Did Gold Shares Capitulate on Friday?
It looks to me as if we had a bottom in resource stocks on Friday with massive capitulation. Gold and silver act as if they are blindfolded and searching in the darkness for a well-deserved turn higher. In a near perfect example of Monkey See-Monkey Do, those who don’t understand how commodity markets actually work were blathering on recently about how the commercials in the gold market were panicking out of their short positions. But since when do the commercials ever drive the metals markets?
Here is an image of the latest Gold Cots as of Tuesday the 2nd. I am going to show you who actually moves the markets using both logic and facts, not opinions. These figures come from Goldseek.com.
(Click on image to enlarge)
While it is true that the commercials did drop their short positions by a massive 26,768 contracts how would it be possible that they drove the price of gold lower? Because open interest declined by 14, 117 contracts so someone was selling big time and driving the market. But since we all understand that all commodity markets are a zero sum game with one buyer and one seller, you actually never have a situation where there are more buyers than sellers because the two have to be the same number after all. But we have to have some highly motivated sellers to move the market as much as it went down.
For commercial shorts to decrease the number of contracts they hold, they have to buy back those 26,768 contracts that they were short. And since we can both add and use logic, we understand at once that you can’t make a market decline by buying. However the large speculators were dropping their long positions by 18,548 and the only way a long can close a contract is by selling. So logically and mathematically we understand that there were a lot of motivated speculator longs that panicked and sold out. So if all you ever understand about commodities is that the speculators are always the guys that move the market up and move the market down you will know all that you need to. The commercials play the same role as a Blackjack dealer in Vegas. They don’t care what the bet is from the speculator, they always cover it.
Resource shares plunged on Thursday and opened lower on Friday before making a turn mid-day. That’s what capitulation looks like. The DSI was 12 for gold on Thursday and I’d be a lot happier with a DSI under 10, sometimes you have to take what you get. Silver is still a bit high on DSI at 48 and may go a bit lower before turning. I believe the metals have bottomed or at least are in the process of bottoming but I love it when gold and silver shares finally capitulate as disappointed perma bulls toss in the towel.
There are hundreds of good quality gold and silver stocks that have had corrections since the high last August and lost a third to half their value since. If like me you like buying when things are cheap, welcome to the bargain table where everything is on sale. I like buying when things are cheap and selling when they get expensive. Actually I can think of no other way to make money. After all, most investors including the large speculators in gold contracts prefer to buy expensive and sell cheap. Oh, well, they were warned.
These stocks are in no particular order but they happen to be stocks I am most familiar and in many cases, I own shares in. All are cheap, some are absurdly cheap.
JNC Resources (JNC-C) is a new company that just started trading last summer. They had a couple of interesting projects, one in central BC where they have an option on what they refer to as the Triple 9 project that calls for them to pay $1.035 million and issue just over 2 million shares. Another gold project is in Nevada where they did a deal with Great Basin Resources to pick up 100% of the Imperial Project by making a cash payment of $270,000 and spending $4.3 million in exploration over a seven year period.
Where JNC gets really interesting was mentioned in a press release about a week ago when the company announced an LOI to acquire a private company named the Southern Precious Metals Limited started by Dr. Quinton Hennigh and Dr. Chris Wilson that has a number of highly potential gold projects in New South Wales in Australia. Quinton was helpful in getting Kirkland Lake Gold merged with Newmarket a few years back that became a $17.5 billion dollar major on the strength of the Swan Zone at the Fosterville mine. Quinton and Chris Wilson believe NSW has similar potential to Victoria but is as yet undiscovered.
Prior investors in the Springpole deposit in Ontario or Kuya Silver or Irving Resources or Newfound Gold or Eloro or Eskay Mining will know why I am such a fan of Quinton Hennigh. Literally he has the touch of gold. I have shares in the SPML company so I benefit by the takeover.
GSP Resource (GSPR-V) owns the Alwin copper project in SW British Columbia. Last week they announced excellent numbers from a recent drill program. The Alwin mine is pretty much surrounded by the Highland Valley Copper Mine operated by Teck. Alwin literally abuts Highland Valley. Teck can use the high grade feed and when the powers that be think about it, they will realize they can pick up a lot of copper resources far cheaper than developing them themselves. It’s not really a question of if Teck will buy them out but when.
GSP Resource has only 18.5 million shares outstanding. On the strength of the assays the shares shot up to $.485 before tumbling with the dive off a cliff for gold to a low of $.27 on Friday. I had a stink bid in for shares at $.29 that I never expected to have filled but it was to my great pleasure.
Sometimes investors make decision making way too complicated. At $.27 the company has a market cap of under $5 million. When Teck buys them, they will probably be a $25 million dollar takeout. So they either go to zero or you make 400%. I know my readers are smart enough to do the math and just love cheap shares.
Ethos Gold (ECC-V) plans on drilling their Perk-Rocky copper porphyry project starting in May 2021. In a press release that came out on March 2nd the company said they would drill a 2,000-meter scout drill program in 3-4 holes soon. The company has a strong technical team led by Rob Carpenter who brought with him a whole slew of new projects including a Newfoundland gold project with a lot of visible gold at surface and some interesting VMS targets in Ontario. The geo folks are working on the data now for a summer/fall drill program on the most attractive targets.
Ethos has $4.5 million in working capital and is in the midst of a $1.2 million capital raise for flow through funds. There will be a lot of news coming from the company over the next six months. This is another company with Quinton Hennigh as an advisor. With their current price, the company is valued at only $19 million. The share price is down 35% since the top in August and that is usually a typical correction. There will be more news shortly from Ethos.
Cypress Development (CYP-V) announced a short form prospectus raise for $17 million at $1.25 in February. Cypress owns 100% of the Clayton Valley Lithium property in Nevada right next to the Silver Peak lithium brine mine that has been in production since 1966.
The Clayton Valley project is big, 593 million tonnes of 1,073 ppm Li in the measured and indicated category. A PFS released in May of 2020 showed a 40-year mine life with a capex of $493 million and a NPV of $1.052 billion. Lithium is in short supply right now and getting shorter. Other lithium juniors at a similar stage of development are selling for 50% to 75% of NPV while CYP is getting a mere 12% of NPV. It is the cheapest real lithium company out there on a per tonnage basis.
GoldX (GLDX-V) has a giant gold project in Guyana containing 7.35 million ounces of gold in the M&I category. There is an additional 3.15 million ounces in the inferred category. The company just completed a 10,000-meter drill program designed to expand the resource and to upgrade the inferred resource. It has begun an additional 10,000-meter drill program.
The deposit is big but low grade, about 1.01 g/t gold. But it is the cheapest call on gold in the marketplace. Guyana is an expensive country to do business in. It’s pretty primitive. That’s what held management back before Paul Matysek took over a year ago, adding Robert Friedland as CEO. I’ve known Paul Matysek for almost twenty years. He has an incredible line of successful companies behind him sold for a total of $2.8 billion.
If you believe the price of gold is headed higher as I do, the
Eloro Resources (ELO-V) has one of the most exciting stories today. They are drilling a pretty much virgin caldera in Southern Bolivia. They have an option on 99% of the Iska Iska project that I wrote up in late January after incredible drill results. For what it is worth, I think this is one of the top two or three deposits I have ever seen. It’s going to be giant and filthy rich. The January drill results took the share price from $2.10 to $5.89 in a month. It has since corrected by about 25% and last week the company announced a placement at $3.75 so until the placement is concluded, there will be no assay results. When the PP closes look for much higher prices. I love this stock.
Tom Larsen has taken this project from a glimmer in his eye to what looks to be a billion tonne project in less than a year. The stock was as low as $.175 a year ago. That’s a 3200 percent gain in less than a year. One of those in a lifetime and you can retire rich. It’s going a lot higher as more assays come out. Tom Larsen and I talked last week and he wanted at least three drills working the caldera. I told him he needed fifteen drills and a $50 million budget.
Cartier Iron (CFE-C) is a backdoor way of buying Eloro. The company owns 2.09 million shares of Eloro and is headed by Tom Larsen. They have an ongoing drill program but with ELO at $3.80 CFE has $8 million in ELO shares and a $9 million market cap. This is another case where I put in a stink bid at $.11 and was thrilled to have it filled. The shares were $.185 five weeks ago.
GSP Resource Corp
Ethos Gold Corp
Cypress Development Corp
Eloro Resources Ltd
Cartier Iron Corp