You refer to one share making a splash. What does that mean please? When is the next issue due out? The weekly issue seems to have gone by the wayside. -- Reader RB
Splash is the term I use to describe attention-grabbing drill results, in particular at a project that’s already advanced. Take Erdene (TSXV: ERD), for instance. The company’s BK project has a feasibility study and ERD is currently negotiating finance to build a mine. As such the stock would, you’d think, be mostly valued on the numbers in that feasibility study. But the BK project (and nearby targets) offer up some very rich grades and ERD recently hit into more of those, in parts of the BK pit that have to date been characterized as waste.
To hit ounce to multi ounce per tonne grades in drill core grabs a lot of attention and deservedly so. It’s splashy enough that the stock behaves like an exploration stock, rather than a development stock, at least for a while.
Other examples would be Troilus drilling into high grade or Integra hitting high grade. Each are advanced projects but the results are strong enough that investors get as excited as if it were a new discovery.
I intend to maintain the weekly schedule. I’ve had a series of challenges on that front in recent months but weekly, on Wednesdays, is still the goal!
I am pretty new to all of this. When we see a stock halted pending news, I assume if the stock has been trading up it is a sign the news will be good and if it has been trading down I assume the news will be bad. Is that your experience?
-- Reader LO
Would that it were that simple! Here are some of the scenarios:
Speculating on expected news: when a company is expected to issue notable news, speculators will often bet ahead. Whether they will bet correctly is the question. Take GTT.V for example - the market pushed that stock way up ahead of its resource estimate and then the share price tanked when the news didn’t meet expectations. NHK is a similar example. When I say ‘expected news’ I mean things like resource estimates or PEAs - things that pull a bunch of public data together into a particular result. Analysts and savvy investors will do their own models and estimates and place bets on the stock according to their results. Again, though, there’s no knowing whether the market will get it right.
Speculating on exploration news: this is even harder to get right! Speculators can get really excited about pending drill results from a new target that fails to deliver; they can just as easily not notice a really good target being drilled and thus not bid up the price ahead of results, which means the price will jump once the news hits. Sometimes news leaks (a driller talks or something) before results are out, though this isn’t particularly common.
Unexpected news: there’s lots of news that truly comes as a surprise. Deals are a good example: there is usually no advance notice if a company is going to make a takeover offer for another company. Project acquisitions are similar; companies don’t talk openly about projects they are trying to acquire (1) in case it doesn’t happen and (2) to not encourage others to compete. Since these new pieces are unexpected, the stock cannot trend in any related way leading up.
Marketing: companies try to encourage share price gains in a variety of ways. Many use advertising and promotion campaigns to create and then maintain positive momentum, especially in advance of something like a financing free trade date that is likely to have negative price impacts. They may also do these kinds of campaigns in advance of exploration results, to pull eyes to the story; if the campaign is effective the price will rise and then wioll have to react when the actual drill result come out.
Long story short, there are times when the market moves appropriately ahead of a halt, because speculators have guessed correctly. There are times when speculators guess wrong. There are times when news is totally unexpected so the share price move in advance is relatively disconnected. And there are times when a company has tried to create price momentum ahead of news and that momentum may overshoot the mark or help!
I'm in my late 50's and feel it best to stay conservative in my stock picks. I am underweight in gold stocks at this point but I am looking for a general market correction to happen this fall. If that happens I think gold stocks will drop temporarily, creating a buying opportunity. I think any bull market needs to have a few corrections along the way to be a healthy bull market. It's just a question of the right time and place for the correction.
Do you agree or disagree with this?
I do think that gold and silver are going much higher long term and are a good store of wealth when you consider the money printing of late.
-- Reader TC
The thought process you outline makes lots of sense, for a bunch of reasons. US markets are disconnected from reality, so either reality has to improve markedly or markets have to correct significantly.
If a significant market correction is coming, we all as investors want to use it to our advantage
If such a correction does happen this fall, that is soon enough that it could well make sense to wait for the crash to buy stocks of interest, even contrarian gold stocks.
The questions are:
- Will stocks correct? Impossible to know but we will all have opinions.
- Will gold stocks fall with everything else? This is perhaps more important than (1) because it determines whether to invest in this safe haven space now or wait for a correction.
I really think the answer depends on what form the correction takes. If the correction is a crash and markets move down suddenly and sharply, then gold stocks will likely get sold alongside everything else. The reason is that, in a sharp crash, investors sell indiscriminately, just wanting out of risk and into cash. If, however, the correction is a more gradual, grinding turn down, then gold stocks could actually benefit from the shift. In a slower correction, investors have time to think. In today’s setup, thinking will almost certainly prompt a good number of investors to put the money they took out of stocks into gold, a sector with momentum, clear macroeconomic support, relatively low valuations, and a history of performing when everything else falters.
The problem is that we can’t even know whether or when stocks will correct, let alone know how sharp such a correction will be! All we can do is think through potential scenarios:
COVID infections peak and start to decline in the US. That’s good, of course, but the market won’t like any reason for the Fed Reserve or government to cut back on stimulus programs. News of that nature would likely push markets down, as it would mark a requirement for a return to ’normal’ valuations, not Don’t Fight The Fed valuations, and those aren’t as pretty, especially against a COVID-ravaged economy.
COVID keeps raging, which keeps stimulus rolling but also keeps large parts of the economy in real or effective lockdown. The longer small businesses stay shuttered the less likely they are to restart. The longer COVID uncertainty persists the longer businesses of all scales will struggle to get loans, which are the lifeblood of growth (for a very information twitter thread on this topic, click here: https://twitter.com/HRGPFOREVER/status/1289554743128358914). When or how this continued status impacts the markets is anyone’s guess, as it keeps us torn between a Dismal Economy a hordes of investors on the Don’t Fight The Fed train.
I don’t think I’ve been of any help at all in deciding whether to wait for a market correction or crash to buy gold stocks!! So to finish let me offer a few thoughts that might actually be helpful.
You note that you do think gold and silver are going much higher long term. If that is your perspective, then balance your buys in a similar way as you balance your thoughts. What I mean is: you believe in gold and silver but would love, and in some ways expect, prices to drop to some degree in the near term. So act on both of those thoughts and buy in tranches.
Buy perhaps a third of what you’d like to own now, so that you are positioned. Plan to buy the rest if a crash indeed materializes and pulls golds down, or if the gold price steps back to consolidate recent gains. If over the next month a crash hasn’t happened and you think the odds of one are decreasing, buy another third and hold the last of your ammo in case a crash still happens. The final third you could deploy based on goodness know what event and subsequent share price reactions or in the likely-even-in-a-bull-market end of year price slide.
Thank you so much for this excellent Maven letter. Your market analysis and logic is again exceptional. Your insights, knowledge and feel have given me a wonderful couple of hours. I am now planning my activity. I look forward to seeing you tonight on the Virtual Metals forum, I am pleased that you start first as I am a morning not a night person.
I hope you and your family stay well.
I appreciate the value of your experience and the information that you provide...there really is no one better. IMO