The market, after seemingly believing the Fed’s narrative for the past six months, has finally called its bluff, asserts Adrian Day, editor of Global Analyst.

We have noted before that gold has fallen for months ahead of any taper or rate cut, but risen for the period after the Fed actually started. This has been the case all the way back to the early 1990s.

This is because the Fed can sound tough all it wants but when it actually starts to act, it’s too little too late, and the market can clearly see that. In this cycle, the Fed is massively behind the curve on inflation.

Pan American Silver (PAAS) reported results above third quarter and the previous year, but still somewhat disappointing. Many of its operations are still affected by covid restrictions. In fact, because of this the company will not be issuing full-year guidance in January but hopes to next month.

Several of its mines which have been weak should see improvements during the year, some because of the ongoing decline in covid severity, and others because of operational improvement. Notably, there is an ongoing ramp up in production at La Colorada following capital improvements.

The most significant trigger would be some advance on the consultation process in Guatemala between the government and the local communities over the re-opening of the Escobal mine. After running to $25 during the week, the stock fell along with most resource stocks, and at the current level is a buy.

Fortuna Silver (FSM) reported a good fourth quarter, with Lindero, the new gold mine in Argentina, in particular producing above expectations as long covid-aggravated teething problems are put behind it. The mine’s 36,000 ounces of gold production represents 47% of the annual total.

However, company guidance for the year ahead was somewhat conservative. Although gold output is expected to increase, by 20% or more as Lindero runs at steady-state, silver production is expected to fall as much as 17%.

Overall gold-equivalent ounces is expected to increase by between 7% and 21% over 2021. Capex estimates (excluding the Séquéla mine in Cȏte d’Ivoire currently under construction) were significantly higher than expected. The company has a robust exploration program, with $29 million allocated for this year, of which almost $9 million is greenfields.

Fortuna has experienced a string of bad luck over the past couple of years, but with Lindero now up and running at planned rates and the San Jose extension permit in hand, and following the integration of the West Africa acquisition, Fortuna, with strong management and a solid balance sheet, is set for growth.

With ongoing protests surrounding San Jose, and a mine under construction, there are still things that can go wrong. We may see some downside follow-through, and would look to buy additional Fortuna on any further weakness.

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