Gold: The American Dream or Nightmare?
Source: Edmonton Journa
The American empire was crumbling slowly and then all at once. Its population has gotten older over the last two decades as boomers retire, their economy is sinking and labor market flat with 105 million Americans not working. Now the Iran war has shattered the illusion of American exceptionalism, sending inflation from self-sabotaged wounds, such as tariffs and the war, to a three-year high at 4.2 percent before dropping to 3.5 percent. Every time inflation has crossed 4 percent, the market has crashed. The AI bubble has not helped the labor sector and with over half of the US population making less than $45,000 a year, households are squeezed by real incomes. Public debt has reached 120 percent of GDP. But the deeper problem is that the world’s largest debtor poses risk to the global economy, as debt and deficits become a much bigger share of its economy.
Mr. Trump went to war on a high and emerged greatly weakened. There's no doubt that the initial cost of the Iran war put at $37.5 billion by Hegseth but estimated so far at $90 billion, includes some $26 billion spent on munitions was steep, particularly since the country was already saddled with $39 trillion of debt. And after depleting valuable military kit, the president pushes to increase the nation’s defense budget to $1.5 trillion or double that of 2000. Ever escalating debt service payments alone are the third largest item after social security and medicare. True, the cost at the pump has come down, but other goods, from food to fertilizer will face persistent sticker shock in months ahead. Worse, the president has nothing to show for his war as both sides are locked in a cycle of escalatory tit-for-tat strikes, a heavy price for “unconditional victory.”
Beneath the shock is that while much of the world’s energy flows through too few chokepoints, Iran with its Houthi proxy is left to leverage its geographic position. The Iran war laid bare the rich Gulf States’ vulnerability and tarnished their invincible image, as a safe and luxurious haven for international business and tourism, in a violent part of the world. Moreover, their reliance on the vaunted US security umbrella, in exchange for petrodollars (selling their oil for dollars) was tested and found wanting, so their economic transformation will be delayed, at least until they can secure their borders. Israel too has been sidelined and out in the cold, more isolated. Noteworthy there was nothing in the 14-point memorandum of understanding (MOU) that met the president’s primary objectives, which has now fallen apart, as both sides are in a stalemate of tit-for-tat strikes to end the forever war. The Persian Gulf has been critical for centuries, once controlled by Portugal, the Ottoman Empire, Great Britain and today, having failed to defeat Iran with bombs, the war creates a new order that Iran controls with a weapon of mass disruption.
Either way, the Middle East maze is central to US interests, dating back to the Islamic Iran revolution and in 1973, the oil embargo when a Vietnam war-weary America tried to protect the crucial Strait. The Islamic /Iran revolution in 1979 followed, and the hostage crisis brought new actors with Saddam’s invasion of Kuwait, and then 9/11, which changed America forever. While the search for “weapons of mass destruction” in Iraq proved illusive, Russia’s exit left America to sink in the Taliban-Afghanistan quagmire. Mr. Trump for whom dominance of everything, including energy is paramount, has made Iran a central part of his foreign policy. With the third supply shock in six years, Mr. Trump’s Operation EPIC Disaster has left an emboldened Iran in control of shipping and energy infrastructure, across the Gulf while global crude reserves are already at critically low levels. The Iran war threatens to become a political nightmare as the president’s popularity sinks to record lows just before the November midterms, unless that too becomes a political football.
The American Dream or Nightmare?
Nonetheless, the 17-year run stock market appears bulletproof. Despite extreme valuations at almost 30 times trailing earnings, or 40 percent above the mean over the past 40 years, markets powered higher on a AI-led wave. Today stock valuations are twice US GDP, the highest levels in more than a century, surpassing the dot.com bubble in 2000. Multiple shocks like Covid did not derail the market nor the invasion of Ukraine. The Iran war did not even produce the much-feared recession and despite the largest oil shock in history, oil prices did not reach the triple digit levels as most feared. Even Mr. Trump’s on-again-off tariffs did not interrupt the market’s upward trajectory, in part because of the Court’s rejection and the levies ultimately turned out to be lower than the statutory rate.
The financialization of the US economy is best highlighted when investors can’t tell the difference between the stock markets and gambling prediction markets, exposing new investors to new risks. It is clear that greed and speculation are at highs, reminiscent of the gilded-age Roaring Twenties which was characterized by a spending boom, technological innovation, rising inequalities, and a soaring stock market. However, the stock market is not the economy. Risk is at all-time highs, whilst US debts are fiscally unsustainable, as they were just before the 1929 Great Depression.
With financial markets becoming more precarious, investors have made a big bet that the trillions from the AI boom and nosebleed stock markets, will make America great again. We think that the markets are in a bubble, similar to the period leading up to the great financial crisis of 2007–2008, when there was an extended period of plentiful liquidity with wave after wave of financings driving debt and leverage to unmanageable levels. Today America’s twin deficits, AI and war spending have generated a tide of liquidity against the background of unusually loose monetary and fiscal policies. Ironically, the Trump administration has systematically weakened those reforms put in place after the 2008 financial crisis, and for the purpose of expanding credit, dismantled or curtailed regulators, such that today’s mania has margin debt up a half trillion to $1.4 trillion in May. The American dream is souring.
Artificial Intelligence vs Natural Stupidity
First, control of AI is part of the geopolitical warfare of today as countries scramble to develop alternatives to US models, despite the need for gargantuan capital inflows to sustain hugely negative free cash outflows. Only the strong will survive. Big tech, Meta, Microsoft, Alphabet and Amazon are set to spend a record $5 trillion on artificial intelligence including chips, tokens and mammoth data centres. This casino-like atmosphere was given a boost by the unprecedented money spent on AI, with nearly 850 data centers under construction, totaling some $7 trillion according to Oxford Economics. AI’s Big tech now sports trillion-dollar capitalizations, making up about 40 percent of the market. The artificial intelligence buildout has pushed prices up on everything from smartphones to electricals and without that, the US economy would be in a recession. The trillions being spent echoes the 19th century railway or the dot.com booms, then bust. The Bank of International Settlements (BIS) cautions that the 228 ongoing projects in the US and the 98 in China, run the risk of an "investment bust."
This historic AI boom has taken hold with minimal government intervention or supervision, in a quid-pro-quo relationship between government, Silicon Valley and Wall Street, whose enormous investments includes the $86 billion Space X IPO or almost three times as much as the next largest offering. With investors believing their investment will go to Mars, the party has entered the mania stage. What happens if future revenues don’t match hopes? The effort to create the large language models (LLM) have already created dueling AI models between the US and China and next, price wars in this nascent buildout. What happens if Chinese open-source models like Z.ai, Moonshot or DeepSeek become more intelligent and cheaper? Boom times and busts always go together.
Inflation Is Enemy Number One
As America celebrates the anniversary of its independence, two and half centuries later, the Republic born of an idea of self-government is divided on its principles of life, liberty and the pursuit of happiness. To friends and allies, America has weaponized its economic dominance and political power, demolishing the world order that it created. Throughout a legacy of military interventions from the revolution, to the Civil War, to wars in Korea, Vietnam, Afghanistan and now Iran, America has defended democracies, but protectionism and extremism are helping it slide into the Divided States of America.
In the past, governments utilized their gold stockpiles or imposed taxes to fund wars. However President Johnson used "guns and butter" in the 1960s to conduct the Vietnam War and implement his Great Society social programs, which were funded primarily by debt that ultimately led to the Great Inflation of the 1970s. The ensuing double digit price increases also caused a run on the dollar, forcing President Richard Nixon to severe the link between the US dollar and gold, which resulted in a massive devaluation of the US dollar. Since then the United States has fought wars entirely with debt, believing that America’s credit was good. And now as then, with economies caught up in stagnation, on-again off-again tariffs, inflation and too much debt, the old order has evolved into a multi-order or “balkanized” one, where “might is right” has become the policy of the superpowers. Also investors appear to ignore the economic and fiscal consequences of the current wars and the massive military buildup funded mostly by debt, because voters are in no mood to sacrifice butter for guns.
While America's hegemon status has made it the biggest economy in the world, with the most potent military power, America has become an unreliable partner. And, for the last part of the century, America has been spending more money than they have generated, and their central bankers learning from the depression, injected liquidity after every slump. The cost mounted as economic growth and deficits grew. And today, a profligate Washington lives beyond its means, wages wars on borrowed funds, amid the red ink and declining federal revenues. We are concerned that America’s reckless financial system has again allowed this speculative era one last hurrah, resulting in a repetition of the taxpayer bailouts of Chrysler in 1979, and years later, the savings and loans (S+Ls) disaster in 1989, followed by the 2007-2008 global financial crisis.
Each time the Fed printed its way out of trouble to avoid a financial crisis, higher inflation followed, hurting economic growth causing even bigger imbalances and deficits. Although the Supreme Court struck down his earlier tariffs, the president introduced a new round of tariffs to replace his temporary 10 percent levies. The president’s new tariff tantrum also imposed fresh 50 percent tariffs on neighbouring Canada, using section 388 of the Smoot-Hawley Act which exacerbated the Great Depression. Ironically Trump’s new levies are believed to be again illegal since the Act was replaced in law. Nonetheless, each time his tariffs adds an inflationary burden on the American people and just before the November midterms. Yet the government continues to spend, from forever wars to Mr. Biden’s $2 trillion Green New Bill, to Mr. Trump’s Big Beautiful Bill and even a reflecting pool, adding to America’s debt burden. Although President Trump’s misadventure resulted in a stalemate, trillions of Treasuries were floated to pay for earlier wars, such that the volume of Treasuries has increased to $32 trillion, almost the size of America’s debt. In truth, it is not war that is hurting the American economy, it is debt.
For the world, Donald Trump’s second term has been unsettling as he takes a wrecking ball to smash institutions and alliances. Our global institutions too are grappling with loss of US support, as the country turns inward. Trade has been disruptive, the war sent energy prices and inflation soaring, and America, a nation of immigrants has erected walls to keep people, capital and goods out. Consequently, countries have rerouted trade, alliances and trust around America with the cost rising as America retreats further. Brazil has replaced the US as the world’s leading agricultural exporter as Trump’s tariffs hurt America’s farms. But not all can be blamed on Mr. Trump. Japan grapples with a weak yen and high fiscal spending. Or, as one British leader replaces another in Britain, there is the prospect of a far-right French president next year, at a critical moment. The war also devastated the developing African nations, as prices for scarce fertilizer and energy skyrocket, with food inflation a major risk.
Venezuela Déjà vu
Also unsettling is that Venezuela, ward of the US, disclosed that it has racked up $240 billion of debt, owed largely to China, Russia and US hedge funds, significantly more than its $100 billion economy, recently ravaged by twin earthquakes. Helpful would be the fate of $13 billion of oil revenues that the US has collected but gone missing according to the FT. The White House has presented Venezuela as a foreign policy and economic success in order to attract American investment. However with success comes responsibility. The International Monetary Fund (IMF) would normally be involved in a restructuring but the appointment of a New York based advisory firm makes it difficult, since a Venezuelan restructuring would eclipse Greece’s $200 billion deficit in 2021, which sparked the Eurozone crisis. Not learning from the occupation of Iraq and Afghanistan, Donald Trump who denounced earlier interventions, in another demonstration of America’s military prowess, overlooks the cost and danger of unsustainable debt, at home and abroad.
Ironically the president in defending his deal on Iran, wants to avoid repeating the “economic catastrophe” that swallowed Herbert Hoover president during the 1929 market crash that led to the Great Depression. Both presidents were wealthy businessmen that promised business-type competence but Trump’s usage of tariffs emulated the most protectionist levies of Herbert Hoover. While the president doesn't want to be like Hoover, his economic warfare, building of walls, and shortsightedness could lead to a repeat of the time, when democracies were tested and failed to thwart dictators.
From the Supreme Court, to Congress, to Iran, to funding his big beautiful ballroom, Mr. Trump’s “might is right” views have not been successful domestically. Despite ruling with power, he has suffered setbacks as American voters lose confidence in the president’s handling of the economy and international affairs. According to a FT poll, some 68 percent of registered voters disprove of the president’s handling of inflation. The Iran retreat has sapped voter confidence at the same time its inflationary consequences gave a double whammy to his tariff-hit US economy. Nonetheless, the president’s obsession with markets and its game-like financial products has exacerbated market volatility, allowing traders and himself to make billions. Mr. Trump revels in capitalism and in blending government and personal business, takes pride in the concentration of wealth and the enrichment of friends, families and donors. The president made 327 independent stock purchases on April 8, 2025, one day before he paused his tariffs for 90 days, which resulted in a 10 percent rally of the S&P 500, the largest one-day increase. Last year his Midas touch generated $2.2 billion in income. Mr. Trump’s world is one without restrictions, where it seems everything is for sale, including integrity. Being president has its privileges.
China: Economic War
Mr. Trump’s punishing tariffs brought to the forefront, sovereign borders and the commercial advantage of erecting barriers to keep out goods or people, as part of today’s economic warfare. High energy prices, inflation and geopolitical differences consequently resulted in the demonization of China, who has become a global superpower again, broadening its exports from basic goods, to pharmaceuticals, to semiconductors, to rare earths, to renewables and EV cars. Chinese firms no longer undercut on price, instead the improved quality of their electric vehicles has reduced sales of luxury carmakers like BMW and Mercedes. Spain one of the fastest growing EU countries, attracted Chinese investment to build Spanish-made vehicles, to be shipped into the EU. China is a renewable juggernaut controlling 90 percent of the processing capacity of rare earth elements and 70 percent of lithium-ion battery production, which allowed them to counter US tariffs and sanctions. While the Trump administration is spending billions of dollars to establish its own critical mineral supply chains, they are also subsidizing uneconomic and dubious processing projects that either will take decades or because of razor-thin margins, makes no financial sense. Although the US will spend billions to catch up, the Chinese lead already represents a structural strength that will matter for decades to come.
For starters, China with its couple thousand years of recorded history, has emerged as the global financial creditor and industrial hegemon, weaponizing its supply-side power while downplaying the demand-side of consumer spending. Others too have tried to weaponize their strength. Indonesia which controls more than two-thirds of global nickel refined supplies threatened some $50 billion of Chinese investment because of Jakarta’s moves to slash production quotas, which raised nickel prices that penalized Chinese nickel companies. The EU too opted for negotiations rather than risk tit-for-tat tariffs against industrial products, on concerns of Beijing’s reprisals on European pork, dairy and cognac. Or, there is the Netherlands’ export embargo of its ASML’s EUV machines, the only machine in the world capable to produce those precious AI chips. In the new reality, it is every country for itself.
As an alternate payment system to the weaponized Western based SWIFT system. China recently introduced mBridge, a digital payment platform which is a complement to CIPS financial infrastructure that uses blockchain technology between central banks. Beijing emerged from the Hormuz debacle relatively unscathed due in part to energy conservation, renewables and tapping the world’s largest reserve which allowed its oil consumption to fall three million barrels or so, averting a wider economic crisis. Hormuz also created an opportunity for China to expand its EV market and make new alliances and, as the US withdrew from 66 international organizations, China stepped into the vacuum. China is loosening restrictions on the renminbi in an effort to internationalize its currency.
Weakened by division, America has opted for authoritarian solutions and the president’s “might is right” is limited he says, only by his “own mortality.” Donald Trump has remade American politics for generations to come. China’s Xi Jinping warned the president of the “Thucydides Trap,” based on the terrible war between Athens and Sparta, when the rising power Athens defeated incumbent power Sparta. Each thought the war to be a quick victory but turned out to be a long and ruinous war. This was the real trap. Instead President Trump appears to heed the ancient Greek Thucydides’ other words that, “the strong do what they will, and the weak suffer as they must.”
It is these challenges today that have uncanny echoes of the past with the Thucydides trap, blamed for the disintegration of the Roman empire, Ottoman empire, British and even the Chinese empire. Of concern is that the two superpowers, US and China are falling into this trap because the world’s largest Treasury market depends upon the hegemon status of American power. America’s traditional allies have discovered that long-standing ties do not buy them immunity from tariffs or pressure tactics, undermining the safety of US debt. China is the world’s largest creditor with forex reserves at $3.42 trillion, whilst America is the largest debtor. It is not the Thucydides Trap that Mr. Trump should worry about, it is the debt trap.
Wars, Wars and More Wars
Gold was used to finance both states and wars in the past. Gold was one of the first critical minerals. A country’s gold reserves were important because they enabled wars to be financed. The Rothschild banking family, which lent gold to finance wars in the 19th century and occasionally assisted both sides, was frequently called upon by governments for assistance. Winston Churchill's political aspirations were aided by the Rothschilds' support of Britain during World War I. American presidents were assisted by J.P. Morgan. Since credit was non-existent, no one could know when one country waged war, who would emerge as the victor. Consequently financiers asked for payment of gold with the winner taking all. Because wars were financed by gold, new discoveries could shape a nation’s future.
Since 1560 there have been five reserve currencies. In the Sixteen Century, the Spanish monarchy financed expeditions to the New World and seized large quantities of gold and silver from the Inca and Aztec Empires, to back their reserve currency. Gold was used to settle debts and fund Spain’s numerous “religious wars.” However the influx of gold from the Americas, eventually led to hyperinflation, and paved the way for successors’ reserve currencies of the Dutch, the French and subsequently Britain, when they defeated Napolean. The need to pay for wars became the engine of modern finance with a shift with gold backing the world’s reserve currency. However despite victorious, Britain was soon forced to abandon the gold standard because it was saddled with a mountain of war debt and declining reserves. Undamaged with a growing economy, America’s dollar replaced sterling as the reserve currency of the world, because it was convertible into gold and by the time of the Bretton Woods system, the US held roughly 60 percent of the world’s gold supply. The American empire thus dominated the global economy for more than seven decades, with the dollar the world’s reserve currency.
But 250 years later, change is coming. For over a half century, America’s economy and national security was well served by the postwar global order, even allowing for wars. American regional economic barriers came down, business prospered and its currency was considered the safest in the world. The dollar was as good as gold, surviving recessions, wars and busts.
But then former French president and finance minister Valéry Giscard d'Estaing accused America in the 1960s of abusing the dollar's "exorbitant privilege" as the world's reserve currency. In 1971, President Nixon defaulted on the Bretton Wood commitment and severed the linkage between gold and the dollar. Under the credit or fiat system, the dollar was backed by the “full faith and credit” of the US Treasury. In the years that followed, American debt exploded because there was no limit to the amount of dollars that the US could create. Since the 1990s, American presidents have become more interventionists and spooked by tariffs, sanctions and Mr. Trump, the rich and emerging world has become less dollar-centric and fearful, as America weaponizes the dollar and its economy. The return of inflation and its cumulative effects are also reducing the appetite for the dollar and US debt. For many countries predictability is important, particularly finance as the US becomes a source of instability with alliances more transactional.
In fact Donald Trump’s myopic focus on America’s $1.1 trillion current account deficit is not due to unfair trading, but instead was due to the dollar’s reserve status that allowed them to overconsume and spend more than they take in. Although the dollar recently strengthened on inflows of AI dollars and hopes that Fed Chair Warsh’s hawkish views would help the currency, the dollar is down some 11 percent from its 2022 peak. Mr. Trump has weaponized the dollar, dominating financial markets with tariffs, currency swaps and far-reaching economic sanctions which undermines the currency’s “extraordinary” status. Done badly, his adventure risks turning into a financial one as nations look to “derisk” from the United States.
Guns and Butter Era Returns, with Inflation
Worse, America’s public debt to GDP has soared beyond 100 percent for the first time since 1946, with taxpayers spending $1 trillion a year just to pay interest on that debt. Whether for wars, slashing taxes or spending trillions on the newest AI, America’s deficits must be financed and its balance sheet is its albatross. Its status as a safe haven has deteriorated as its debts swell. Iran has taught us about chokepoints. The biggest is the US financing chokepoint. America’s national debt stands at $39 trillion because “made in USA” spending is the main driver, with government spending accounting for almost 25 percent of GDP. As a result the special premium that Treasuries command has shrunk as alternate payment systems bypass the dollar in a de-dollarization move. Today America is the big risk.
The chickens are set to roost. The closure of the Strait has the US mired in a forever war that will keep prices for everything from energy to foodstuffs structurally higher than before, in response to rising fragility. Prices for virtually all commodities and materials have risen in recent years while supplies remain restricted. Inflation is back and central banks are reluctant to use their best defense, higher rates. And while the surge in AI spending is not sustainable, China has already brought in cheaper versions, which will dent the sky-high valuations and Wall Street’s rosy projections. The US, in becoming the biggest spender and debtor in the world is not sustainable, that is exceptional.
Already there has been a steady erosion of the dollar’s share in international reserves from 71 percent in 1999 to 54 percent in the first quarter of 2025. The shift out of dollars was aided in part by increased usage of the Chinese renminbi as that country, the Middle East and Europeans develop alternate links to reduce their dependence on the dollar-centric system. With Asia handling 70 percent of global gold demand, Hong Kong has launched its first gold settlement in history, in competition with London and New York. With so much dollar debt and dollars in foreign hands, this shift has ominous implications when it comes to finance the world’s largest debtor’s debt. As America inflates away their problem, few will leave their eggs in the American basket.
Who Will Bail Out The US?
Nonetheless America’s deficits must be financed. Given the scale of US debt, America has used the Treasury market to finance its debts and the size of US Treasury market has grown 8 percent in the past 3 years to a whopping $32 trillion, with foreigners holding almost $10 trillion of Treasury debt. Since the 1970s, the Gulf states were huge buyers with their petrodollars helping maintain the US dollar’s reserve status. However following the Iran war, they are unlikely to hold as many dollars or petrodollars with their military umbrella found wanting, and the need to rebuild pipelines, ports and facilities. Leveraged hedge funds and non-bank funds also absorbed the Treasury issuances, taking account of arbitrage and tax opportunities, a source of market volatility. Twenty years ago, the United States represented about 38 percent of the G7’s government debt. Today that debt accounts for a whopping 60 percent.
With foreign holders of US government debt declining, as central banks systematically dump Treasuries to defend their weakening currencies amid the geopolitical and energy shocks, Mr. Trump’s unpredictability has badly damaged America’s soft power, undermining their appetite for Treasuries. Trump’s “might is right” actions and rewriting of rules forestalls any co-operation by allies or foes. Since 2000 after the global financial crisis, broad money growth has grown by nearly 160 percent, consistent with inflation staying above 3 percent and the Fed’s target, which will keep yields elevated. With fewer buyers chasing Treasuries, yields are creeping up. Today, the market volatility caused by the AI boom, Iran war and an accommodative Fed has led to an overleveraged world. Not discounted is the market’s worst nightmare, higher rates or “the mother of all unmeetable margin calls,” when those higher interest rates expose the structural weakness of the world’s leading currency. Who then will bail out the US?
In Gold We Trust
Whether for going to war over oil or gold, gold was considered “spoils of war,” but today has become a reserve asset among sovereign nations, as trust in fiat currencies fade. Gold makes up about 27 percent of global reserves, up 20 percent in 2024 as central banks now hold more gold than US Treasuries. Since May 2000, US broad money supply has grown by nearly 384 percent to $23 trillion, flooding the system with liquidity, pushing up asset prices and inflation. We believe that the Fed cannot continue to finance that debt with foreigners or debt monetization by expanding the money supply even further, without causing hyperinflation. Markets have yet to price in the inflationary risk of debt monetization as risk increases as has leverage. All this suggests that without sufficient reserves or gold, a chokepoint has been reached and like the heydays of the past, the current boom will soon prove to be a bust.
Consequently the dollar’s status as the world’s reserve currency is in jeopardy. For the past few years, central banks purchased about 25 percent of the world’s supply, buying 244 tonnes in the first quarter alone and 41 tonnes in May, the largest monthly addition since November. In a recent survey by the World Gold Council, almost half plan to buy gold this year, despite the Russians and Turkey selling gold to defend their currencies. China’s central bank has purchased almost 15 tonnes of gold for the 20th consecutive month, holding 2,346 tonnes at the end of June. Poland purchased 82 tonnes in the first half of the year. Central banks have also repatriated their physical holdings from New York and London vaults to reduce their exposure and sanction risk.
Dependency means vulnerability in a Trumpian world and with the lack of trust in the US, it also applies to its currency. Consequently, with a change from a dollar-centric to a multi-currency world in the interim, gold is an alternative for those central banks. That will be good for gold, but bad for the dollar. Gold is scarce, fungible and timeless, holding its purchasing power over centuries. Ironically the president who likes its shimmering brilliance so much, to commemorate 250 years of independence, the US mint will strike a one dollar “gold” coin, featuring Donald Trump but contains no gold.
While gold’s two-year rally has taken a pause that refreshes, we believe that this bull market has only just begun. We continue to expect gold to reach $6,000/oz as part of its multi-year bull market.
Recommendations
Although gold weakened in the quarter from record highs, the gold miners’ second quarter results are expected to be strong but not as robust as the first quarter. Rising costs and growth remain a problem. Yet most producers possess better balance sheets via lower costs, generating robust free cash flow in spite of the lower gold price. We highlight those producers with strong growth pipelines, with an emphasis on those developers that will bring on projects within the current bull cycle. With more cash, some from the majors, junior explorers now look appealing since from acorns, one gets trees.
We also expect a surge in deal-making as producers look to boost declining reserves. Ross Beaty’s Equinox’s merger with Orla for example, created a $18.5 billion 1.1-million-ounce North American producer on hopes that 1 and 1 makes 2, which may work if Musselwhite and Valentine produces as projected. Agnico Eagle consolidated an entire mining district around its Kittilä production to boost potential production to 500,000 oz/year. Endeavour Mining has been aggressive with a $20 million stake to gain exploration exposure in Guyana, after the success of Omai Gold Mines. However, the thesis that it is cheaper to buy reserves on Bay Street rather than spend capital on exploration, might not always work in this game of musical chairs. Eldorado for example in the first part of the year merged with Foran, making a big bet on copper that decreases its gold exposure whilst increasing development risk as both McIlvenna Bay and Skouries are in the build-out stage.
Consequently, among the seniors, we continue to recommend Barrick Gold and Agnico Eagle which have both the management, balance sheets and possess the best potential to boost reserves and production over the near term. We also like Endeavour and B2Gold for growth. Lundin Gold is favoured for its potential as a player in the game of musical chairs.
Agnico Eagle Mines Ltd.
Canada’s largest miner Agnico Eagle has a strong growth pipeline including, Hope Bay in Nunavut and Kittilä in Finland, where the company’s $3 billion deal consolidates the central Lapland area. Agnico has a strong base with core operating mines in Canada, Mexico and Finland producing abundant cash flow, allowing it to optimize their existing mines. Underground development for example at Meliadine and now Hope Bay will ensure near record production. The miner also has a “skunk works” equity portfolio that gives it exposure to grassroot plays, ensuring a stable of organic growth projects. Agnico has P+P gold reserves of 55.4 million ounces. We like the shares here.
Barrick Mining Corp.
Barrick’s consolidated operations will get a boost from the inclusion of Loulo-Gounkoto in Mali, as well as its planned North American gold IPO in the fourth quarter. The Nevada Gold Mines (NGM) is the largest gold mining complex in the world and produces about 2 million ounces a year. NGM’s gold assets will include Pueblo Viejo in the Dominican Republic and likely, the Fourmile discovery which is a potential high-grade Tier 1 mine. Fourmile is a future growth story and a key part of the negotiations with joint venture partner Newmont. In that effort, Barrick has consolidated its operations and appointed a separate NGM management team. Barrick also postponed development at its $9 billion Reko Diq gold and copper mine over security concerns in Balochistan province in Pakistan. Noteworthy is that Barrick has taken a $20 million stake in junior Kingfisher Metals to gain a stake in BC’s Golden Triangle. We continue to view Barrick favorably because of its array of its Tier 1 assets and while we would prefer Barrick to keep the Nevada joint venture within the fold, the pieces might yet be worth more than the whole. Buy.
B2Gold Corp.
B2Gold continues to build out Back River’s open pit Goose in Nunavut which poured its first gold bar. However a fire at the newly installed crusher caused production setbacks delaying commissioning. Of interest is a deal with Agnico Eagle that might see both companies sharing logistical and operating information in Nunavut, in an isolated part of the world. Near term, the company is waiting for the Mali government to issue the long-awaited Fekola Complex regional permit which could add an additional 70,000 ounces. Fekola’s main and underground are under the old agreement but Fekola Regional expansion will attract higher government royalites. We expect the go-ahead but the delay could impact production this year. Down the road, Gramalote in Columbia could be B2Gold’s fourth mine, following the release of a positive feasibility study, calling for production of 227,000 ounces a year. B2Gold has three operating gold mines and new president Mike Cinnamond succeeds veteran Clive Johnson. We view any weakness as a purchase opportunity.
Centerra Gold Inc.
Mid-tier Centerra is expected to have a good quarter and plans to build out Kemess in B.C. following a PEA that calls for almost $1 billion dollar of expenditures. Kemess expanded the mineral resource which could support a potential 267,000 gold equivalent ounces producer. Mount Milligan in B.C. and Öksüt in Türkiye are Centerra’s main producers but Centerra needs a flagship and Kemess might be too far off in the future. Öksüt’s life is short and residual leaching is being looked at. The company’s three moly assets, including the Langeloth processing facility are uninteresting here given commodity prices. Despite a stellar balance sheet, we prefer B2Gold here.
Eldorado Gold Corp.
Mid-tier Eldorado continues to work on Foran as well as the huge billion dollar plus Skouries project in Greece. Key management at Eldorado was replaced this year and the company is in the build-up stage with two projects on the go. Execution is key here since Skouries has been long delayed and only commissioned recently. McIlvenna Bay is more copper than gold with ramp up expected this quarter but reduces Eldorado’s gold profile. Meanwhile Eldorado’s Kışladağ, Lamaque and Olympias are mature mines. We prefer Endeavour Mining for its better risk profile since Eldorado could have more downside risk than upside, with potential execution or teething problems at the two big development projects.
Endeavour Mining PLC
Endeavour Mining is the largest gold producer in West Africa with mines in Senegal, Burkina Faso and Côte d’Ivoire producing some 1.2 million ounces a year. Endeavour’s growth profile includes the huge Assafou Project at Tanda-Iguela adjacent to Ghana, with production slated for 2028 at 330,000 ounces a year for 16 years or so. Sabodala-Massawa in Senegal is a cash cow and the BIOX plant helped results. The Ity mine in Côte d’Ivoire should produce 300,000 ounces at AISC $1,200/oz. La Mancha remains the largest shareholder. Endeavour has branched out from Africa acquiring a large 530 km2 package in the Greater Oko project in Guyana, a promising gold country. We like the shares here.
IAMGOLD Corp.
IAMGOLD expects to have a strong quarter as majority-owned open-pit Côté Gold in northeastern Ontario ramps up with plans for Gosselin zone expansion next. Essakane in Burkina Faso is a cash cow but only has a couple years of life left. After acquiring Northern Superior and Orbec, IAMGOLD is working on a PEA for Nelligan in Quebec, a potential 12-million-ounce development project. IAMGOLD's balance sheet has improved with cash of $422 million. Costs, however, remain a problem. Sell.
Kinross Gold Corp.
Canadian based Kinross is on track to meet its guidance with contributions from 6 mines including Tasiast and Paracatu. Fort Knox and Bald Mountain made strong contributions complementing Tasiast and Round Mountain. Round Mountain X underground should be completed in 2028. While Great Bear’s PEA project in Ontario calls for a 12-year plus mine life, the mine is not expected to be in production until 2030, the earliest, so Kinross might miss the cycle. Kinross has a strong balance sheet with $1.4 billion net cash, but its mines are mature. Kinross P+P reserves were 21 million ounces.
Lundin Gold Inc.
Lundin Gold expects to have a strong year with 100 percent owned FDN mine in Ecuador producing about 119,000 ounces in the second quarter. FDN is one of the highest-grade operating mines in the world, producing at 5,500 tpd with production estimated between 475,000 and 525,000 ounces at $1,100/oz AISC. Lundin’s strong cash flow enabled an extensive exploration programme that has uncovered seven porphyry discoveries (Scandia, Trancaloma, Chontas and Castillo), with Scandia a potential mining district only 2km east of FDN. Chontas is 7km south of Trancaloma and extends the corridor from 5km to 10km, potentially extending FDN’s mine life. We like Lundin Gold here.
Newmont Corp.
The world’s largest producer Newmont with a dozen or so mines is likely to have a good quarter, generating strong free cash flow. As the only S&P listed gold stock, that's good news. The bad news is that Ghana significantly increased royalties negatively impacting Newmont’s Ahafo North and South. Long life producer Cadia in Australia also had an earthquake hurting production. At mature Peñasquito in Mexico, Newmont is processing stockpiles. Having completed a final round of asset sales, Newmont is building out Red Chris in B.C., yet Newmont’s overall growth profile remains flat for the next few years. Senior management is new and we believe it will take some time to restructure Newmont’s unwieldy operations from earlier acquisitions. Newmont has reserves of 118 million ounces. We prefer Barrick here.
John R. Ing
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