The fact that metals have not responded to the spike in inflation shows that investors, or at least the paper-gold speculators, are buying into the Fed’s assertion that these price hikes are temporary, asserts Brien Lundin, resources sector expert and editor of Gold Newsletter.
My expectation is that the inflation rate will moderate from the recent peak levels, but it will remain stubbornly high for years. This is not only because of the domino effects that wage and commodity increases will have throughout the production pipeline, but also because the Fed will be encouraging higher inflation at every step along the way.
Right now, they’re in the strange situation of having to talk down inflation to calm the markets, while simultaneously stoking the inflationary coals at every opportunity.
They need higher inflation both to eat away the value of the massive federal debt load and to allow them to raise interest rates enough so that they can cut them right back to zero in the next economic crisis.
It will be interesting to watch their rhetorical game over the next quarter or two, as they continue to insist that inflation will moderate “soon.” Eventually, the markets will begin to discount their PR campaign, and gold should benefit as it becomes more obvious how sticky inflation has become.
In a typical year, gold will bottom anytime from mid-July to mid-August, and strengthen going into the fall. But the last couple of years have been anything but typical, and gold has failed to follow that seasonal pattern. In fact, the metal rallied well into both summers.
And it famously peaked last August, before beginning the long, deep correction from which we’re now struggling to escape. The stochastics again argue that seasonality will not rescue us this year, and that a rebound is still a month or two away.
However, the fundamental picture, and gold’s post-Fed rebound, are powerful evidence against these bearish stochastics. Clearing the 200-day moving average is also important.
Thus, I’m moving many of our companies from “holds” back to “buys.” The idea is to play the interim cycles along a long-term uptrend, to buy lower and sell higher. So if we’re confident in our long-term bullish view for gold and silver (and I certainly am), then current price levels represent good buying opportunities.
Our latest new recommendation is Whitehorse Gold (WHGDF), which has a link to Rui Feng, Chairman and CEO of Silvercorp Metals (SGX) — one of our current model portfolio holdings.
Rui’s connection to this story is not to be ignored, as his track record turning underappreciated stories into huge winners is second to none.
In Whitehorse’s Skukum project in south-central Yukon, Rui and team see an opportunity to grow three existing high-grade gold deposits with expansion drilling and to outline multiple earlier-stage targets on Skukum’ district-scale land package.
Based on the Mt. Skukum’s mine’s brief history of past production — it generated ~79,750 ounces of gold between 1986 and 1988 — Skukum definitely qualifies as a brownfields project.
Up to 2011, past operators plied this mine and the Skukum Creek and Goddell deposits with 141,547 meters of surface and underground diamond drilling. The project boasts more than 6,000 meters of historic underground development, along with a 300 tonne-per-day mill.
The three deposits resources total to 335,611 indicated, gold-equivalent ounces (274,544 ounces gold and 5.4 million ounces silver) at 7.8 g/t and 245,590 inferred, gold-equivalent ounces (223,873 ounces gold and 1.9 million ounces silver) at 6.9 g/t.
The 18,000-meter drilling program the company has just begun aims to expand the known resources at Mt. Skukum, Skukum Creek and Goddell, all three of which are open along strike and at depth.
Given the wealth of past drilling data Whitehorse can use to guide this aggressive campaign, odds are high that the program will pepper the market with high-grade assays in the months ahead.
That’s a great base to build on, and it seems very likely the company can grow Skukum’s high-grade resources significantly just by stepping out from the known mineralization on these deposits.
And then there’s the exploration blue sky. In spite of its brownfields status, Skukum’s district-scale land package is underexplored.
Concurrent with the resource expansion drilling, Whitehorse will be plying the area near the main deposits with mapping and sampling and testing gold occurrences identified well outside of those deposits. Whitehorse will combine this surface work with airborne geophysical surveys.
I’ve been waiting for a good entry point to recommend Whitehorse, and the company’s shares have helpfully retreated around C$0.30 over the past few weeks.
When you factor in its Rui Feng pedigree, its aggressive drill program and Skukum’s obvious resource growth potential, Whitehorse Gold is definitely on sale at current levels. It’s a buy.
