Gold Anyone?

The gold market has had a bounce over the last month, triggered by a less-than-expected inflation print in the US, leading to the perception that the rates rise will be less extreme from the US Federal Reserve and, therefore, maybe a soft landing for the US economy.

The airwaves are talking up a gold rebound. Sprott is talking it up and even the real ‘Big Short’ Michael Burey is pinning his ears back and getting into gold. This year, however, gold has put in a shocker. USD gold hit a high on Mar 8, 2022, of $2,045/oz but has dropped steadily to hit a low for the year of USD 1,645/oz on Nov 6.

That’s a 20.2% drop. It has since rebounded to a smidge of $1800/oz at the time of print, a rise of 9.4%!

Well, the question on everyone’s lips is, is it time to get into gold? Is this the bottom? Before diving into picking the bottom, The Lizard King remembers some sage advice from an old broker mate, Confucius, saying: “He who picks bottom gets smelly finger”.

In terms of the gold market, as with any chart showing a bottom, you won’t know if it was the bottom until long afterwards. However, it may be just another leg down in a bear market for gold.

In that case, trying to pick the bottom and loading up on gold on the way down lower will certainly end in a stench, quite a lot worse than just a smelly finger!

It was interesting, however, that the recent rise in gold was coincidentally whilst the crypto market was imploding. FTX has blown up $40Bn of ‘value’ (I use that term reservedly) of its founder Sam Blankman Fried and many investors’ holdings with it.

Finally, perhaps the world is working out the truth of crypto, that the valuations are spurious at best and nothing but hot air. So much for being a hedge against inflation, a parallel financial system, and a store of wealth (for chrissakes).

Many investors, institutions and nations have made big bets on crypto, and if it all turns to custard (ala FTX), there may be some contagion in financial markets. Maybe that is a catalyst for gold?

Looking closer at gold’s rise, The Lizard King often translates into AUD (the ever-shrinking currency), and we see the following chart for the year.  Gold in AUD has only lost 6% since the high – much less than in USD.

It’s a similar story if you look at the Yen and the Euro and the Canadian dollar, “The Loonie” [great name for this currency. We need a nickname for the Aussie dollar. How about “The Tinny”, “the Bloke” or “the Sheila”, or “Dunny”, given that’s where we spend a penny? Anyway, I digress].

• Gold in Loonie – down 11% from highs
• Gold in Yen  – down 1.2% from highs
• Gold in Euro – down 9% from highs

So it has all been about the USD going higher against all the other currencies as the financial markets got scared and dumped everything from bonds to stocks to other currencies.

If that’s the case, then gold’s intrinsic value has not really dropped at all. Certainly, gold in AUD (The Dunny) is $2630/oz, not far off the all-time high.

Why are A$ gold equities so beaten up if that’s the case?

Well, markets are sometimes more about sentiment and momentum than underlying facts, and right now, gold equities are a very lonely place to be.

The Lizard King has oftentimes rubbed shoulders with some goldies and the other day rang the CEO of a gold exploration company, just to cheer him up.

Asked how things were going (small talk), he told me how good the drilling was going and that they just kept finding more and more gold, and they’d only just scratched the surface (how many times have we heard this before!).

He had doubled his resources to over 600,000 oz and was ‘well on the way to 1Moz’. Unfortunately, the share price scoreboard had dropped over 70% over the time he had doubled his resource.

And with a measly market cap of only $14m, it equates to an EV/resource oz of A$18/oz. Now with Gold denominated in Dunnies at $2630/oz, a resource of $18/oz sounds cheap to me.

Maybe we are at the bottom?

Surely it can’t go any lower?

Many years ago in the late 1990s, there was a time when the Lizard King was but a young Lizard Prince and he remembers trying to get a gold float across the line.

The Lizard Prince was only a mere small cog in the operation, but whilst we were working on the prospectus, the gold price USD dropped 25% over three months to USD$ 250/oz.

The prospectus was shelved, and the Lizard Prince was out on the street. It was brutal. Surely that was the bottom.

However, it was another 3 years before the gold market started to rebound, starting its bull run up to US$1770 in Aug 2011. That was a +600% rise in 10 years.

Back to the macro story. We have the US Fed still in hawk mode and only one softer inflation number under the belt, we still have an energy crisis and a war in Europe. It doesn’t seem like the jury is in on a soft landing.

Time to get into gold? As my irreverent brother-in-law sadly departed, used to say with a durrie in the corner of his mouth, “Yeah, Nah-yeah, Nah-SHIT-YEAH–Nah”.

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