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MILES FRANKLIN Do You Know Where China Gets Its Gold?

David’s Commentary:
I am on vacation this week and next, but there are a few articles I want to get out to you that are very worthwhile.
It’s early Friday morning, but gold and silver have popped back up, with gold once again taking out the important $1,300 barrier and silver is following suit, up $0.19 to $15.34. I would like to see gold hold above $1,300 going into the weekend.
Are you disappointed with the price of gold? Do you know that Gold is now as cheap as it was in 1970 at $35 and in 2000 at $270. 
David’s Commentary(in blue font all below):
From its bottom at $35, gold rose to $850 and from its bottom at $270 gold rose to $1,900. What does that suggest going forward from the current price of just below $1,300? 
Thursday was another day of quietly engineered price declines in gold, silver and palladium and, as ‘da boyz’ always do, they started their attack in the very thinly-traded overnight market in the Far East — and once the sell stops got hit, then the price decline becomes self sustaining. But when it stopped or reversed a bit for whatever reason, the powers-that-be were there to sell whatever contracts it took to resume the downward price path. That was in full force yesterday.
Ted Butler likes to point out that the only thing that really matters in determining the price of gold and silver is the net long or short positions of the Managed Money traders. The Commercials (i.e. JPMorgan and buddies) dupe them into buying and selling, which controls the price. Here is what Ed Steer wrote last night.
Here’s a 5-year chart courtesy of Nick Laird. It shows the gold price plotted against the net long or short positions of the Managed Money traders. This graph should leave no doubt in anyone’s mind that it’s only what they do…or what the commercial traders trick them into doing that controls the gold price.
Check out the correlation between the gold price — and the net positions held by the Managed Money traders, appears to be well in excess of 90 percent.  That’s why Ted Butler says that it’s only what the Managed Money traders are up to, that is the controlling factor in the gold price. The chart for silver is very similar.
The top half of the chart shows the gold price in blue — and the thin black line [on both the upper and lower charts] shows the net long or short positions of the Managed Money traders.  
Do you know where China gets its gold? Well, it keeps all the gold that it mines, and most of the rest comes from Swiss refiners. They, along with India (and even Russia) are accumulating all the gold that they can get their hands on. They will not sell it, they are the ultimate “strong hands.”
2018 Swiss gold exports = 46% of global gold production (Lawrie   Williams)
We have often in these pages recounted the importance of gold refined or re-refined and exported via Switzerland in terms of global gold flows, and the latest figures out of the small European nation serve to emphasise that point despite 2018 being perhaps a weaker year for the nation’s overall gold trade. In terms of gold imports the country took in some 1,500 tonnes of gold during the year and exported 1,473 tonnes – mostly to Asia where Mainland China was the dominant recipient. Indeed if we add exports to Hong Kong to the Chinese total, given that most of this will have been fabricated and re-exported to the Chinese mainland, the flows to the Asian giant alone amounted to around 729 tonnes of gold last year.
Switzerland has a batch of major gold refineries which specialise in taking doré bullion from mines, scrap gold and large refined gold bars – the latter primarily from the U.K., probably the centre for global gold trade – and producing high purity gold in the small kilobar sizes and wafers most in demand in Asia. The amounts flowing through Switzerland have probably fallen in recent years due to the building of new gold refineries in Asia and the Middle East (some owned by by the Swiss refiners) but nevertheless the amount of gold routed through Switzerland remains substantial. In 2018 it amounted to around the equivalent of nearly half global new mined gold. Indeed if one takes Chinese gold production (which all remains in China) of around 400 tonnes out of the equation, Swiss refineries handle an amount of gold equivalent to some 50% of global new mined non-Chinese output.
The other statistic which can be gleaned from the Swiss gold export figures for all of 2018 is that around 1,266 tonnes — or close to 86% — flowed to Asian and Middle Eastern nations. This serves to again emphasise the continuing flows of gold from West to East, with the Eastern holdings seen as being in stronger hands and less likely to flow back into the markets.
This 1-chart gold-related article from Lawrie was posted on the Sharps Pixley website yesterday-
Egon von Greyerz always has very interesting things to say about gold. And the following article is no exception. Sorry to be the bearer of bad tidings, but the party is over. We are very close to an inevitable global mega-bubble. When it pops, it will be worse than anything that came before.
We must understand that the world has never faced risk of this magnitude ever. We are now in the very final seconds of the global mega bubble, the likes of which the world has never seen before. What will happen next will be worse than the fall of the Roman Empire, much worse than the South Sea and Mississippi Bubbles and will create a disaster that will dwarf the 1930s Depression.
The problem is easy to define. It is all about debts and liabilities. Global debt is up three-fold since 2000.
Instead of worrying about the cause, now is the time to focus on how to protect yourself financially.
Gold has throughout history been the solution to a mismanaged economy based on deficits, debts and money printing. But it must be physical gold, stored outside the financial system in the safest jurisdictions and vaults. It is essential to have direct ownership of the gold and direct access. ETFs, futures, or part ownership of bars are not proper wealth preservation.
How high could gold and silver go?
A recent KWN article by Lundeen projects $3,000 silver and $30,000 gold. Those are not unrealistic targets and are probably based on normal inflation. With hyperinflation, the future gold price is likely to have many more zeroes.
But first, gold must move past its key resistance at $1,350. That’s been the impenetrable barrier for the last six years.
Once through resistance at $1,350, it will go very quickly all the way through the old high of $1,920. Remember that this high has already been broken in many currencies, so it is not a major hurdle to clear.
Egon von Greyerz
 The world financial system has been in a euphoric state since 2009. It seems that the Keynesians, like Krugman or the Modern Money Theorists (MMT) are right after all. All asset markets are near the highs and show little sign of changing direction. As Treasury Secretary Mellon said in September 1929: “There is no cause to worry. The high tide of prosperity will continue.” All that is required is more of the same medicine, more credit, more money printing to make a virtuous circle of eternal prosperity.
Clearly the Cassandras are all wrong with their pessimistic forecasts that never happen. The Greek Princess had the ability to forecast the future but her curse was that nobody believed her accurate predictions. (Cassandra article)
We modern Cassandras are in the same position. We are certain that the theories based on spending and borrowing yourself out of the biggest debt bubble in history are totally fallacious. We know that a debt problem cannot be solved by more debt. No one defined it more succinctly than Albert Einstein: “We cannot solve our problems with the same level of thinking that created them.”
But sadly for the world, Cassandra will be right this time also since the party is over. The Time Bomb below says it all. Contained in the red bomb are all the explosive elements that will change the history of the world. Any single one of these risks is sufficient to trigger a collapse of the world economy. The combined explosive nature of all the risks will not only disprove MMT but also create a world, which will be a lot less pleasant to live in.
This cleansing of a sick financial system and a morally decadent world will be totally necessary to create new green shoots based on real, sustainable values. But the transition will create great suffering for the whole world.
In the final stages of a major super cycle, there is normally a total lack of clarity in the thinking of world leaders. But not only that, there is also a total lack of leadership. Right now this is exactly what we have. Countries normally get the leaders they deserve. The world is in desperate need of statesmen who can take uncomfortable decisions to get the world out of the mess it is in. But looking around the world, there is no statesman in any country. There are countries with strong leaders like Putin in Russia and Orban in Hungary but real statesmanship does not exist anywhere.
Look at France where Macron becomes more unpopular by the day. Soon every Frenchman will wear a yellow vest and it is already spreading to other countries. The French economy and financial system are weakening and the inequality between the rich and the poor has the seeds of yet another French Revolution.
Germany has been the biggest beneficiary of a weak Euro but in spite of that, the German economy is now deteriorating rapidly. Merkel’s socialist policies will have disastrous effects on the German economy in coming years, exacerbated by an immigration policy, which will create a major economic and social disaster.
When Deutsche Bank (DB) collapses, which is probable, which will have repercussions not only for German banks but for the global banking system. DB’s derivative book of EUR 50 trillion is 15x German GDP. When counterparty fails, the Bundesbank and the ECB will need to print more Euros than during the hyperinflationary Weimar Republic. In addition, the Bundesbank and the German financial system are the biggest guarantors of the ECB and the Target2 lending to Southern European countries which are all likely to default on their commitments.
The UK leadership is extremely weak. Theresa May’s government is irresolute and divisive. They have spent 2 years solely trying to extricate itself from the EU. This issue has totally dominated UK politics at the expense of the economy. With 2 weeks left to Brexit-day, the UK is nowhere nearer an agreement with the Brussels elite who have consistently frustrated the process.
The US is bankrupt with a currency, which is living on borrowed time. Trump had good intentions but has been shackled by the Deep State. When the biggest economy in the world collapses, it will have major repercussions on the world.
Every major country or continent in the world has got problems of a magnitude that will bring the country down. In addition to the above nations, this includes Japan, China, South America and many more.
We must understand that the world has never faced risk of this magnitude ever. We are now in the very final seconds of the global mega bubble, the likes of which the world has never seen before. What will happen next will be worse than the fall of the Roman Empire, much worse than the South Sea and Mississippi Bubbles and will create a disaster that will dwarf the 1930s Depression.
The problem is simple to define and is all based around debts and liabilities. At the beginning of this century, global debt was $80 trillion. When the Great Financial Crisis started in 2006, global debt had gone up by 56% to $125 trillion. Today it is $250 trillion.
Thus, in this century global debt has more than trebled. So far MMT seems to work. Just print and borrow more money and the economy will take care of itself. Einstein said it won’t work and the laws of nature also tell us that this is a saga that will have an unhappy ending.
Rather than trying to figure out what the exact trigger will be, it is much more important to focus on how to protect yourself financially.
Gold has throughout history been the solution to a mismanaged economy based on deficits, debts and money printing. But it must be physical gold, stored outside the financial system in the safest jurisdictions and vaults. It is essential to have direct ownership of the gold and direct access. ETFs, futures, or part ownership of bars are not proper wealth preservation.
$30,000 GOLD AND $3,000 SILVER
The Krugmans and MMT fans will now get more than they ever asked for. Because the world will soon start the biggest money printing bonanza in history. Bearing in mind that total debt and liabilities, including derivatives are over $2 quadrillion, we could easily see similar or higher amounts of money printing. A recent KWN article by Lundeen projects $3,000 silver and $30,000 gold. Those are not unrealistic targets and are probably based on normal inflation. With hyperinflation, the future gold price is likely to have many more zeroes.
We must remember that we are holding gold primarily to preserve wealth since it is the best store of value and represents stable purchasing power. But gold is likely to do better than to maintain purchasing power for the simple reason that there will be a massive shortage of physical gold when the gold paper market blows up. This is why it is critical to hold physical gold, bars or coins.
I wrote about the Gold Maginot Line a few weeks ago which is at $1,350. This line has stopped gold since 2013. After a first attempt to break through 3 weeks ago, we are now in a small correction and gold is building momentum to break through the Line. Once through, it will go very quickly all the way through the old high of $1,920. Remember that this high has already been broken in many currencies, so it is not a major hurdle to clear.
For anyone who doesn’t understand the necessity of owning gold, just go through the list of risks in the Time Bomb. And once you have gone through it, go through it again and again and again. The list includes 3 dozen reasons why you need to hold physical gold as protection or insurance against unprecedented global risk.
Anyone who doesn’t own gold today mustn’t wait for the next move up to take place. That could be too late. Once the real move starts, it will be very difficult to get hold of gold at any price. At some point there will no physical gold on offer. The paper gold positions of banks and futures exchanges will see to that.
Central banks will also have major problems. Most of them have covertly sold their official holdings. And most of what they have left, they have leased to the market. That gold has gone to China, India and Russia and all the central banks have left is an IOU from a bullion bank that won’t be honored.
With a guaranteed absolute mess in the world financial system, resulting panic in the gold market now is the very last chance to be protected.
Gold is today as cheap as it was in 1970 at $35 and in 2000 at $270:
I find these types of comparisons of little use, but they sure are interesting. Will history repeat? It wouldn’t surprise me.
Did you ever wonder why no bankers ever go to jail? Eric Holder and President Obama pushed through legislation that saw to it that it would not happen.
Ever Wonder Why No Bankers Go To Jail?
“The sovereign in the U.S. is supposed to be ‘We The People’- first three words in The Constitution. It’s not ‘We The People.’ The sovereign power of the U.S. is a criminal global banking cartel. Period. Full stop.”
“Criminal immunity is tantamount to Sovereignty. Any entity that has criminal immunity has Sovereign power. For example, you don’t need the Constitution to coin money and regulate the value thereof. You can simply counterfeit money and rig markets. And in fact, rigging markets is what they did.”
“Collateral Consequences.” It was a term introduced to the Executive branch of Government, which includes the Justice Department by Eric Holder during the Clinton Administration. This paved the way for Justice Department prosecutors to let bankers off the hook for obvious criminal behavior.
In a 1999 memo entitled “Bringing Criminal Charges Against Corporations” (section IX on page 9) written when Holder was deputy U.S. attorney general, Eric Holder argued that government officials could take into account “collateral consequences” when prosecuting corporate crimes. By this he meant prosecutors should take into account the effect prosecuting a corporation or corporate individual will have on “innocent third parties.” That principle right there gave the keys to the kingdom to the banks. It also explains why the SEC is so reluctant to prosecute Elon Musk.
This “consider collateral consequences to innocent 3rd parties” is what led to the bailout of the banks in 2008 and the absence of any criminal prosecutions against bank executives despite the overwhelming evidence of culpability. Oh by the way, Eric Holder just happened to be appointed Attorney General in 2009 by Obama to make sure that Section IX of Holder’s 1999 memo held up during the period of time when the banks and their CEO’s should have been held accountable and sent to jail.
Peter Shiff says once the dollar bubble is pricked, the record debt will bring everything tumbling down. We are in total agreement with him on this. QE will return. This is just the calm before the storm.
I think the world is going back to gold. . . . $5,000, $10,000 (per ounce) who knows how high it’s going to go. There is no real ceiling on the price of gold because there is no floor to the value of the dollar and other fiat currency. . . . Gold is going to skyrocket.”
Shiff says that silver will outperform gold. The last time silver took off, it went from $4 to $50. It will do better this time around.
Greg Hunter USA Watchdog
Money manager Peter Schiff says even though there is “record debt everywhere,” the Fed thinks the economy is fine. Schiff explains, “The actual amount of money the government is borrowing is much larger than what they pretend they are borrowing with the official budget. I think the national debt was up around $1.5 trillion in 2018. . . . It’s probably going to be even greater in 2019. . . . We have the biggest annual trade deficit ever in 2018. We’re going to beat that record in 2019. So, we have the twin deficits going off the charts. None of that worries (Fed Head Jay) Powell. We have record corporate debt, record individual debt, record student debt, auto debt, credit card debt and none of that concerns Powell.  We have record debt for state governments and municipalities. We have underfunded pensions in both the public and private sector. We also have interest rates rising. They have risen quite a bit from a few years ago, and all of that is an added cost on an over-leveraged economy. The reason the Fed did this about face, the reason they are now ‘patient’ and the reason they stopped raising interest rates . . . is all about the United States. . . . It’s all about the enormous debt we have. The Fed inflated a bubble where you had all this debt. It’s impossible to normalize interest rates in this scenario. So, they came up with an excuse to stop, but what the markets still don’t realize is it is not enough. The Fed is ultimately going to go back to 0%. The Fed is not going to shrink its balance sheet. They are going to blow it up bigger than it was before they started to shrink it. There is no way to stop the recession and no way to stop the bear market. They are going to have to go back to the QE, but I don’t think the Fed is going to succeed in blowing a bigger bubble.”
Schiff goes on to say, “I think when they start to try to reflate the assets in stocks, real estate and in bonds, they are just going to prick the dollar bubble, and that’s when we have a real crisis. . . . The dollar is going to collapse, and America’s days of living beyond its means is going to come to an end.”
On gold, Schiff says, “I think this is the calm before the storm. People don’t really perceive it. Maybe it’s like the Wile E. Coyote who has just run off a cliff, and he just hasn’t looked down yet. He doesn’t realize where he’s standing. . . . Gold shorts are going to lose an incredible amount of money. That’s probably one of the most foolish things you can do.
There are a lot of great things out there to short. Gold is the last thing you should be shorting. For central banks, gold is the safest reserve asset. It’s the only asset that is not somebody else’s liability. . . . I think the world is going back to gold. . . . $5,000, $10,000 (per ounce) who knows how high it’s going to go. There is no real ceiling on the price of gold because there is no floor to the value of the dollar and other fiat currency. . . . Gold is going to skyrocket.”
And silver? Schiff says, “Look at last time. Silver went up to $50 per ounce from $3 to $4 an ounce in 2000-2001. Gold went to $1,900 per ounce, but silver went to $50 per ounce. It was a much bigger percentage gain. . . . If I am right about gold going to $5,000 to $10,000 (per ounce), I am sure the percentage gain in silver will be even bigger.”
Join Greg Hunter as he goes One-on-One with money manager Peter Schiff, founder of Euro Pacific Capital and Schiff Gold.
Watch the yield on the 10-Year Treasury. It is the most important bond in the financial system. Lately it’s broken a multi-decade downtrend to the upside.
When bond yields rise, bond prices fall.
When bond prices fall, debt deflation hits the financial system.
When debt deflation hits the financial system, the financial system BLOWS UP.
THIS is why the Fed is in a panic. It’s why the Fed has stopped hiking rates. And it’s why the Fed is desperate to launch even MORE extreme monetary policy as soon as possible.
David Brady says a return to QE is inevitable. I absolutely agree with his assessment. The big banks know it and they are waging a last big assault on gold to squeeze as much money out of it as possible before the big move up. He says, “This could be the last buy-the-dip opportunity we get, courtesy of the Bullion Banks.” 
Sprott Money
Bullion Banks Appear Ready to Slam Gold Imminently
The big picture remains the same: When the Fed reverts to QE and the dollar tanks, Gold and everything else will soar. I believe a return to QE is inevitable at this point.
If the stock market dump in the 4th quarter has taught us anything, it is that the markets cannot survive without ever-increasing stimulus, just like any Ponzi scheme. Meanwhile, U.S. deficits and debt continue to soar, with unfunded liabilities about to hit en masse next year. At the same time, economic activity and tax receipts are falling. This means more and more treasury bonds are being issued when the Fed is still reducing its balance sheet and foreign buyers have gone on strike. There is only so much the domestic market can soak up before becoming saturated, forcing yields to rise and debt interest costs to explode. The Fed will be forced to revert to QE to prop up stocks and bonds (keep yields down), and will sacrifice the dollar in the process.
Now, I don’t want to get into a whole discussion about the manipulation of the metals market, but this is downright obvious. There is no justification for such a massive increase in open interest, especially after such a tiny move up and with Funds holding a relatively small long position, other than the Bullion Banks are loading up on the short side to prevent Gold going higher and planning to make a sizeable profit in the process, as always.
The bad news is that this likely means that we are going lower, perhaps up to $100 lower.
The Banks are clearly going to attempt to squeeze almost everyone out of the market before the massive rally to come, in my opinion. The good news is that in each of the prior cases this has occurred, most notably 2008, the price rebounded to new highs after the sell-off. This could be the last buy-the-dip opportunity we get, courtesy of the Bullion Banks. 
About Miles Franklin
Miles Franklin was founded in January, 1990 by David MILES Schectman. David’s son, Andy Schectman, our CEO, joined Miles Franklin in 1991. Miles Franklin’s primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry. In November, 2000, we decided to de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle. Our timing and our new direction proved to be the right thing to do.
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Rudi Fronk | Seabridge Gold – Leverage Play To Rising Gold Prices

Mar 14, 2019 02:37 pm

By Remy Blaire

Rudi Fronk, Chairman and CEO of Seabridge Gold.


Gold recovered the $1,300 level and came off lows of the month as the dollar weakened and as Brexit jitters permeated investor sentiment. After regaining its highest level in two weeks the precious metal tested a resistance level of $1,307 an ounce. Spot gold for April delivery managed to settle above $1,309 an ounce in midweek trade but retreated below the $1,300 level as the U.S. currency strengthened on Thursday.

Concerns about the slowdown in global growth and the outcome over the U.S.-China tariff dispute are ongoing. Yet the broader market has come off recent lows and recovered from the Christmas Eve bear market of 2018. The Federal Reserve’s “patient” approach to interest rate hikes and the possibility of an “adjustment” to the unwinding of is balance sheet have supported the market turnaround.

It’s been a wild ride for gold and now the yellow metal may be past the inversion phase of the recent rollercoaster ride. U.S. economic data is lukewarm but supportive of the Fed’s current position on rate hikes.

On Wednesday, the U.K. Parliament rejected a no-deal Brexit. In a close decision, MPs voted to reject leaving the EU without a withdrawal agreement. On Thursday, MPs will vote on delaying Brexit and request an extension to Article 50. If the vote passes and the EU agrees – the U.K. will not leave on March 29.

On this side of the Atlantic, U.S. equities continued to recover with the DJIA eyeing the so-called “golden cross” chart pattern. The benchmark equity average could see its 50-day moving average (DMA) cross above the 200-DMA. While the technical indicator could point to a long-term bull market, the breakout pattern is a lagging one and never a guarantee of future performance.


Gold mining stocks can be an indicator of how the gold market is faring. The stocks are oftentimes seen as a way to get leveraged exposure to gold prices.

The biggest players in the sector are making headlines for mergers and venture announcements. Barrick Gold Corp and Newmont Mining Corp formed a joint venture in Nevada. Earlier this year, Newmont Mining acquired Goldcorp, creating the largest gold miner in the world. Several months ago Barrick Gold scooped up Randgold Resources.

In the aftermath of the 2011 commodity crash there were expectations of more mergers for the junior mining companies. The deals that took place among the gold miners in 2018 totaled over $59 billion but amounted to less than half the sum seen during the peak in 2011.

At the same time, there have been other notable deals recently including Newcrest Mining’s move into Canada. Newcrest and Imperial Metals agreed to a joint venture for a majority stake in a B.C. mine. Meanwhile, Newcrest also entered into a deal with Greatland Gold for a gold-copper project.


Seabridge Gold (TSX: SEA) (NYSE: SA)  is a development stage company based in Toronto, ON. The company’s main projects include the Kerr-Sulphurets-Mitchell (KSM) property in British Columbia, the Courageous Lake property in the Northwest Territories, the Iksut Property located in NW B.C.

Seabridge evaluates, acquires and is involved in the exploration and development of gold properties in North America and has other resource projects on the continent. The Snowstorm Project is located in Nevada at the intersection of the main gold trends in the northern region on the U.S. state.

The KSM project is one of the world’s largest undeveloped gold projects in the world. Seabridge Gold recently announced an updated independent mineral resource estimate for its Iron Cap deposit. This deposit is one of four gold and copper porphyry deposits within the KSM project. Worthy of note is that the project is 100% owned by Seabridge.

The company updated its resource estimate for its Iron Cap project that boosts the project’s indicated resource by 460,000 ounces gold and 177 million pounds copper. In turn the project’s inferred resource is expanded by 7.45 million ounces gold and 4 billion pounds copper.

Rick Rule, president and CEO of Sprott U.S. Holdings spoke with Seabridge Gold’s CEO, Rudi Fronk for a brief interview segment. After the latest Iron Cap update, Fronk remarked that the new estimate could lead to the company prioritizing the deposit ahead of others in the overall project plan:

The “exploration success at Iron Cap … gives us greater flexibility to optimize project economics. Iron Cap is closer to infrastructure than Kerr and Sulphurets and its development could be faster and less costly … Iron Cap clearly has the size and grade to justify early inclusion in the mining sequence.”

Fronk says the Iron Cap “resource additions … have met our annual corporate objective of increasing gold ownership on a per share basis. In 2018, our shares outstanding increased by approximately 3.6 million shares resulting from new financings to fund our programs plus other share issuances.”

Seabridge Gold has a market capitalization of nearly $1 billion.

Listen to Rick Rule’s interview with Seabridge Gold’s Chairman and CEO, Rudi Fronk. To hear Fronk’s thesis on gold and learn about Seabridge’s track record and global resources:
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Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment.  Because of significant volatility,  large dealer spreads and very limited market liquidity, typically you will  not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns. Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time.




Energy Has A Little Gas Left In The Tank

Original Source:

Thursday, March 14, 2019

As we evaluate different sectors, we consider a wide swath of factors, such as what they’ve done over the last year, how they typically perform in this type of political and fiscal policy environment and even if the particular time of the year has an effect. To be completely transparent, we considered utilities and REITS, which this week broke out to record highs. The technician in us says the breakout should carry those sectors higher, in part because they benefit from the Federal Reserve taking a more dovish stance on raising interest rates. Our only trepidation is that if we start seeing signs of greater economic strength, traders might turn their backs on these sectors, causing the run to turn over.

Rather than talk about what we didn’t select to discuss this month (apologies…we couldn’t leave out that commentary), we’d like to advise investors to keep an eye on the energy sector, which is a collection of stocks spanning energy businesses like oil, gas, consumable fuel, renewable/alternative, services and equipment. For starters, March has historically been a solid month for the Energy Select Sector SPDR (NYSE:XLE), the benchmark ETF for energy plays. According to CXO Advisory data, XLE has been the best performing SPDR ETF in March since the SPDR ETFs began trading 20 years ago. So far, XLE is up 1.12% this month, compared to its average return of 2.9%.

Even better, XLE is also the top performer in April at 3.7%. If that trend will continue, the energy sector will add to a solid 2019 to date, where it is ahead by about 15% through Wednesday. That’s a nice recovery after energy was the S&P 500’s worst performing sector in 2018 with XLE shedding 18.2%.

In fairness, a lot of the gain has been at the hands of Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM), as the two oil stalwarts cumulatively comprise more than 40% of XLE’s weight (XOM: 23.36%, CVX: 19.72%). Both stocks are up more than 10% in 2019, carrying XLE higher.

Since printing $107 in June 2014, spot oil prices fell off a cliff, plummeting as low as $26.05 in February 2016 before turning things around. The clear culprit for the steep drop was oversupply, a problem that looms globally today. On the strength of the Organization of Petroleum Exporting Countries (OPEC) and its allies going to great lengths to curb output and support oil prices, spot crude climbed back to a $40-$55 range for more than a year before making the next leg up in November 2017 to swell to a high of $76.90 in October 2018. Subsequently, another collapse occurred, driving oil back down to a low of $42.36 in December. Another recovery has ensued in 2019, lifting oil prices back to the upper $50’s.

While energy stocks are frequently bootstrapped to the price of a barrel of oil, we expect a little bit of a slingshot effect based on fundamentals, not oil prices, in the future. This is due to the fact that earnings actually grew in the energy sector in 2018, but the market failed to reflect the expansion. To that point, there has been no improvement in valuation metrics between current levels and when oil was bottoming near $26 a barrel in 2016. In fact, XLE trades at a slightly lower valuation than the 15x trailing 12-month earnings that it did back when oil bottomed in February 2016.

In addition to oversupply, there are other factors that have a choke hold on confidence in the oil and gas industry. Namely, regulation is a concern. Eldar Sætre, CEO of Equinor, Norway’s biggest energy company, acknowledged this on Monday at the CERAWeek by IHS Markit conference, noting that environmental issues threaten the industry and that O&G companies must unitedly take a progressive approach to combat emissions and pollution.

So, with a large shortfall in demand versus supply and environmental issues that can’t be rapidly corrected, why are we bullish on energy? The answer is: “just for right now.” We’re looking at the sector for the next six weeks of so and we’ll have to see what happens come summer (the driving season) and reassess gasoline inventories to get a better understanding on potential market direction. What we are also banking on is history and the fact that the energy sector has typically been an outperformer March and April.

This dive into the sector uncovered many beaten down companies in the small or microcaps space that have languished with the sell-off in energy at the end of last year. It’s fair to say that energy plays abound in the microcap space, but we recommend sticking to those generating revenue, whether it be a producer like the three below or a services company like Profire Energy (NASDAQ:PFIE).

Broadly speaking, there is no shortage of companies that can be argued as value plays given depressed valuations as Wall Street questions the energy sector at the moment.

Jericho Oil Corp. (OTCPK:JROOF) (TSX-Venture:JCO), is focused on domestic, liquids-rich unconventional resource plays, located primarily in the oil-prone Meramec and Osage formations in the Anadarko basin STACK Play of Oklahoma, a region trumpeted by some as the next great U.S. oil play. To that point, majors likes ExxonMobil, Chesapeake Energy, Sandridge Energy and Chaparral Energy continue to put considerable capital resources in and around Jericho’s STACK acreage position. Jericho has assembled an interest in 55,000 net acres across Oklahoma, including an interest in ~16,000 net acres in the STACK Play. The Tulsa-based company recently released preliminary 2018 full-year partnership production, which hit a record high of approximately 297,000 barrels of oil equivalent (BOE), up 33% from 2017’s total. Furthermore, Jericho cut operating expenses by 30% to about $17.00/BOE. At 42 Canadian cents per share, JCO is commanding a market cap of just $54 million.

Northern Oil and Gas, Inc. (NYSE American:NOG), which runs a non-operator model, also delivered record results in 2018. The company controls leasehold of approximately 157,000 net acres targeting the Williston Basin Bakken and Three Forks formations in North Dakota and Montana, and approximately 93% of its total acreage position was developed, held by production or held by operations. During Q4, production increased 117% over the prior year and 36% over the prior quarter, averaging a record of 36,258 BOE per day. Furthermore, lease operating expenses and general and administrative expenses were each down 26% per BOE from the prior year. For all of 2018, production increased 73% year-over-year, averaging a record 25,555 BOE per day. The company was profitable, generating net income of $143.7 million, or 61 cents per diluted share, reversing from a net loss of 15 cents per diluted share in 2017. Shares of NOG got more than halved from a 52-week high ($4.49) in October to an eight-month low at $1.87 in December. The stock is trying to make up some lost ground, trending back into the mid-$2 range as it closes in on a $1 billion market cap.

Lonestar Resources US (NASDAQ:LONE) is another that recently pumped out more oil than it had ever before in a quarter. Lonestar is an independent oil and natural gas company, focused on the development, production and acquisition of unconventional oil, NGLs (natural gas liquids) and natural gas properties in the Eagle Ford Shale in Texas. The company has accumulated approximately 78,193 gross (57,491 net) acres in what it believes to be the formation’s crude oil and condensate windows. For the fourth quarter, Lonestar reported an 81% increase in net oil and gas production to 13,152 BOE per day, compared to 7,272 BOE per day for the three months ended December 31, 2017. The company’s record production volumes exceeded its guidance of 12,600 – 12,800 BOE/D and were 80% crude oil and NGL’s on an equivalent basis. Lonestar reported net income of $75.2 million during 4Q18 compared to a net loss of $17.6 million during 4Q17, while citing certain non-recurring items in the big gain. Excluding those items, Lonestar’s adjusted net income for 4Q18 was $5.4 million, or $0.22 per basic common share. Lonestar has reiterated its previously-issued 2019 production guidance of 13,700 to 14,700 BOE per day for 2019, which equates to production growth of 27% over 2018 levels. Last July, shares of LONE traded as high as $11.24 before diving to a low of $3.41 in December. Shares are currently trading at $4.27, equarting to a market capitalization of approximately $105 million.


JAYANT BHANDARI East Asia: Future of Humanity

Irving Resources, etc.

I often wonder what the world would be like in the future.

I have written and spoken a lot about why the Third World (with the exception of China), erroneously known as “emerging markets”, is on its way back to the dark ages. These people representing 5 billion out of 7.5 billion human beings will fall into tribal units and then enter never-ending wars.

The West is stumbling. Cultural Marxism, an infiltration of the Third World ways—begging for free-stuff, sense of entitlements, etc.—have increasingly become mainstream in the West.

Today, one out of four Australians is an immigrant. Among the millennial, the US is rapidly becoming, and perhaps already has, a non-European majority country. This matters. One only has to look at how those from non-European background vote to understand that six years now, it will be virtually impossible for a person like Trump to win again. The wide chasm that exists between those who prefer liberty, freedom, free-markets and self-responsibility, and those who don’t means that at a certain point of time, in a not too distant future, the US will take a sharp turn left. The turn will be sharp, given the chasm.

That leaves Japan, Korea, Taiwan, Hong Kong, Singapore and possibly China as the only societies where the western civilization might survive. For now, it is thriving:

On investments…

Cory Fleck and I discussed three companies. They are all worth keeping a very close eye on. Irving Resources (IRV; C$1.90) has started drilling its very prospective project. Evrim Resources (EVM; C$0.30) is trading at the value of its cash and royalty ownership, offering a free upside on its projects and management capabilities. Core Gold (CGLD; C$0.24) has a massive arbitrage upside, but there are several unknown risks involved. The talk is linked here.

On other matters…

I am happy to announce that Fergus Hodgson will be speaking on the “Painful Truths about Latin America” at the next Capitalism & Morality. I am very fond of his deep understanding of Latin America. You can subscribe to his letter here.

I will be speaking at Mining Investment Asia in Singapore later this month.

Warm regards,

Jayant Bhandari

Associate: Rajni Bala

Disclaimer: All information found here, including any ideas, opinions, views, predictions, forecasts, commentaries, suggestions, or stock picks, expressed or implied herein, are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. While the information provided is believed to be accurate, it may include errors or inaccuracies. The sole purpose of these musings is to show my thinking process when analyzing a stock, not to provide any recommendation. I will not and cannot be held liable for any actions you take as a result of anything you read here. Conduct your own due diligence, or consult a licensed financial advisor or broker before making any and all investment decisions. Any investments, trades, speculations, or decisions made on the basis of any information found on this site, expressed or implied herein, are committed at your own risk, financial or otherwise.

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