and discusses the latest movements at Golden Arrow’s Chinchillas JV project in Argentina.
The Election and Precious Metals
We have received numerous emails with questions on what we think of the U.S. elections, Donald Trump, etc., and what impact the outcome might have on gold and macro economics in general. We are not a political letter and we are far away from being experts in the political area so we won’t go down that road too much. That said, although gold is priced in U.S. dollar, the price of gold is affected from what’s happening in the rest of the world as well, not just the U.S.
It was interesting to see base metals soar after Trump won, most likely due to the possible infrastructure improvements now facing the U.S. with Trump in charge. As for the precious metals, they were likely driven up by the Asian markets immediately after the election results were final. Shortly thereafter, the gold market had a nasty reversal which was likely fueled by a combination of things like a stronger dollar, market stops being triggered and perhaps even margin calls.
Trump might raise rates early on, the bond market is way ahead of him there, but we think he can only do so much. The more he raises the rates, the more expenditures and government deficits he has to deal with, especially since Trump has proclaimed a lot of spending rather than saving. This will only circle around to more monetary easing which makes us believe that no matter how you slice and dice this, gold will continue to do well. Add some inflation (expectasions) into the mix and a perfect precious metals storm is brewing.
We can probably all agree that both Hillary Clinton and Donald Trump will not make it to the history books as two of the greatest candidates ever to run for President. When it comes to Trump’s personal appearance during his campaign, he has been really “out there” and pushing limits on all fronts. Our own feeling is that he will act totally different when in office, we think he will tone down his strong ways and act more in a way that is expected of a U.S. President. Therefore we wouldn’t be at all surprised if 6-12 months from now, Trump will have greater support and be more likable.
Gold And Silver
After a roller-coaster week, gold closed on Friday at $1,227.60, a drop of ~$110 from Wednesday’s top. On a weekly basis gold dropped $76, or 5.9%. Silver dropped 5.7% to close the week at $17.36. The gold to silver ratio now stands at 70.7.
While gold and silver tanked almost 6%, GDXJ lost 15% last week closing at $34.24. If we would see $32.5 or thereabouts, we would step in to buy a large sized position as a trade.
As we have been predicting lower prices for both metals and miners in the short term, we could never have imagined this week’s action. These strong moves always have an impact in the short to medium term and we expect some consolidation in the weeks to come. We don’t think we will see a lot more downside and we would be very surprised if the $1,200 level is breached in a significant way.
Although this downturn came much faster and harder than we could foresee, this is very likely going to be the last window of opportunity we have been looking for. No matter if we are right or wrong, it’s in times like this that investors should look over their portfolio and make necessary adjustments. One should get rid of underperformers and bad junior miners that for whatever reason hasn’t delivered as expected. Instead one should add companies of high quality because when the market turns in a big way, those are the companies that will outperform.
We had a few long term orders in the market and besides adding some Golden Arrow Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCQB) shares on Friday (see below), we also bought a bunch of Silver Wheaton Corp. (SLW:TSX; SLW:NYSE) at C$24.50. Silver Wheaton was a >C$40 stock only three months ago and this purchase is a buy-and-hold for us.
Silver Standard Resources and the Chinchillas Project
Last Tuesday Silver Standard Resources Inc. (SSO:TSX; SSRI:NASDAQ) released its Q3 results and the company hosted a conference call the day after, linked to here. In the call the joint venture with Golden Arrow and the Chinchillas project were mentioned on several occasions. To make things easier, a kind Golden Arrow shareholder created this mp3 where all the segments are edited together.
Silver Standard’s current operation, the Pirquitas silver mine, is performing very well, showing both higher production and lower cut-off, which results in lower cash costs. Bottom line, it’s a world-class silver mine. The mining will end soon but the stockpiled ore will keep the milling going throughout 2017.
Silver Standard stated that a final decision on the Chinchillas project will come around New Years, possibly shortly after (our personal guess Jan-Feb). A lot of technical work is being done with great results and both EIA and mining permits have been applied for.
A long-term stink bid order got filled on Friday and we bought Golden Arrow shares at $0.66 as a trading position.
Gecko Research is composed of a small group of private investors whose aim is to broadly share knowledge and investment ideas. Its research is independent and is based on its view of the company or sector based on publicly available information.
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