Note: This is not financial advice. I’m not a financial advisor and I’m wrong 100% of the time. Investments are risky and nothing mentioned here should be considered financial advice. Invest at your own risk.
Note 2 – most of this I published in my daily email out to my miner email list, so some editing has been done to remove dollars and some edits geared towards general readers are necessary.
Before I proceed, I would like to discuss my last 6 months of trading returns:
Feb (-16%). I had just started and only had a small amount in.
March (-23.59%). I had just bought in some with some sizable money and the crash happened
April (48.61%). Bought in to a lot of miners at this point
May (18.4%). Miners! Subscribed to some newsletters for ideas
June (18.89%). Miners!!!!
July (29.68%). Newsletters paying off!!
The last 3 months I’m averaging 29% each month and this bull market is just in the EARLY stage. I know this is NOT sustainable, and I don’t pretend it is, but we are at the base of a gold and silver bull run and some months I may run hot and get 70%. Other months there may be a massive consolidations near the end of the month and cost me 20%. All in all, I figure that if I continue only a 5% return each month, I’m looking at a 5x or so total return in 2 years. 8% has me somewhere near an 8x. Point is – there’s a lot of gains ahead.
Here’s the agenda today –
- David Morgan on silver “double parabolic”
- Gold and silver all time highs
- Newmont as a silver play?
- Next moves towards December
Silver going “double parabolic”
David Morgan, the “silver guru” recently did an interview in which he said he thinks silver is going “double parabolic” from here. The 17% move in a week was last seen in 1980. He thinks this big move now, coupled with the serious supply squeeze, will indeed cause a massive short squeeze which could take it 2-3x in the short term. After the elections at some point, it can be smacked down 1.5x. This would shake a lot of people out – but that base is then going to grow for 3-4 years. Here is the interview:
This is how it is to look, and the red circle is about where we are now. That first move up could be sometime in September. More on that below. That move down and the second parabolic up might be months or a few years down the road. There is a legitimate mining problem with all of the demand and this cannot be resolved until more expensive mines for silver are online. That can’t happen at $18 silver, so the demand for a product ($17 silver) that doesn’t exist, will resolve itself with probably $30-$35 long term silver with a sharp move up again when they realize industrial demand is fully coming back online. And another supply squeeze will happen then.
I completely agree with the above. This short term supply squeeze is a paper COMEX issue coupled with mines being closed. The short term supply squeeze is a real issue for pricing mechanisms. Most people have no idea of the 700,000,000 or so interest on the September Commitments of Trading Report (COT). With all of the mine supplies non-existent and the investment demand off the charts, there will be a pop off of the charts in September. How will this work?
The first day of the December contract (last day of August or Sept 1st, no idea what date it is, but it’s in there) will have probably 100-200 million of those 700 million “stand for delivery”. This will send shock and awe and spike the price. Of interest, it’s not really going to be possible for all of that silver to be delivered. This may create a situation called a “force majeure” and this can completely re-rate the price something parabolic if supply is indeed wiped out. This past contract delivery month, 4 million ounces of the 81 million ounces were delivered on the last day. And…you saw what happened to silver prices in the last week of July with people scrambling to fulfill these ounces. The YouTube-verse is seeing a lot of “family houses” and “big money” in the column for taking delivery. What this is telling people is that all of the large money in the world is trying to do a bank run on metals because cash everywhere is pretty much trash. Ray Dahlio says “cash is trash”. Check it out here. In that interview, Dahlio says you need gold in your portfolio.
Scott Minerd, Chief Investment Officer for Guggenheim, called the stock market a “Ponzi scheme” and called Silver the best investment in 2020. Check it out at 6:40 in. Here’s the video.
The question then is when do you sell if this goes way high? Do you sell at the first parabolic at 2x and miss the move up to 3x? Do you hold through the parabolic and miss those gains?
Anything you buy as an investment, you need to come up with a plan of when to sell. And how much. For me, personally, any physical I have vaulted will probably be converted to gold using the gold to silver ratio with the click of a few buttons. For example, I had bought silver between 90:1 and 100:1. I had also bought some gold then. When the ratio hit 125:1, I sold my gold for silver and made out like a bandit. When it hits 40:1, I’ll probably take a chunk in storage and convert to gold. If hits 30:1, another chunk. 20:1, another chunk. If you sell it all at 40:1, you can miss a bigger move. No one is going to perfectly time the tops or the bottoms. Just know history. In 1980, the GSR ratio hit 12:1, and in 2011 it hit 30:1. Historically, it’s pulled out of the ground at about 15:1, although now that most surface gold and silver have been mined from the earth, it’s now more 8:1, according to Keith Neumeyer – CEO of First Majestic who mines both gold and silver.
Another thing is the upcoming industrial demand. With 5G, electric cars, solar, and the world going more “green” – there is a future where silver needs are far, far, far higher than they are now. Silver is the best conductor of electricity, and it’s needed for the next 20 year push in technology. The last 5 years, there have been mining shortages.
My observations with supply and demand charts have silver coming in at 1.2-1.8 billion ounces per year needed. Mines are producing 800 million ounces now. A vast amount of silver is produced as a byproduct of zinc, copper, lead, and gold mining. There’s virtually no primary silver miners left due to all of these supply issues. Given these supply needs along with the investment demands and how scarce it is in the ground to gold (8:1), it is not unrealistic to see $50-$250 silver. If gold hits $3000-$4000 and maybe comes back down to $2400 in good times – a 30:1 ratio to silver would have it at $80.
So…my thoughts of $30-$35 silver exist under the model of the janked up COMEX pricing mechanism. This is with large commercial shorts shorting prices. My guess is down the road the short position may be at $35 or $40 rather than $18.
In times of strife and economic collapse, “silver will be the money of last resort, not gold, because you can buy every day items with it”. -David Morgan. Imagine trying to go out and get groceries with 1 oz of gold valued at $4000? It might seem more realistic to grab some silver dimes and quarters to do this.
If you are concerned about monetary collapse, like I was, I had bought some junk silver. These are in the form of 90% silver coins prior to 1965. Roosevelt dimes, mercury dimes, Washington quarters, franklin halves, some kennedy halves, and walking liberty halves. You don’t need much of this to go a long way. Maybe a few rolls of dimes and quarters? Best to call a local coin shop. You might be able to get this at $2-3 over spot, if they have any. Good place to start. Cheapest premiums of all silver other than big bars (which are not practical for every day living).
Gold and Silver all time highs
Gold just went over $1923 for the all time high! Well…kinda. It went over the “nominal” value, or number on a chart that was the all time high set in 2011. So…that must mean gold is near the end of moving up. Well. No. It doesn’t mean that at all.
Of issue is inflation. You look at a chart and there’s a pretty number there of $1923. But it doesn’t tell the story. In 1980, gold hit $800. However, adjusted for inflation, that is $2800. All you have to do is take 5 mins to google gold price forecasts and you can find a mean somewhere around $3000 in 18-36 months from now. The conservative ones are around $2200-$2400 and some of the higher ones are around $4000-$5000 in 4-5 years because they feel this is going to be a sustained problem.
A few days ago, the futures contract jumped to $2005 for a minute, the receded. As I need to continue to tell people, this is NOT something that goes up every day. It will go up a bit, pull back, etc. This is what a “bull market” looks like. You see it go up, then consolidate. If you are a long time holder of something like Newmont, buy, hold, don’t look, and come back in 2-3 years.
My point is that gold could, at any time, have a snap back to $1600. That doesn’t mean “gold is done”. It means a lot of people who bought at $400, $800, $1000 per ounce want to sell some of their position to profit. Maybe buy real estate. As the sales bring the price down, people with legitimate fear and see issues with the monetary system then begin to buy on these dips. Miners are very sensitive to the prices of metals, and move “mostly” in step with them. They have their own profit taking days as well, but miners will go down as well. And…they SURGE back up. Thursday I was down a LOT, and Friday I came back up A LOT. Any price sell offs these days appear to be shallow and people are buying back in cheaper, which is what I do. I have my top stocks and I set alerts to when prices drop to a certain level or RSI, and I attack.
With silver, the all time high of $49 was hit in 1980 and 2011. For this reason, a lot of people think $49 is this magical limit and maybe it will sit at $30-$35. Maybe. But, inflation adjusted, just like gold in 1980, the 1980 silver price adjusted for inflation is estimated north of $150. The 2011 one, adjusted for inflation, is around $65-$70. The 2011 gold price, adjusted for inflation, is somewhere around $2200. The silver chart below was from a few years back, but you get the idea.
Can silver meet the 2011 high of $65? If you see gold hitting $3000 and being the inflation adjusted $2800 gold high of 1980, could it be rational and logical to then assume silver could approach its inflation adjusted 1980 high? If not – why not? Back in 1980, silver’s only real use for industrial was photography. That was pure investment demand which took that ratio to 12:1. Why could it not today??? Today, you really can’t find investment silver, and if you do, you are paying premiums out the ass. Silver eagles are being sold on ebay now for $40. If silver marches over $100, well, that’s a good buy – even with high premiums.
We are approaching the both a supply squeeze AND a short squeeze – BOTH at once in September – ALONG with RAGING investment demand AND industrial demand going up every month with new strategic applications. We are facing potential hyper inflation with the fed printing trillions. Take a look at episode 7 of the Hidden Secrets of Money where Mike Maloney discusses what happened in the Weimar Republic in 1921 and how that is applicable today. with the velocity of money going down. Gold and silver is being pulled off of the exchanges now by wealthy families and you don’t even know it – yet. These are all documented in the COMEX COT reports, and the analysts now all see the run happening before our eyes, but the general public has no idea. Unemployment is 25 million people creating fear. You want to talk about the perfect storm? Cat 5 hurricane?
Why didn’t anyone tell me? Consider yourself informed. The next 4-6 weeks is going to be an interesting time in metals, and by proxy, miners investments. At the same time the stock market might rollover, gold and silver could get hammered down with the COMEX paper price whilst simultaneously shooting the moon due to no supply being available – anywhere. So I could drop 20-40% in my miner stocks this month while then shooting up 100% shortly thereafter. Risks!!
I’d like to think I was able to predict all of this and conjure all of this up, but I started at the fundamentals. Last year, in Sept, I read an article about how the repo market needed the fed to bail it out. In my MBA finance class, I had briefly remembered them talking about overnight borrowing. Now, the fed had to step in because in some reports the rate hit 10%. The entire banking system almost collapsed last Sept and no one really knows that. It was page 26 news. I pulled on that thread, as it seemed odd. This is when I started looking at the trouble the stock market was heading in, along with the dollar and debt. When coronavirus hit China in January, I tripled all of my efforts and this is when I ran into miners. All of the metals research I’ve been doing since about October.
All of that research was pushing all of the numbers towards a silver short squeeze, at some point. When lockdowns happened, and the stock market got popped by that pin, it accelerated the squeezes due to mine supplies and closures.
As one of my favorite guys on YouTube, Rick Rule, says – “I put my money into investments that are inevitable. I don’t know WHEN they are going to happen, only they are a certainty that they will happen at some point. That is to say, they are not imminent, but inevitable”. Rick Rule made billions off of a supply squeeze with uranium in 2007. Problem is, he bought into all kinds of uranium miners starting in 1999. He saw that uranium spot price was $8 and it was costing them $50 to mine it. He said, “either the price needs to come up, or the lights go off. I’m betting the lights aren’t going off”. Since he could not buy uranium and put on his desk, he bought 5 uranium junior miners. He said, “the worst of the 5 had a return of 22x. Let that sink in. And this is what we’re dealing with in miners here. You don’t need to buy gold or silver – the proverbial golden egg. You buy the geese who lay the eggs.
With silver, most of the easy above ground silver has been mined. Think of it this way – in 1971, gold was $35 per ounce. It now costs a company $800 or so to get one ounce out of the ground. Over time, supply shortages drive the price up. Eventually, you mine worse grades of ore and it becomes economical because the price has come up. $17 silver was sort of a thing 15 years ago. Today, almost all silver primary producers have been put out of business. And, as most silver is a byproduct of base metals, and most mining worldwide shut down, there’s a supply shortage that will drive prices up. Some argued this recession will then drive down industrial demand – but they did not count on the raging investment demand to not only make up that gap, but smash it.
There are SOME miners that have high grade ore (MAG, silvercrest to name a few), but most have struggled to keep the lights on. And – now that price is increasing, the First Majestics of the world are about to cash in hard for Q3. So the “$17 silver” is the equivalent of the gold $35 per ounce. Those days are now gone, forever. Small junior silver miners, like Impact Silver, can barely stay open at $20 silver. $30 silver will probably give shareholders at some point a 5-20x. They are risky to invest in because silver could drop to $12 and put them out of business – but it can go to $50 and the largest shareholders are going to be extremely Rick Rule-like rich.
When the pricing mechanism re-adjusts, I see $30 as a floor for the next 5 years. Ore is less quality than ever, and you have to go deeper into the ground to get it, making it more expensive. Within 5 years, $50 per ounce will be a floor never to go below again. It only went below $50 in 2011 because of the paper COMEX games that JP Morgan did – which led to 6 of their traders arrested and JP Morgan facing RICO charges. This is now a big deal because the large commercial shorts are getting blown out as we speak and the large commercial short may be a thing of the past in 6 months. Or – at least put their shorts at much higher levels.
This is where I see gold and silver (relative performance)….in red is where we are now. The gray line is silver. We will see this spike with the supply/short squeeze and it then recede back and correct – probably in late October-early December. The squeeze will drive it way high and many people may FOMO in, but there will be a LOT of profit taking on the other end of that spike up. Eventually, you will see silver and gold consolidate and build up for the final 2-4 years of this, with silver outperforming gold at the APEX of the move. Silver may actually spike down at the end, but I wanted to at least represent what is going on in my head with “big picture”. The first parabola may hit $50-$75. The top of the wave several years out may be $100-$200. Remember, the all time high, inflation adjusted, is north of $150. That was after years of 1970 inflation. What the hell do you think is coming when all of these trillions and all of the dollars we sent overseas come back to us? So – at that first parabola, I might sell half. When it smashes back down in Oct-Dec, I’m going to wait for a bottom and then buy back in. Not selling all because if the wheels come off of this shit, it could be game on. I’d also like to cash in some profits and have cash handy to deploy if needed.
The question I have above are what are those numbers going to look like? If there is severe inflation to hit, is that $5000 gold and $300 silver in 5 years out? I mean those numbers sound stupid now, but if a loaf of bread costs $3 today but $12 in 5 years (4x), do those numbers sound low or high? This is how you INFLATE your way out of debt. I showed yesterday that over the next 2 years, with 5% monthly returns, I have a 5x coming my way in 2 years. What if this goes 3-4 years? What if my monthly rate is not 5% but 8%? Roughly, that’s a 60x return from now 4 years out.
If you think you are too poor to invest, just think of what $1000 or $5000 might do under that circumstance? You have no problem spending $35,000 on a new car that is a depreciating asset and may go to $0 in 10 years, but finding $5,000 to go to $300,000 in 4 years is too hard? This is why we are all broke in this country. We have very poor investment education in high schools – mostly none at all.
Or, you can put that cash in a drawer and lose 4x (if inflation is that bad).
Don’t think anything crazy can happen? Did you ever hear of the Plaza accord, where they devalued the dollar overnight? If you don’t think that can happen again, look at what the dollar is in value to everything else.
If I was starting day 1 on investing in mining, this is the first company I’d pick. Just putting that out there.
I picked Newmont because I had some familiarity with them – but not much. They were on the GDX and had operations all over the world. They were the largest gold producer and my expertise has mostly been in silver mining and gold juniors. So I dug in yesterday to Newmont and learned a LOT. This might have me keeping most of my position with them. Here are some things to look at with Newmont as a gold AND silver play.
- They are the largest gold miner in the world. They merged with gold corp last year and took on all of their projects. When people want to move BIG money, they look to see who the big players are
- They are on the GDX and make up the largest piece of the pie at 13%. They are also on all other gold indexes as the largest piece. So when generalists and retail robinhood people want to get in to gold – they first throw money at GDX. And that means they are buying Newmont. I see the big wave coming this month. 2Q earnings will start to roll big money into safer havens and items that have great cash flows.
- Newmont has the largest gold reserves. They have an AISC around $950-$1000 and driving this down to $800 by 2023.
- They run their business for $1200 gold prices. None of their projects are geared to run at “$1950 gold”. Meaning, they are HIGHLY leveraged with the price of gold. Some junior miners need higher gold to make money. These guys bank a ton of cash.
- I found a resource that said Newmont has 650 million ounces of silver, and another source that has them as the 7th largest silver miner in the word at 25 million ounces (at PAAS level). This shows up with Newmont as “gold equivalent ounces” or GEOs. I was looking to move off of them for someone who had more exposure to silver. No need!
- They also mine copper – a big deal for me. They are just outside one of the top 10 copper miners in the world, with 2 copper projects.
- They pay a dividend of $1, which they can pay also with $1250 gold. With$1950 gold, I’m wondering if they raise the dividend? What about $3000 gold? $4000?
- They paid down debt. It seems to me they are really interested in operational efficiency and removing debt. Most of their debt was incurred when they took over gold corp. This is going to be driving down their AISC by $50-$100 per ounce soon.
- 90% of their projects are in “safer” jurisdictions. The only company I think is superior to them with jurisdictions is Agnico Eagle (AEM).
- They are the ONLY gold company on the S&P 500
- $1.4B in free cash flow in 2019 with $1300 gold. Think of this with $3000 gold?
This chart below should blow your mind….
If you do the math, they could average $1900 gold for Q3. $2000 should be broken this week with gold deliveries for August gold at 32,000 contracts. 3.2 million ounces need to be conjured up out of thin air, and no one has it. Gold supply squeeze in August towards the end of the month could take us to $2100-$2200 gold…and that is BEFORE silver goes bat shit in Sept. Silver breaking COMEX appears to be more and more of a certainty each day as the open interest is not coming down from 140,000 contracts. The big difference this time around is the “paper game” is also being played now by hedge funds and private money groups who are now demanding delivery instead of settling for cash. THAT is what will break it.
Anyway – $1900 gold adds $400M FCF per year to the chart above. Or $2.8B – meaning in Q3, we could see $700M in free cash flow (1/4th of $2800). We saw $300 million FCF for Q2, and that was with all kinds of mines shut down globally. THAT IS NOT accounting for their silver and Sept bat shit numbers or July spike to $24. Their GEOs, or gold equivalent ounces will also increase. THIS IS NOT factored in to their FCF numbers. Silver prices are about 50% higher than Q2. Their presentation has about 1.2-1.4 M GEOs per year. Copper is also up. This could mean the next quarter adds another .15M GEOs with higher silver prices. If silver goes ballistic, this increases their GEOs a lot more, and could take that 1.2-1.4 and turn that in to 2.4-3.0. Meaning – their 6M oz of gold would then be 67% of their financial considerations rather than 85% now. This will also significantly boost FCF estimates and reduce AISC further. So higher silver prices can also move the needle with Newmont’s FCF above and beyond the high gold numbers.
Now….what does the largest miner in the world look like with $3000 gold and $50 silver?
Right now, today, BEFORE the shit storm of metals going upward and investors coming in by the droves, they are a 14x PE ratio and 4.91 EPS. With earnings going to skyrocket with Q3 metals prices – watch these numbers. Next earnings date is 11/3. Getting my popcorn out. Their EPS on paper would then be $1.25, about – but given high metals prices that might be….$2?
Their investor presentation can be found here: https://s24.q4cdn.com/382246808/files/doc_presentations/2020/Newmont_April-Investor-Presentation_Final.pdf
2Q earnings can be found here: https://s24.q4cdn.com/382246808/files/doc_financials/2020/q2/Newmont-Second-Quarter-2020-Earnings-Presentation_Final.pdf
So – I feel I may cut back Newmont back a few to add Fortuna due to their new silver mine opening in January. Fortuna has a higher move up on silver prices, so I want to capture some of that. I’m also listing Newmont now as “both gold and silver” and I’m pretty close to getting my portfolio where I want for Sept. Some of the “inactive positions” I have I’d love to re-invest in…and that is where my new money over the next few months is going. Getting back into some of the more speculative plays and hopefully getting in before they make big moves.
So here’s how my portfolio is looking now with re-classifying newmont – I want to add a little more to the silver pure play with Fortuna and maybe bump up some exploration like Aftermath. Looks like I might have to sell some Newmont to do so. However – I think if silver does explode like I think it will in Sept, my AG options will also explode. I bought $10 options for Jan 21 2022 at $3.29 when the price of AG was $9.27. The options prices have doubled – meaning, I have a double on my investment. Had I just bought shares at $9.27 I’d be at 50% return. And – if price of silver does 2x-3x in Sept, I could be looking at $30-$50 AG stock price, or roughly a 6-13x on my investment. I think at those prices, I’d have to sell, with the thought that silver will come crashing back down several months later and I can re-buy options then much cheaper for the next leg up for 2-3 years. With MAG coming online in December to be the largest silver producer – when I sell off AG, I might not come back to it.
So who are the miners I have, and what percent of my portfolio are they?
It’s going to be a wild ride….
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