Sprott Money News Ask The Expert: Brent Cook of Exploration Insights

Economic geologist Brent Cook answers listener questions regarding the mining sector and discusses some specific companies that he expects to perform well in the months ahead.

- Source, Sprott Money News

Rick Rule on the Current State of Gold

Rick Rule, President and CEO of Sprott U.S. Holdings Inc., shares how the worldwide explosion of negative yielding debt shapes his bullish outlook on gold. 

He examines the impact that a “war on savers” has on the global financial system and on precious metals, and he shares his ideas on where inflation fits into the equation. 

Rule explains his outlook for the future of the monetary system by analyzing the evolving relationship between cryptocurrencies, precious metals, and fiat currencies.

- Source, Sprott

Gold Equity Earnings About to Surge

Gold companies will be announcing Q3 earnings shortly with the majority reporting in the first week of November. We mentioned in our prior commentaries that the increase in gold pricing would be reflected in gold companies’ earnings materially. The average price of gold bullion in Q3 was $1,474/oz, which is 12.6% higher than the Q2 average of $1,309/oz. Using the World Gold Council’s data on gold production costs, the industry has roughly an all-in-sustaining-cost (AISC) of $900/oz.

Here we take a stab at estimating the impact of the higher gold price on gold producers’ profits. We are assuming that the Q3 industry AISC is likely to remain unchanged at $900/oz as the main component costs of labor and energy remained subdued.

• The Q3 average gold price of $1,475/oz less industry AISC of $900/oz = $575/oz profit (40% higher)

• The Q2 average gold price of $1,310/oz less industry AISC of $900/oz = $410/oz profit.

Q3 over Q2 profits, in general, should increase about $165/oz or 40% higher based on the 12.6% gold price increase. This quarter-over-quarter increase is materially higher than any industry that we have scanned. The operating leverage in profit increase also helps illustrate why historically gold equities typically have a 2x to 3x leverage to gold prices. High-cost producers will benefit even more as their leverage to the change in the gold price is much higher. If we use a higher cost Q3 AISC of $1,000/oz in this example, the Q3 profit will be $475/oz versus Q2 profit of $310, or 53% higher.

- Source, Sprott Monthly Report

Sprott Report: The Sweet Spot for Gold Equities

October was another consolidation month for gold bullion. Gold traded in a narrow $33/oz range dictated mainly by the action of global bond yields. Gold held above our support level of $1,450 and consolidated within a bullish wedge pattern. From a positioning view, Commodity Futures Trading Commission (CFTC) longs had a minor pullback. CFTC shorts remained unchanged while ETF holdings continued their gradual accumulation. 

Since the gold price peak in early September, there has been an uneven nascent risk-on short-term basing action in some parts of the capital markets. The October 30 Federal Open Market Committee (FOMC) meeting resulted in the expected 25 basis point cut in interest rates and a signal from the Fed that future rate cuts may be on hold, representing more of a “pause-lite” rather than an “absolute pause.” With the “Fed put” reaffirmed, the U.S. stock market rallied to new all-time highs, yields declined, the U.S. dollar fell and gold closed higher on the day.

Month of October 2019

• Indicator 10/31/19 9/30/19 Change % Chg AnalysisGold Bullion $1,513 $1,472 $40.56 2.75% Consolidating in short-term range, before rise 

• Silver Bullion $18.11 $17.00 $1.11 6.55% $17 base held, carving out base

• Gold Equities (SGDM)1 $24.13 $22.90 $1.23 5.25% Breaking out from a consolidation flag

• DXY US Dollar Index2 97.32 99.38 (2.06) (2.1)% Testing bottom of rising trend

• U.S. Treasury 10 YR Yield 1.69% 1.66% 0.03% 1.6% Consolidating in short-term range

• German Bund 10 YR Yield (0.41)% (0.57)% 0.1% 28.07% Consolidating, major downtrend in place

• U.S. 10 YR Real Yield 0.14% 0.14% (0.00)% (0.00)% Consolidating in short-term range

• 0 $14.76 ($1.93) (13.1)% Pullback inline with yields

• CFTC Gold Non-Comm Net Position3 and ETFs (Millions of Oz) 111.20 116.90 (5.67) (4.9)% Pullback in CFTC longs only

We believe that the recent injection of liquidity has continued to inflate asset prices. The S&P 500 Index has made new highs despite weakening global growth, an earnings slowdown and funding stress. By contrast, global bonds continued to trade near highs as signs of economic weakness abound.

The 5Y/5Y inflation swaps for both the U.S. and EU remain subdued with a long-term downtrend solidly in place. The EU 5Y/5Y touched all-time lows in October despite the launch of quantitative easing (QE) by the European Central Bank (ECB).

Credit stress remains subdued, likely due to the massive liquidity injections in the repo market, although LIBOR-OIS (London interbank offered rate-overnight indexed swaps) spreads remain elevated in line with the condition of the repo market. Commodities continued to struggle as demand remained weak.

Gold bullion, by contrast, still has a very constructive outlook in the medium- and long-term.

Figure 1. Gold Bullion is Consolidating Below the Last Significant Resistance Level Before a Re-Test of Previous Highs

- Source, Sprott Monthly Report, read more here

Rick Rule: Strategic Relocation and Strategic Assets

Given the crisis actions currently being taken by central banks, the drastic erosion of constitutional liberties and privacy, and the unprecedented levels of debt & derivatives posing risk of global financial collapse, you may be wondering whether you should relocate in order to reduce taxes, government intrusion, and other risks.

But where should you consider moving, and what factors should you consider? 

Rick Rule, CEO of physical precious metals fund leader Sprott Asset Management, returns to Reluctant Preppers to share his own personal story of strategic locations considered and selected.

Rick also answers YOUR questions on tried & true principles for strategically protecting your family's financial future, investing, and more!

- Source, Reluctant Preppers