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KRO Weekly Summary: June 30 to July 6, 2019


KRO Weekly Summary: June 30 to July 6, 2019
The KRO Summary lists all Trackers and Blogs published during the designated weekly or monthly period so that so readers can easily catch up on what they may have missed. We no longer notify KRO members by email about new material except in special circumstances. When a Tracker is posted at KRO we notify members through the KaiserResearchOnline Slack Workspace. If you are an active KRO member and not registered on Slack, please let us know and we will send the invite. We will email the link to the KRO Summary to all KRO members when it is published. We will also Tweet the link so that Twitter followers can catch up at their leisure. The title links to the Tracker or Blog, the charts in the Discovery Watch Blog link to the YuoTube audio segment for that company, and the Tracker charts link to the free Corporate Profile. On occasion we may include commentary on the state of the market.
The resource juniors sagged during the first week of July as gold weakened in the wake of the Trump's decision at the G20 summit in Japan not to increase tariffs on goods imported from China which helped the DJIA onwards to a record high. Friday's employment report for non-farm jobs surprised the market on the upside after a weak May report, which also dampened the gold uptrend as the market contemplated that maybe the Federal Reserve would not lower interest rates as quickly as the inverting treasury yield curve would seem to encourage. Lower interest rates are supposed to be helpful for gold because there is less yield from bonds and deposits to compete with gold ownership while lower rates should also weaken the US dollar exchange rate though it is not clear what currency would strengthen against the dollar. A lower exchange rate, however, would benefit US based manufacturers and stave off the day of reckoning for the corporate borrowing binge of the past decade. The market sees this as all better for the upside of general equities than for gold, so the resource juniors must wait for a sustained breakout in the price of gold, probably through $1,600 before investors trust a gold uptrend as something more than a treacherous gotcha by the cabals manipulating gold.
A popular graphic used by executives of gold companies to point out that gold tends to trade inversely to the general equity market plots the ratio of the Dow Jones Industrial Average over the price of gold. The problem with the long term chart going back to 1920 is that prior to 1972 the price of gold was a constant so the earlier changes in the ratio do not convey any useful information. But once gold became a market priced asset class the relationship became interesting, which is evident in the ratio hitting an all time low of 1.5 in early 1980 when gold hit $850 while the DJIA went sideways. But once the Volcker recession ended equities had a two decade run while gold went sideways, allowing the ratio to peak at the Dow 44.7 times higher than the price of gold during the dot-com bubble. The 2000 pullback decreased the ratio but that was of little joy to the resource juniors because so did gold which turned around in 2002 but did not accelerate until 2005. The ratio plunged to 6.1 in late 2011 when gold took a failed run at Doug Casey's multi-decade $2,000 target. Today the ratio stands at 19.4, which means the Dow would need to more than double while gold stays at $1,400 if the dot-com peak were to be revisited. What you cannot easily see in the chart is that a declining ratio trend is started with a declining general equity market and extended later when gold wakes up with a lagged response. For the resource juniors it is more important to monitor the traded value of the non-resource TSXV listings, which is dominated by cannabis stocks. The non-resource traded value is declining, which may signal the end of the Canadian cannabis bubble except for a handful of contenders for the "winner-take-all" game who no longer trade on the TSXV. It will take 3-6 months for the Canadian cannabis bubble to deflate during which capital will pile up on the sideline.
Just as a deflating cannabis bubble will not automatically re-energize the resource juniors, a general equity bear market due to a looming global recession eventually stimulating a gold uptrend may not be helpful in stimulating market interest in the resource juniors in the near term. For risk capital to move into the resource juniors a gold uptrend needs to have a more dramatic driver than a fresh round of quantitative easing to reverse a recession. When looking for a gold breakout driver it is more important to keep an eye on the Iran situation where Trump has created a "winner-take-all" showdown that the United States can win hands down militarily, but quite likely at the expense of Trump's 2020 re-election chances. Iran, having concluded that the American pullout from the 2015 nuclear deal is a de facto pullout by the Europeans because they have been unable to figure out how to trade with the Iranians without using the US dollar while Iran remained in compliance, is now deliberately violating the terms of the agreement. Since Europe, not the United States, will feel the brunt of the Middle East being turned into a war zone, the Europeans are in a pickle. Do they side with the United States once the deal is dead, and eat the consequences if Iran retaliates against a US attack by bombing Riyadh or Dubai as it has threatened? Or do they tell America, "you created this problem without us, you fix it without us". The underlying story is not so much about who controls the Middle East, but rather the ability of the United States to use the status of the US dollar as the world's sole reserve currency as a tool to bludgeon all other countries into submission. Frankly, there is no real alternative to using the US dollar, but the rest of the world can wage a counter-attack in the form of passive resistance by simply letting the United States do whatever it wants and let internal forces set in motion the breakup of America. Trump is trapped because Bolton and Pompeo are pretty confident that nothing can go wrong, at least not for America, but neither Trump nor most Americans are overly keen about a battle between two branches of Islam over control of the Middle East whose oil is no longer America's life-blood. The Iranian theocrats and the Revolutionary Guards have managed to spin Trump's strategy into a nationalistic cause that unites most Iranians, leaving little room for a regime change that puts a secular democracy in charge and the Middle East onto a path of growth rather than conflict, something that would also require regime change in Saudi Arabia. The short term future for gold is today linked to Iran much as it was in 1979.
Jun 30, 2019 - Blog - KRO Weekly Summary: June 23 to June 29, 2019
Jul 3, 2019 - Blog - SDLRC: Brooke Clements highlights technical diamond articles for July 2019
Jul 3, 2019 - Tracker - Tracker: Wolfden exploration drilling at Pickett Mountain off to a good start
Wolfden Resources Corp has started a 10,000 m drill program on its 100% owned Pickett Mountain project in Maine that will target resource expansion in four target areas. Pickett Mountain hosts a zinc-lead-copper-silver-gold VMS system whose 2 lenses were discovered by Getty in 1979 and abandoned in 1989. Wolfden acquired the property in late 2017 for USD $8.5 million shortly after Maine reformed its mining law to establish a regime for permitting underground mines. Its 2018 drill program focused...
Jul 4, 2019 - Tracker - Tracker: New Moose Cree First Nation chief and council pave way for social license consultations
NioBay Metals Inc jumped on July 3, 2019 after the Moose Cree First Nation (MCFN) elected a new Chief and Council through the July 2 General Election made necessary by a mass resignation in March as a protest against Chief Patricia Faries (see Tracker March 21, 2019) who on behalf of MCFN had on March 6, 2019 unilaterally filed for a judicial review of the drill permit granted for the James Bay niobium project granted on January 30, 2019 by Ontario's Ministry of Energy, Northern Development and...
Jul 4, 2019 - Blog - KMW Blog July 4, 2019: Discovery Watch July 4, 2019 with Jim Goddard and John Kaiser
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