Now is the Time for Commodities Precious Metals and Juniors #5

Rick Mills, Editor/Publisher, Ahead of the Herd:

When we started talking about putting this talk together, our fifth talk, you wanted to talk about commodities, not specific commodities say like picking copper or iron ore, no, you wanted to talk commodities as a whole, as a sector.

In our first four talks we were focused on precious metals, gold and silver, but today we are talking commodities which many think includes the PM’s, why now Bob?

Bob Moriarty, Founder, 321gold:

Strangely not because of commodities it’s because of everything else, we’ve gone from a world where people invest in real companies producing real goods to 32% of the US economy is shuffling pieces of paper. Now if you’ve got a small town and the economy is based on an Indian casino and a tattoo parlor you don’t have a real economy.

When 32% of your economy is shuffling pieces of paper you do not have a real economy. So, if we’re going to go back to commodities it might not be because commodities are such a great idea but because shuffling pieces of paper is such a really bad idea.

RM: Real stuff, commodities, outputs from farming/ ranching, fishing, forestry and mining versus the financial/ restaurant/ services economy.

BM: Well again, we’ve got a service economy because we’ve given our manufacturing economy away and it’s going to take 20 or 30 years to rebuild it. To the extent that I’ve been against the Trump tariffs, however I’m all in favor of the government understanding you have to have manufacturing. The service economy just doesn’t pay the bills for so many.

RM: I was looking at reasons ‘why commodities right now’ and I find the whispers of a Mar-a-Lago Accord fascinating in that the idea behind the accord, it was an agreement or basically a plan, mostly by economists and financial commentators, talking about how to address the US trade deficit and other imbalances.

So, they were talking about that, and Trump got elected and we got tariffs.

The accord itself was based on the idea that the US should negotiate with all their trading partners to weaken the dollar.

Now we know that Trump wasn’t talking about the Mar-a-Lago Accords, but he was talking about the 10-year Treasury yield. That it had to come down to weaken the dollar. His goals are to lower the 10-year Treasury yield, thereby weakening the dollar and right the lop-sided trade deficit with onshoring, reviving existing manufacturing and tariffs.

It’s funny it aligns so much with the Mar-a-Lago Accords because you want to weaken the dollar, and you go into negotiations for reduced tariffs and other trade concessions to fix the deficit.

And the interesting thing about that for us is that every time there’s been a reset in the global monetary system, it’s happened three times in ’29, ‘69 and ’99, you get this huge investment into bottomed commodities.

Goehring and Rozencwajg

BM: Commodities, PM’s, are the only safe haven left, and what I believe the Trump administration’s doing with the tariffs and now with the sanctions on Iran and China are literally going to blow up the world’s economy. Are you familiar with what he just did to Iran?

RM: They cancelled more meetings.

BM: They scheduled three meetings, there have been two meetings, and we heard how wonderful things were going, and then yesterday they canceled the third meeting and last night the United States has put full-scale secondary sanctions on Iran which means anyone that buys any products from Iran will be subject to sanction from the United States.

And of course, Iran is China’s biggest oil supplier so literally the United States just declared war on China’s economy, and I think that’s a really dangerous idea.

RM: For a country that desperately needs a trade agreement with China, and wants to remain friends with India and Japan, it’s an interesting negotiating tactic.

China bought almost 2 million barrels of oil a day from Iran in March. India gets oil from Iran. Japan’s level of imports of Iranian oil is 12% of the country’s total energy imports.

China was willing to negotiate on tariffs, dropping some tariffs on US imports into the country, they made the first move in response to Trump dropping the percentage of tariffs. This flies in the face of common sense.

BM: Well, you’ve used a term that I’ve never heard anyone use with the Trump administration. Now when I look at his administration across the board I’m staggered by the level of arrogance. They believe they have all the answers, and they know exactly what they’re doing, there isn’t a humble person working for Trump.

RM:  I agree, they’ve gone too far with these sanctions against Iran and anybody that buys their oil.

Going back to the commodities, three times commodities get so undervalued and then it’s a monetary reset and they go up. The other thing that’s really strange, there’s a connection between the commodity cycles and the carry regime cycles. Can you explain what the carry trade is again for our new readers? We talked about the carry trade 2 weeks ago in our second talk, about the trade being responsible for the problems in the bond market.

BM: You get a currency like the Japanese yen that is extremely liquid and it’s a relatively stable currency with very low interest rates, so you borrow money in Japanese yen to the tune of tens of billions of dollars, and then you invest it in US Treasuries or anything that actually pays in interest rate, and you make the difference between what you’re paying in interest to borrow the Japanese yen and what you’re getting out of the Treasury bonds.

That worked right up until the time that Treasuries crash and the yen goes up and that’s exactly where we are right now. And the carry trade is blowing up, it’s invisible to 99% of investors but the world’s financial system is on eggshells right now and tens of thousands of banks are underwater and there’s a very good chance some could go under.

RM: Okay so two things, we have a period right now where commodities, according to the chart above, are vastly undervalued. We have a fundamental shift possibly coming in the global monetary order, a global effort to weaken the US dollar to fix US trade deficits, whether a la Mar-a-Lago or not.

And perhaps another one, how would the explosion of the carry trade affect commodities?

BM: Again, you’re going through something that’s very dangerous into something that’s relatively stable. They are not investing in commodities because of commodities; they’re choosing to not invest in these paper assets that are blowing up.

RM: So you’re saying we’ve got to go to commodities, the last safe haven standing, and you have back up from guys like Goehring and Rozencwajg who post that every time there’s a huge adjustment in the global currency, every time there’s a new emerging technology, every time the carry trade regime has collapsed it has been at the start of a massive commodities upswing and related equities.

These things are all right now, they’re happening right in front of us. I’m not a gold bug I don’t consider myself a copper bug, but I recognize macro trends, and the start and the end of them, and it certainly looks to me like you’re bang on, we are at the start of commodities sustained out-performance.

BM: Well, let’s go back to 1999 and 2000, what was the flavor of the day? What was it everybody wanted to invest in?

RM: Technology was hot in 2000, Linux by adopted by PC manufacturers, Palm Pilot became popular, high-def televisions were introduced.

BM: Well, I don’t doubt there’s some merit to that okay, and that’s the narrative, but it wasn’t the truth. So nope. It was the US stock market.  

I wrote a piece in March of 2000 there were inmates in a jail in Baltimore, Maryland that were holding stock-picking contests. You get the most bullish people at the very top of every market, you get the most bearish people at the bottom of every market, and it has to do with people being stupid.

And they are stupid and if you don’t believe that you should read ‘Extraordinary Popular Delusions and the Madness of Crowds’. There’s about 30 or 40 chapters and each chapter is about some period of absolute stupidity in the world’s economy.

So, in 2000 it was the US stock market, and it crashed, but from 2001 until 2008 you had this incredible bull market in commodities. Now my point is don’t necessarily focus on the commodities, focus on where the money’s coming from.

I’ve been saying for six months that the cryptocurrencies were topping, and the stock market was topping, and the next thing to move was going to be gold, silver and commodities in general, and that has turned out to be absolutely correct.

Now we’re in a correction for gold right now but the amazing thing is three weeks ago gold went up $300 in three days and it’s only down $250 in two weeks. Everybody’s saying, “Oh my God we’ve got to get out of gold, gold’s crashing”, gold is quite valuable at $3,250 but again money is flowing from cryptocurrencies, from the stock market into resources and it’s more important to understand where the money is coming from than where the money is going.

RM: Ok, we know where the monies coming from, and we think we know where it’s going, commodities and precious metals.

And the evidence is everything that we, and Goehring and Rozencwajg have been talking about; a monetary reset; the technology; the unwinding of the carry trade, the last safe haven.

But what we’ve done is just the first part of our job. Now that we know where we want to be, the commodities and precious metal sectors, we need to figure out where/ how to deploy our money.

What is it about junior resource companies that make them so attractive to us right now?

BM: Everybody hates them. You want to buy things when everybody hates them and sell things when everybody loves them. Everybody else wants to sell at bottoms and buy at tops and you want to do exactly the opposite.

Now do you remember talking about Ramp Metals?

RM: Yes, I see they just announced a financing for their Rottenstone Project.

BM: What happened with them a week ago?

RM: They had news.

BM: They announced drill results, and the drill results were excellent, the stock went up 47% in one day. That’s why you want to own juniors. Now we were talking about Ramp when it was $0.98, today it’s $1.36. It’s in a correction because it shot up early this week, but the funny thing is juniors moving 47% in a day is not particularly unusual.

You are going to see a lot more moves like this, I sent you that analogy of popcorn where one kernel pops and then another kernel pops and then a bunch of kernels pop and then they all pop and that’s exactly what’s happening in juniors and I can give you four or five other stories that are just as good, but you want to buy when nobody else wants to buy and you want sell when nobody wants to sell, you want to do exactly the opposite of what the herd is doing.

RM: Exactly, you’ve got to be an outside-the-herd animal, it’s so directly related to investing and just being a contrarian, everything about being outside the herd is so attractive because the herd mentality, the herd think, is almost always wrong.

BM: I’ve spent a lot of time talking about the daily sentiment indicator, I make the point in my books that you don’t have to know anything about history, you don’t have to know anything about a commodity, you don’t have to know anything about interest rates, if you can measure sentiment accurately all you have to do is do the opposite of what the herd is doing.

Now the daily sentiment on gold got up to 87 on the 16th of April, and that was right at the top. We’ve had a $250 decline since then and the sentiment’s down to 55. Now the one thing I can say with great accuracy, 87 does not measure a top in gold, the top in gold according to the daily sentiment would be 95 or 96 and that is sometime well in the future from now.

You can use something as simple as a daily sentiment, and it will tell you when to buy and it will tell you when sell and the only thing you need to know is the sentiment and there’s probably 20 or 30 other sentiment indicators out there, but sentiment is what moves markets.

RM: Absolutely, feelings, emotions.

BM: Yeah exactly.

RM: We talked about Harvest Gold on the 8th of April at 2.5 cents, it recently hit 6c, we talked about Storm, the closing price was 3 cents, it doubled. Other stocks we talked about got some attention, those two stood out though; we nailed the bottom of the entire sector almost exactly.

People are interested in what we have to say, sentiment is on our side, history is on our side, experience is on our side, we have lived through this before.

You and I have been around, in this sector, between the two of us we’ve got 45-46 years of looking at the junior resources so there’s a certain amount of, I don’t consider myself an expert, but there is a certain amount of expertise or knowledge or just basic experience that comes with being immersed in a sector for so long.

The Globe and Mail in its Friday edition said that Canadians, especially young ones, want a jargon-free explanation about the economy and how it affects their money, and they went on to write about the growing legion of financial advisors on social media called “finfluencers”.

No surprise to me that the OSC found that investors who made a financial decision based on finfluencers’ advice were 12 times more likely to have been scammed.

I mean what the hell is going on here with our young people that they would listen to somebody on TikTok, another 20- to 30-year-old on TikTok with virtually no experience telling them what to do with their money?

Me and you, a couple of white hairs, we don’t give advice, we don’t tell people what to do with their money, we look at things and we tell people what we see based on facts, like what we’ve been talking about here with commodities. Historically this is what’s happened, and this is what we like going forward based on four plus decades of experience, this is where our money is.

BM: Well, it’s a mob mentality. I will say something to every person reading us right now. If you have not read ‘Extraordinary Popular Delusions and the Madness of Crowds’ you will never make money investing, period. It is that simple. Now I don’t get anything out of saying that I didn’t write the book, it was written a long time ago but if you do not understand the herd mentality you cannot make money investing.

RM: I agree 100%. You wanted to discuss New Found Gold and Ramp Metals today?

BM: Well, we should talk about Harvest Gold, you said it was up 6 cents. It wasn’t.

RM: I saw $0.06 on Stockwatch just this morning.

BM: You might of, but now it’s $0.07.

RM: Ah that’s awesome.

BM: Yeah, you could’ve bought that stock 3 weeks ago for $0.025

RM: We talked on the 8^th; I published on the 9^th and the closing price of that stock was $0.025 on the 8th and today it’s $0.07.

We might be the oldest finfluencers around. Not.

BM: Not. Let’s talk about the two others. We just mentioned Ramp Metals (TSX.V:RAMP) and Ramp came out with extraordinary drill results, what they’ve got there is very interesting. People leapt into the stock and the stock was up 47% in one day and now it’s correcting which is a good thing.

New Found Gold (TSX.V:NFG) is interesting. Jay Taylor did an interview with Quinton Hennigh who talked about New Found Gold. Now to the best of my knowledge I was the first, and perhaps the only person at the time, saying that New Found Gold’s 43-101 was absolute rubbish. It was so conservative it was a joke.

Now I said that based on simple logic. You cannot have 2 meters of 95-gram [per tonne] gold without having a lot of gold there somewhere. New Found Gold had dozens and dozens of high-grade intercepts, yet they came out with a very bland 2-million-ounce resource.

But the project is a look-alike of Fosterville in Australia and Quinton Hennigh was involved in Fosterville and went over there on Eric Sprott’s behalf and said “Eric, you need to buy this.” Now the president of Kirkland Lake was dragging his heels, and he told Eric “No, we don’t want to spend a billion dollars on that piece of dogshit.”

Well, that piece of dogshit turned Kirkland Lake from a $3 billion company to an $18 billion company and it made Eric Sprott $3 billion of profits. The difference between New Found Gold and Fosterville is New Found Gold’s deposit starts right on surface, but it’s exactly the same kind of deposit.

Right now, you can go into a dark room, put on a blindfold and you can have sheets of paper showing each company on the TSXV, you can turn the light out, throw a dart and you can hit a winner.

RM: A rising tide is supposed to lift all ships.

BM: Have you ever popped popcorn? You take a bag of popcorn, throw it in the microwave, turn it up to 3 minutes and most of the popcorn pops. When you pour the popcorn out of the bag what do you have at the very bottom?

RM: You got resource stocks that never popped.

BM: Right, lots of little kernels are never going to pop. When you’re buying juniors, you are buying into a business model that most people are going to fail at.

So, you are going to buy companies that are going to go nowhere and are going to go bankrupt and that’s no big deal.

If you buy one stock like HVG, you could’ve bought it three weeks ago for two and a half cents and you can sell it today from 7 cents. Okay that’s an incredible investment and there’s going to be lots of those, but there are going to be lots of companies that go from $5 to $0.05 so accept the fact that no matter who you follow, no matter how much research you do, failure is the norm and that’s okay. For every company that goes down 50% there’s going to be a company that goes up 500%.

RM: I’m going to talk about Max Resources (TSX.V:MAX) it’s a company that I’ve owned for a while, we’ve had a couple runs, a chance to take some profit, now we’re sitting at 4-5 cents.

I think that’s a bit ridiculous for the market cap in the future, but right now it’s probably where it should be.

Max has a copper silver project in Colombia that’s an earn-in for 80% to Freeport McMoRan. They’ve found some very interesting and some very large surface expressions of copper/ silver, a Manto style of mineralization.

What they need to do is get in there and drill it.

Max’s CEO Brett Matich is an iron ore guy, and he’s found a wheelhouse project in one of the largest iron ore producing places in the world, Minas Gerais in Brazil and they’ve managed to hugely increase the amount of DS [Direct Shipping] high-grade hematite.

Dry magnetic separation has given us anywhere between 60 and 67% DSO and this project has gotten quite big so I’m looking at it as potential cash flow.

Orestone Mining (TSX.V:ORS) is raising some money and they’re going to go work on the Francisca gold property. You know a little bit about Orestone Bob, what do you think?

BM: Well, you and I have talked about this in the past. The real value to Orestone is the fact when you and I talked it had a $2.5 million market cap.

Here’s the key, everybody tends to make things too complicated, they want to talk about interest rates and look at what Trump’s doing in China. It’s all bullshit, okay? You want to buy when things are cheap and you want to sell when they’re dear. Orestone was 2.5 cents, you got in that placement didn’t you?

RM: I did.

BM: And the placement was 4.5 cents.

RM: Correct.

BM: And the stock is 5.5 cents now. The key is understanding the money flow and when all the money is flowing into the stock market and the remainder of the money is flowing into cryptocurrency and when it’s coming out of junior resource stocks that’s when the opportunity exists for you to clean up.

Frankly at 4.5 cents and a market cap of $3,000,000 ORS does one of two things: it goes up or it goes away. And those are the only two alternatives and there’s lots of companies out there that have good projects, good management in good locations, what they haven’t had is money.

Now money is starting to flow into these juniors and you can get a company like Orestone, there’s nothing stopping that from being a $30 million market cap. Obviously they’re going to have to raise money, they just raised $600,000, they’re going to take that money, they’re going to put it into technical studies, they’re going to come up with a drill program, they’ll do another placement and they’ll drill and they either hit or they don’t hit.

RM: That’s what it is, buy these market cap companies that have room to grow three, four, five, six times their market cap on results of a drill program.

You’re financing to get them to drilling and they’re ridiculously undervalued because as you said it’s been a long time, and I mean a very long time since juniors had a decent market that they could raise money in.

Here we are and they’re looking for money, they’ve got great projects, they’ve got a ridiculous minuscule market cap and they want to go drilling.

BM: Yes.

RM: Is there anything else you want to add into this Bob?

BM: People need to realize we live in exceptionally dangerous times. The Russia-Ukraine war is very dangerous, what’s going on in the Middle East is very dangerous, Israel-Iran is very dangerous, India-Pakistan is very dangerous, cutting off China’s oil is so stupid that I can’t believe anybody even came up with it but we live in dangerous times and in dangerous times you want to take out an insurance policy and buying resource stocks is an insurance policy against chaos.

I can guarantee there will be more chaos. I keep getting surprised, every day is a new shock to me and something I totally missed, it never occurred to me that the Trump administration would be so stupid as to try to destroy the economy of Iran but that’s what they’re trying to do.

RM: It certainly appears that way. The global geopolitical situation is another reason to own precious metals, commodities and juniors.

We’ll talk next week.

BM: Okay, works for me.

Richard (Rick) Mills
aheadoftheherd.com

Bob Moriarty
321gold.com

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