Gold and Silver Melt, or Meltdown?

Guest Post by Marin Katusa via International Man

Since early July, I’ve told my subscribers in the precious metals markets to take a Katusa Free Ride on all our gold stocks.

Thus, all but one stock in our portfolio has a zero-cost base, and we are flush with cash.

Is it time to jump in right now?

Before we get into what to do now, let’s do a quick review of the gold market for the last nine months.

Gold and silver were fresh off of multi-year highs.

Retail and institutional interest was at a multi-year high.

And volumes were through the roof.

New buying and market interest led to a large number of new gold and silver exploration companies. Promoters know that when the ducks are quacking, they must be fed.

On the back of a 20% rise in the gold price in 2020, there were a massive number of financings and raises.

There was approximately $5.4 billion in resource financings YTD and 28 new gold companies.

While that may sound like a lot, it’s still the lowest amount of capital raised in the sector in over a decade.

Take a look at the chart below.

Many of the restricted shares from those financings have become free trading. The large issuance of new paper has put a temporary ceiling on the underlying issuers.

Selling pressure was caused by this paper hitting the market, with early investors looking to lock in gains.

Then, the generalist funds were quick to move to lock in their gains in gold stocks post-vaccine news. Gold stocks were sold off by many of these funds to buy oil stocks as the economy was expected to reopen in 2021.

Couple that with falling prices for the precious metals, and you have a recipe for a washout of weak hands.

I’m not a “told you so” kind of guy, but I did warn that this could happen and laid it all out for you in a previous article.

The Precious Metals Paper Wall

And it’s not over yet.

We haven’t seen the end of the selling pressure yet.

As you can see in the next chart, there is still A LOT of new paper that will come free trading in December.

This too shall pass, but it could get uglier first.

And don’t forget that we’re now entering the season of:

Tax Loss Tango

Tax loss selling in the precious metal sector will be vicious this year.

As I do every year, I create my Tax Loss List of the best stocks I want to buy and the prices I’m willing to load up on in the open market. Last year I had my list, and I didn’t get hit on any of my target prices.

But I got more than my fill on the best stocks in the March Meltdown just three months later.

Fortune favors the prepared.

This December will provide some incredible deals in companies that are trading under NAV.

What I’m going to say next will anger many of the gold bugs, but I need to remind everyone – I’m a profit bug.

Don’t Fall for the Hype: Gold and Silver are Still in the Minor Leagues

Gold and silver investors love using the metaphor of baseball innings to indicate where we are in the cycle.

Yes, well-known investment figures such as Ray Dalio, Stanley Druckenmiller and even Warren Buffett have recently made heavy investments in gold and gold equities.

However, Buffett did pull a bit of a head fake when he sold 8.9 million shares of his 20 million share position in Barrick Gold.

This was only a few short months after taking the position.

So much for the buy and hold strategy. Maybe he just pulled the biggest troll job on gold bugs.

Sorry, I laughed when I saw the news since the gold bugs thought Buffett had been converted to one of them. Nope, he’s a profit bug.

Buffett, like others, sold some of their gold to put that capital to work in other sectors.

I still believe that gold stocks have not started their first inning in the big leagues.

This will be hard for most to fathom, considering that many of us saw large runs in many of our gold equities and took profits and free rides in 2020.

But gold remains in the minor leagues when seen as an investment on the global stage. Yes, as important as it is to us—the gold speculators, investors and gold bugs—the gold sector is not at all important yet to the global flow of capital.

Do you think the to-be-appointed Secretary of Treasury Janet Yellen wants to talk about gold? Hell, no.

She’ll continue with the strategy that the government balance sheet can handle much more stimulus, and stimulus will continue.

Before I get into why gold is still in the minor leagues, I want everyone to focus on the chart below.

Yes, 21% of all U.S. Dollars that exist were “digitally created” in 2020. But focus on the chart for a minute.

Has anything changed for the better?

I’d say Biden has made it very clear that more stimulus will come.

Do you really think Powell and Janet Yellen won’t work together and “do whatever it takes” under a Democratic president? This means that the printing we saw in 2020 is just the beginning of what’s to come.

Gold’s time will come.

But before it does, and before it gets promoted to the Big Leagues (which it will), if you’re savvy enough, you can get the best “Big League” companies at AAA ball pricing.

Consider this…

Vancouver, B.C., Canada is the financing hub for global gold exploration.

Yet, the established money management firms don’t even include gold equities as an option for their high-net-worth individuals. They’re still touting bank stocks and REITs (with 1 percent cap rates paying out terrible 3 percent yields).

Gold isn’t even taught in most business schools, CFA classes, or portfolio management courses. Gold investors are seen as outdated and irrelevant—a barbarous relic.

The earth under Canadian soil might hold some of the world’s most prominent gold reserves; yet, the Bank of Canada, Canada’s central bank, holds zero gold bullion.

The biggest funds in Canada, such as the Canadian Pension Plan, have much lower exposure to gold and gold equities than the percentage of Canada’s GDP that comes from mining gold. U.S. pension funds’ exposure to gold is even lower.

But that’s all good news.

As we approach gold’s transition into the major leagues, we will see an increase in both passive and active funds positioning themselves into gold equities.

The gold sector won’t start playing major league ball until the professionally managed funds in the U.S. start deploying capital into gold equities.

It’s All About the Flow of Capital…

As you can see in the graph below, there are 1,357 mining companies listed in Canada and 100 mining companies listed in the U.S.

Of those, 428 are gold companies listed in Canada, and 44 are gold companies listed in the U.S.

Here’s the interesting part: all but four of the gold stocks listed in the U.S. are also listed in Canada. But the dollar volume on U.S. exchanges absolutely dwarfs the volume on Canadian exchanges.

Accounting for currency exchange, the 44 gold stocks listed on the U.S. exchange trade $150 million more a day than all 428 gold stocks listed in Canada.

I’m Canadian, so I can say this: Canada is a small fry when it comes to the global flow of capital. I love Canada. I’m a proud Canadian. But changes are happening, and as usual, the Canadian market is oblivious to it all.

Management teams don’t want to talk about the fact that the “flow of funds” into the Canadian mining sector isn’t growing.

In fact, it’s shrinking.

Thus, investors buying gold companies listed on the Canadian exchange usually end up selling shares they own of another company to come up with the capital.

It’s mainly a rotation of capital, not an inflow of new capital.

More importantly, the federal government of Canada is rumored to be raising the capital gains tax rate by at least 100%. This will make it equal to the tax rate of the highest income bracket in Canada.

This will reduce the flow of funds to higher-risk, early-stage exploration companies.

The risk/reward just won’t make sense for Canadian investors due to the higher potential tax rates.

In addition, with all the new regulations and taxes, the big U.S. funds (active and passive) can’t and won’t buy gold companies in Canadian dollars.

The rules for American investors, quite frankly, suck.

The legend removal process on Canadian exchanges is difficult, and it’s hard for American investors to put Canadian certificates into their U.S.-managed brokerage accounts.

I’ve been advocating for years that the Canadian investment industry needs to adapt to its customer—the U.S. investor—instead of forcing U.S. investors to jump through hoops to invest in Canadian-listed mining stocks.

And there are big things afoot that Katusa Research is working feverishly on.

Greedy When Others Are Fearful: The Coming Katusa Alligator Stock Watchlist

I’ve been very cautious these last few months. I’ve stated as clearly as I could for my subscribers to reduce as much risk as they can and lock in their Katusa Free Rides.

In retrospect, our timing on the calls has been very good.

I hold a very high cash position in USD, and anyone following our portfolio should be high in cash. Even with the incredible gains in our portfolio, I’m over 55% cash.

I hold this high amount of cash (of which 70% is in USD) because I believe we’ll see some rocky markets in the months ahead. Whenever the markets have a sell-off, the USD performs well.

As I’ve stated before, even gold sells off initially, and then the tidal wave of selling on gold miners and explorers starts (as you see right now).

The U.S. election will come and go, and eventually, there will be a victor.

In the end, it won’t matter who’s in the White House with respect to the price of gold.

Twenty-four months from the election, gold will be higher than it is today.

There’s one simple reason why: Both parties are completely committed to unprecedented stimulus.

And I’m very close to pulling the trigger on a few opportunities that have been many months and hundreds of hours in the making.

I’ve been very patient since this summer and took lots of criticism for it.

But I didn’t catch a 586%, 664% and even a 1,044% win in the last 24 months by chasing every opportunity and day-trading.

This isn’t armchair investing. I eat my own cooking and buy exactly what I write about… at the same price and terms as my subscribers.

Look, you may not like my style or my personality. But I’m not here to be liked — that’s what bankers are for. I’m here to educate and to deliver the best returns on precious metal, base metal and energy stocks in the business.

And so far, I’ve delivered.

Editor’s Note: Doug Casey’s longtime friend and resource expert Marin Katusa is revealing his top five stock picks primed for double and even triple-digit potential gains over the next two to nine months.

Marin is taking advantage of this short window right now, and his research shows that window slams shut on December 15th…

Fail to act, and you could miss out on an incredible profit opportunity. Click here for all the details, including Marin’s top five stocks.

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