Gold got smacked on Friday after a strong US jobs report made a December rate increase more likely. Or so we all think. Only time and Janet Yellen really know. Gold's slide bolstered the bears who believe gold needs 'one more bottom' before it can really rally. Such generic arguments mean little to me. However, chartists can create some solid arguments with their lines this way and that across gold's price plot showing support and resistance. The non-technical summary is that gold's failure to best US$1,185 per oz. continues a pattern of lower highs and lower lows, suggesting the worst is not yet over.
Not great news, I agree. But I have stopped stressing about gold. We may yet see gold mark a new bear-market low before the end of the year, but chartists and I generally agree it would be unlikely for such a low to be dramatically below this summer's US$1,090 per oz. Of course there are deflationists out there with far weaker predictions for the yellow metal, but my belief that the broad US market run is dying supports a brighter near-term for gold than that.
That being said, I do not think the next six weeks are going to be good for gold. I dive in to that in a bit more detail in this week's Macro Observations below.
I continued that discussion with my subscribers last week by detailing what it means for mining portfolios - with actionable advice. If you haven't tried my free three-month trial subscription, click HERE to sign up.
Without further ado, a look at last week's Maven Weekly.
In The News…
Great news from Nevada this morning, where Gold Standard Ventures (TSXV: GSV) announced a healthy intercept of oxide gold mineralization from the Railroad-Pinion project. Specifically, hole DS15-10 returned 149.4 metres grading 1.38 grams per tonne (g/t) gold.
All told, four of five holes testing the Dark Star structural corridor returned notable gold intercepts. This structural corridor target extends northward from the defined Dark Star deposit, which currently hosts 23.1 million inferred tonnes grading 0.51 g/t gold for 375,000 oz.
The intercept in hole DS15-10 suggest a new zone that is thicker and significantly higher grade than anything previously drilled at Dark Star. The hole sits 510 metres north of the Dark Star resource in an area that had never before been drilled.
GSV director Rob McLeod described the hole as “a massive game changer for us, on multiple levels.” While hole DS15-10 seems from a thicker, higher-grade zone than the Dark Star resource, the host rocks are the same: an oxidized limonite- and hematite-bearing, silicified and quartz-veined debris flow conglomerate.
This host rock alone makes Dark Star intriguing because it differs from the limestone-type rocks that host most of Carlin-style mineralization. As McLeod pointed out, the conglomerate host rock at Dark Star is not especially reactive, so for it generate such a long, well-mineralized intercept suggests a “large, robust system”.
A large system of oxidized Carlin-style gold would indeed be exciting. Newmont Mining knows the Carlin trend about as well as anyone and the company’s most profitable Nevada operation is the Emigrant mine, a heap leach operation only a few miles north of Pinion.
The other holes released alongside DS15-10 were also promising. Hole DS15-06 returned several gold intercepts from 30 metres outside of the resource envelope. Hole DS15-09 returned 29 metres of 0.73 g/t gold from 150 metres north of hole DS15-10, confirming the prospectivity of the entire 6 km-long Dark Star corridor.
Gold Standard had been planning to update its PEA but those plans are now on hold until the company gets a better hold of these new areas. Even a resource update anytime soon is questionable, as the step outs have been aggressive and therefore the resource model likely has some gaps that need filling.
For now the focus will be on continued drilling. Gold Standard is well funded to keep working, with almost $18 million in the bank. In addition to the rig testing the Dark Star corridor, Gold Standard also has a rig working to expand Pinion, the larger oxide deposit 2 km to the west. Pinion is already home to 20.8 million indicated tonnes grading 0.63 g/t gold and 55.9 million inferred tonnes grading 0.57 g/t Au, for 1.4 million combined oz.
GSV shares gained as much as $0.11 in intraday trading before closing the day up $0.07 at $0.59.
Another Nevada explorer that moved nicely over the last week was Viscount Mining (TSXV: VML).
Viscount owns the Cherry Creek property, but work on the ground is being funded by Sumitomo as the Japanese major works to earn 75% of the project by spending US$10 million and producing a feasibility study within 8 years.
The Sumitomo deal materialized in March and the Japanese major seems to have moved quickly since then, setting up an exploration base and completing a thorough program of mapping, prospecting, and historic data analysis.
The backstory here involves a splintered land package, long divided amongst neighbours who hated each other. It took time and patience, but Viscount managed to consolidate the district. The result is a land package of more than 400 claims that includes more than 20 historic silver, gold, and tungsten mines.
The area has a long history of production from high-grade vein and replacement deposits, but the current program represents the first time the lands have been explored using modern techniques.
Late last week the partners described their latest findings, which include a new geologic interpretation of the Flint Canyon area. Prospecting and mapping have identified east-west faults and fractures similar to those that control mineralization at the nearby Ticup and Star mines, as well as an abundance of mineralized jasperiod outcrops along the base of the Dunderberg shale and within the Pogonip limestone. Both are rock types regularly associated with Carlin-style mineralization and mineralized jasperiods are common indicators for Carlin-style zones.
Drills started turning in mid-October, with a reverse circulation program that is initially targeting the area around the historic high-grade silver Ticup mine. The drilling will test structural intersections and lithological contacts. Flint Canyon will be tested soon, following a soil sampling program. Sumitomo described the area as a “very high priority target”.
Sumitomo seems to be moving pretty quickly at Cherry Creek, which is interesting. Much of the Carlin Trend has been explored, but pockets like this that were unavailable because of ownership issues certainly stand out. Investors seem to like the story and have lifted VML’s share price from $0.20 in July to near $0.50 today.
I will not spend long on the debacle at Rubicon Minerals (TSX: RMX) as there are many voices out there discussing this story. The very short version is that in 2011 Rubicon decided to forgo the usual pre-feasibility and feasibility studies and instead build a mine at its Phoenix project based on a preliminary economic assessment.
The mine poured its first gold in June but questions remained around budget overruns and ramp-up challenges. Then, at the beginning of October, Rubicon was forced to suspend mill operations because of a problem managing ammonia levels in the tailings facility. The news contained its fair share of red flags, including that the initial order to deal with these issues had been issued a month earlier but that RMX had failed to report the problem publicly.
At the time Rubicon said it would take two to four weeks to address the problem, during which time the mill would be suspended but underground development and other constructions works would continue. The fact that Rubicon’s longtime president and CEO Michael Lalonde stepped down hours later belied a deeper problem.
Now that deeper problem is out in the open. Yesterday Rubicon suspended underground activities at Phoenix while it “enhances its geological model of the F2 gold deposit and develops a project implementation plan.”
The announcement included a quote from interim president and CEO Michael Winship: “Similar to other high-grade, narrow vein, underground gold deposits, the geology can be quite challenging and requires additional analysis to be fully understood.”
There it is. The problem all along was insufficient prep work. I can see why RMX wanted to just build a mine: a strong gold price in 2011 meant money was available, drilling had outlined a high-grade gold deposit, and the hundreds of additional drill holes needed to inform a full feasibility study would have taken years and cost many millions of dollars.
But that’s a fallacious choice, because building the mine around a complicated underground deposit without taking those extra steps simply doesn’t work. To make money mining a complex deposit requires reams of information. Rubicon went ahead before it was ready.
This is not a scam. It is a shame. And just because it is not a scam does not mean blame is unwarranted.
Rubicon has $23 million in the bank. After yesterday’s news RMX shares are trading at $0.22, giving the company a market cap of $103 million (down from almost $600 million earlier this year).
Gold’s Feeling Seasonal
Just when gold was gathering steam and looked like it just might break up through resistance levels, the Federal Reserve promised to really truly think about raising rates in December…and apparently that is enough to support US indexes and the dollar, while smacking gold back.
It is highly frustrating, but not unexpected. Investors are addicted to easy returns fueled by Central Bank support, so any hint of that (which now need only take the form of Yellen saying she won’t tighten for some time) sends traders in to buy. Ironically it also supports the dollar, even though higher rates would theoretically be good for the greenback. But bad means good in global economics today, so on we go.
It won’t last. I see the US bull market having died in the fall, when the S&P fell below 1900 coincident with the momentum indicator MACD moving decisively lower. The market rallied respectably in October…but the MACD never turned back up. Momentum never returned.
It’s just the latest sign in a sea of indicators that the US bull is weakening. Such tops take time to complete, so we may yet see market strength through November and December, which tend to be strong months for stocks. But I see these as the last days of a long US market party, one that when it ends will send investors out hunting for undervalued opportunities. Metals will attract a good chunk of that attention.
Gold’s recent retreat also correlates with the yellow metal’s seasonal patterns, which have it gaining in August and September (the move slightly delayed this year because – you guessed it – markets were waiting to hear from the Fed) and then sliding in November and December ahead of its usual early-year rally.
So what does it mean for right now? Tax loss selling is getting underway, so think about selling your dogs now. If a news event or a good day for gold lifts the share price, take advantage and sell. If you truly like the story, you will be able to get back in for less in two months. Downside leverage on underperforming mining stocks during tax loss season is a very reliable pattern.
Selling your dogs will also mean you have cash at the ready to take advantage of the January gold rally, which is as reliable as gingerbread flavouring in every coffee, cookie, muffin, and cake from now until Christmas.
As I have explained before, there are ways to make money in the near term – if you know the patterns and are ready to act.
In her letter, Resource Maven explains what she is buying and selling, and why. Maven has bought into several of the markets best - performing stocks well ahead of the curve. She regularly identifies exciting new exploration opportunities and manages the inherent risk by selling some into speculative gains. And the mine builder and operator stocks that form the basis of the portfolio give strong, ongoing leverage to the rising prices of gold and silver. She has your precious metal bases covered.
Once again, it's great to hear your pearls of wisdom in the mining sector that translate into income and profits. Now that we are in the nascent stage of this commodities bull market, everything that the retail investor can learn in order to maximize profits is education today that will be worth a fortune tomorrow.
Great letter this morning Gwen. I am not "all aboard" with your picks but your understanding of how best to manage a high risk portfolio is second to none. And I did buy a lot of G when you made the call and sold it about a month later for a very healthy gain. Thank you very much!
As for "shiny ponies" that are moving on anticipation and will move big on good news, you need to get on the BAY train. Just sayin’..........