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Gold SWOT: Argonaut Gold's Successful Gold Pour Marks a Significant Development Milestone

CEO & Chief Investment Officer @ U.S. Global Investors
June 21, 2023

Strengths

  • The best performing precious metal for the week was palladium, up 8.91%, on little specific news and snapping a three-week losing streak. Gold strengthened with the weakening of the U.S. dollar and lower Treasury yields following comments from the European Central Bank (ECB) president about a likely interest-rate hike in July. The prospect of more rate hikes and positive economic data from the U.S. may temper gold's performance, but the weakening dollar provides support.
  • Positive drill results reported by Wesdome Gold Mines show the confirmation of the geometry and high grades of the 300 East Zone, indicating the potential for increased gold production. Additionally, the positive bias ascribed by National Bank of Canada further supports the investment potential, with visibility for resource accretion and high-grade production.

  • Argonaut Gold's successful gold pour marks a significant development milestone at its Magino mine in Ontario, and the company is now focused on completing commissioning and ramping up production. MAG Silver Corp.'s successful start of commercial production at its Juanicipio mine signifies a major milestone for the company and demonstrates its ability to generate revenue from the mine.

Weaknesses

  • The worst performing precious metal for the week was platinum, down 2.53%, on little specific news. Gold and silver prices were declining to drifting lower with the upcoming Fed meeting at mid-week. The Fed paused on rates but signaled that potential future interest rate hikes were in the cards. Higher interest rates can negatively impact the demand for precious metals as they become relatively less attractive compared to interest-bearing assets.

  • Johannesburg, Africa's richest city, if faced with dysfunction in governance, rolling blackouts, and inadequate infrastructure maintenance, which contribute to a deteriorating quality of life and hinder economic development. The situation raises concerns about the city's ability to attract investment and sustain its position as a major economic hub.

  • The federal government cites Agnico Eagle Mines’ repeated failures to protect migrating caribou at the Meadowbank gold mine in Nunavut. The company needs to meet its obligations and implement caribou protection measures, or it risks potential penalties and reputational damage. This raises concerns about the company's environmental stewardship and compliance with regulations.

Opportunities

  • News broke that a takeover of First Quantum Minerals by Barrick Gold had been discussed by the two companies. Barrick's interest in expanding in copper aligns with First Quantum's significant copper assets. A successful acquisition would transform Barrick into a significant copper miner, a metal that is in high demand for its use in decarbonizing the global economy. This presents an opportunity for investors to capitalize on the potential growth and synergies resulting from the acquisition should the situation advance to further discussions.

  • Royal Gold's acquisition of royalty interests in the producing Serrote and Santa Rita mines in Brazil adds cash flow immediately to its portfolio. This acquisition provides Royal Gold with exposure to gold, platinum, palladium, copper, and nickel production from these mines. With the expected funding from available cash resources and a draw on its credit facility, Royal Gold can leverage the potential upside of these metals and diversify its royalty portfolio. This presents an opportunity for investors to gain exposure to multiple metals through a single investment.

  • According to JPMorgan, the market is currently trending toward unprecedented territory for platinum in terms of load shedding and load curtailment in South Africa, with some producers warning that more severe power cuts could put between 5% and 15% of PGM supply in the country at risk. A one percentage point change in South African refined supply is equivalent to around 40,000 ounces of platinum and 22,000 ounces of palladium. Hence, even a relatively modest 3% contraction year-over-year in South African platinum supply this year would strip around 235,000 ounces from their balance and result in a global deficit approaching 900,000 ounces.

Threats

  • The threat of the renewed rise in the value of Bitcoin has the potential to challenge the dominance of gold as a store of value. Bitcoin's superior growth and increasing acceptance as an investment instrument have disrupted the traditional narrative that gold is a reliable haven asset. The emergence of Bitcoin as a viable alternative and hedge against uncertain market conditions could divert investor interest away from the yellow metal, posing a threat to its long-standing reputation and demand.

  • The ongoing strike at Newmont's Penasquito mine in Mexico, driven by a dispute over profit-sharing and alleged contract breaches, has the potential to disrupt production and affect Newmont's earnings. The availability of funds to extend the strike and the support of associated members pose challenges to resolving the labor dispute, potentially prolonging the production suspension, and impacting Newmont's financial performance.

  • The surge in domestic gold prices in India is expected to lead to an increase in gold jewelry recycling. The record amount of used gold jewelry being sold for recycling could lead to reduced gold imports in India, putting downward pressure on international gold prices. The weakening rupee and the potential impact of a poor monsoon season further contribute to the increased selling of used gold, posing a threat to the demand and price of gold in the global market.

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Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. Under his guidance, the company’s funds have received numerous awards and honors including more than two dozen Lipper Fund Awards and certificates. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal. He is also the co-author of “The Goldwatcher: Demystifying Gold Investing.” Mr. Holmes is engaged in a number of international philanthropies. He is a member of the President’s Circle and on the investment committee of the International Crisis Group, which works to resolve conflict around the world. He is also an advisor to the William J. Clinton Foundation on sustainable development in countries with resource-based economies. Mr. Holmes is a native of Toronto and is a graduate of the University of Western Ontario with a bachelor’s degree in economics. He is a former president and chairman of the Toronto Society of the Investment Dealers Association. Mr. Holmes is a much-sought-after keynote speaker at national and international investment conferences. He is also a regular commentator on the financial television networks CNBC, Bloomberg and Fox Business, and has been profiled by Fortune, Barron’s, The Financial Times and other publications.  Visit the U.S. Global Investors website at http://www.usfunds.com.  You can contact Frank at: [email protected].


A medical study in France during the early twentieth century suggests that gold is an effective treatment for rheumatoid arthritis.
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