The Return Of Fear And The Flight To Safety
(Kitco News) -The sentiment from the Silver & Gold Summit in SanFrancisco was one of fear - the nosedive that equities took in October hasunderstandably shaken investors’ confidence in the stock markets.
The questions on everyone’s mind is during the conferencewas whether or not investors will flood back to safe havens in 2019, and if so,will gold take the crown as the king of safe haven assets again?
Here is a selection of interviews from the conference thatechoed this sentiment.
Dollar Has More Power On Gold Than Stocks
Although equities took a plunge in October, which was theworst since 2008, gold’s rally was more a response to the dollar than tostocks, this according to Rick Rule, president and CEO of Sprott U.S. Holdings.
“My own belief is that popular perception of the continuedpurchasing power of the dollar and strength in the U.S. economy declined alittle bit which caused U.S. equities to decline,” Rule told Kitco News.
On miners, Rule noted that while the mining sector may be ina favorable position in terms of valuations, their operational performance hasdeteriorated from a year ago.
Are You Being Scammed?
Brent Cook of Exploration Insights and veteran geologist,said chances are that the average retail investor is being “scammed” by minersif they’re not being careful.
In order to protect themselves investors need to stick to afew guiding principles.
“What you want to watch for is, whoever is telling thestory, what’s their entry point, how do they make money, be it a broker,newsletter writer, or the company president. Follow the money, if you will. Butthereafter, you really need to understand the basic geology and potential of aproject to actually work,” Cook told Kitco News.
Mining Stock Valuations Aren’t Real
Markets aren’t trading mining stocks at fair value,according to Siddharth Rajeev VP, head of research at Fundamental ResearchCorp.
“The pricing does not reflect the fundamentals, mainlybecause that’s the nature of the business. It’s dominated by speculativeinvestors. When things are good, they take prices high, and when things change,they just beat [the market] to death,” Rajeev told Kitco News.
Rajeev noted that despite short-term speculative forces,fundamentals for commodities remain strong.
“I think the fundamentals remain strong. Our outlook is thatin the next 12 months, commodity prices should strengthen, mainly because weexpect a weakness in the U.S. dollar, that’s contrary to what a lot of peoplesay,” he said.
The Worst October Since 2008 Is Behind Us
This past October yielded the worst returns for any Octobersince the last recession, and Frank Curzio, editor of Curzio Research Advisory,saw that as a buying opportunity.
“This pullback is a buying opportunity. I think a lot of thedownturn is due to mostly technicals,” Curzio told Kitco News
Curzio noted that the fundamentals point to an undervaluedequities market.
“Right now we’re trading at one of the cheapest levels inthe last five years on stocks,” he said.
Major Gold Miners Have Caused More Harm Than Good
Pessimism for the the large-cap gold miners have pushedinvestors away from the sector altogether, even though there are goodinvestment opportunities in the junior space, said Rob McEwen, chairman ofMcEwen Mining.
“The majors haven’t done any favors to the sector. They’vegone out and they’ve sold off production so their growth curves have a negativeslope to them. They got rid of their exploration and they’re shrinking. They’vegot bad results,” McEwen told Kitco News.
On juniors and mid-tier miners, McEwen said that the sectoris a third of the way along in a bull market that started in the beginning of2016, and that the rally has three to five more years to go.
“In that time, there’s a chance of seeing gold equities goup three to four times where they are today,” he said.
2019 Is The Year To Run To Safe Haven Assets
A possible bear market in equities may potentially hit in2019, and investors should brace for impact, according to Patrick Ceresna,founder and chief derivative market strategist at Big Picture Trading.
In particular, Ceresna said that fixed income securitiespresent an attractive investment option.
“I think everyone’s a little too bearish on treasury bonds.If we start seeing a turn in the business cycle, as the market has to price outrate hikes that they’ve been pricing in, we may see a steepening of the yieldcurve and actually a lot of bonds may be a very good safe haven in theshort-term,” Ceresna told Kitco News.
On gold, Ceresna said that the yellow metal typically onlyappreciates after a bear market subsides.
Silver Is Facing A Deficit...
There is currently a deficit in the silver market, said KeithNeumeyer, CEO of First Majestic Silver.
“First Majestic is a member of the Silver Institute, and theSilver Institute does publish annual numbers, and these annual numbers showthat the miners, globally, have produced 800 million ounces of silver in 2017,and the same report shows that there’s a billion ounces of consumption. So thattells me there’s a 200 million ounce deficit,” Neumeyer told Kitco News.
Neumeyer added that the electrification of our economycontinues to be the dominant long-term driver of industrial silver demand.
...But There’s No Shortage In Silver
Marin Katusa, chairman of Katusa Research, maintains thatthere is no shortage of silver, and that the white metal’s low price has beendue to other fundamentals.
Katusa argued that there are plenty of players in the silvermarket for a shortage to be in place, especially since a “fracking” moment hasnot yet happened for silver producers.
“There’s all these new emerging markets that haven’t had thecapital that we’ve had. For example, look at the fracking revolution. All thatmoney went in and so much production came in. We’re not the only ones withtechnology and the ability to do it. China’s doing it. China’s a majorproducer, China produces more gold than America,” Katusa told Kitco News,“there’s going to be no shortage.
Doug Case: Avoid Cannabis Stocks
Cannabis may be all the craze these days, especially afterlegalization in Canada on October 17th, but one veteran investorsaid that the space is currently overvalued.
Doug Casey, founder of Casey Research, called cannabisstocks a “bubble” that’s “peaking” despite strong demand from the public formarijuana.
“I’ve been involved in these marijuana stocks, I think thatyou could never go wrong in two ways: underestimating the stupidity of theAmerican public, or underestimating their desire for vice,” he said.
Casey isn’t fond of the overall equities market either,noting that valuations are overstretched.
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