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Gold achieved a breakout beyond $1,400 last week, the first time since the price of gold collapsed in 2013 following a peak of $1,895 per oz on September 6, 2011. On June 20, 2019 trade volume and value of TSXV listed resource juniors surged to 102.4 million shares and $37.5 million respectively, a considerable improvement from the 50-70 million share volume and $10-$15 million value ranges that have prevailed this year, excluding days where takeover news such as Atlantic Gold Corp dominated trading. Yet on Friday when it looked like the United States was going to launch a military attack on Iran, TSXV resource listing volume and value traded pulled back even as the SPDR Gold Trust (GLD-NYSE) had the biggest in-flow of gold on Friday since February 2009, gaining 1,122,855 ounces. The GLD gains gold when the designated bankers short the GLD, offset the short by purchasing an equivalent amount of physical gold, and, if the GLD price does not pull back, cover their paper GLD short by delivering the physical gold to the SPDR Gold Trust which issues new GLD paper. A positive change implies market demand for exposure to gold while a negative change indicates investor aversion. Friday's surge finally put the GLD up 365,153 ounces for the year after being down most of the year. The GLD chart above shows the daily changes in the GLD holdings. The biggest gain of 1,478,547 ounces took place on July 8, 2008, the week that prices for resource juniors began to collapse. While the prices of gold producers have tracked the recent rally in the price of gold, the response among the optionality gold juniors has been muted and absent for discovery exploration juniors. One reason may be a lingering memory of the 2008 financial crisis which initially at least was very negative for the prices of discovery and feasibility demonstration juniors alike. Things got rolling in 2009 with the false narrative of massive inflation coming soon as a result of the quantitative easing and ultra low interest rate policy of the Federal Reserve. Inflation might have eventually emerged if the Tea Party had not gained control of the House in the 2010 mid term elections and blocked the use of large scale fiscal stimulus such as required for infrastructure renewal, the sort of thing needed to keep America from ceasing to be great. So far Trump is making good on his promise to wreck the rules based order of globalized trade crafted by the United States in the wake of World War II, but apart from cranking up the projected US debt through tax cuts, has done nothing to stimulate inflation expectations such as serious infrastructure renewal would trigger. The result has been a perception that the global economy is facing a recession, which would require lowering of interest rates, except that they are still so low it is unclear what stimulus effect they would have. The reluctance of investors to embrace resource juniors more enthusiastically despite the gold breakout reflects a memory of the past decade which proved not good for the juniors despite gold hitting $1,895 in late 2011, and a fear that the pattern will repeat itself, that gold's rally will fail rather than develop a sustained uptrend that pushes the real price into the $2,000-$3,000 per oz range where optionality plays are easily in the money and the bar for new discoveries is lowered. This is what is needed to pull the resource juniors out of their current extinction trend.
However, investors may want to reach back 40 years for a different pattern, to 1979 when the unpopular Shah fled Iran, making way for the Iranian Revolution and the installation of a theocratic regime that today still stifles Iran's people and misdirects resources into stirring up trouble in the Middle East as part of the long running enmity between the Sunni and Shiite branches of Islam. Coming up is the 40th anniversary of Ayatollah Khomeini's seizure of the US embassy on November 4, 1979 and the ensuing hostage crisis. Also coming up is the anniversary of the Soviet Union's invasion of Afghanistan on December 24, 1979. Implicit behind the hawkish stance of John Bolton and Mike Pompeo towards Iran is an agenda to unwind that humiliation of America 40 years ago which helped gold to a peak of $850 in 1980 before settling back to the $400 level after Paul Volcker jammed interest rates to 19% to throttle inflation. The Gold in Perspective chart above shows that $400 gold from 1980 inflation adjusted by US CPI to the present is $1,251 per oz while the $850 peak equates to $2,658 per oz. In the past 40 years the mining industry has nearly doubled the above ground gold stock. Gold was unleashed in 1972 when it was $36 per oz which inflation adjusted is equivalent to $242 today. The 1970's had rising inflation, unlike recent decades, and the inflation adjusted price for 1980 would have been $77 per ounce, a mere 114% gain compared to the actual 1,011% gain at $400. The real price gain was thus 419%, which turned high hanging gold fruit into low hanging fruit for the mining industry. The late seventies run in gold was more related to uncertainty about the direction of a world caught in a Cold War between the United States and the Soviet Union and the perception that in the wake of the Vietnam War the United States was losing its global clout. Now we have the makings of a Cold War between the United States and everybody else. This time the core struggle is between China and the United States, but allowing the dispute with Iran to escalate into a military confrontation that will be popular neither at home nor abroad would create a distraction that turns Trump's new motto "Keep America Great" into a desperate plea that pushes gold into a sustained real price uptrend that will bring the resource juniors back to life. The Iranian situation is a manufactured problem that can disappear as a source of global uncertainty, but the conflict between China and the United States is real and cannot be resolved with the current "winner take all" attitude of the United States. The groundwork for a sustained gold price uptrend that breathes life back into the resource juniors is in place; the Iran situation can only accelerate this trend.
Rugby Mining Ltd has a Bottom-Fish Spec Value rating based on its status as the current primary exploration vehicle for the team behind Exeter Resources Corp and its spinout Extorre Gold Mines Ltd which respectively hit $9.32 in 2010 and $14.84 in 2011 before being bought out in 2017 and 2012 for about $600 million. The team is headed by Bryce Roxburgh, Paul Joyce and Yale Simpson who launched Rugby as a capital pool in 2007 which did not get any serious attention from management until late 2010...