Methology for a Golden Strategy

For some time, I have been advising participation in the precious metals in preparation for higher gold and silver prices driven by uncertainty in the global markets, and in preparation for the eventual transition of the current Currency Reserve (CR), as Marc Carney warned about in his last speech at Jackson Hole in the fall of 2019. It is my speculation that once again history will repeat, and gold will be at the core of that change, rewarding investors that properly position through the transition. This is how I have been implementing my gold strategy.

I manage two segregated portfolios, the Equity Income and Special Opportunities, one designed to deliver dividend income and equity preservation and the other as a stand-alone solution for Family Offices and high net worth individuals looking to gain exposure to precious metals sector. Both portfolios give exposure to PMs with one 20% and the other 90% allocated to the sector, with stock selection based on the following criteria’s; low cost producers, with good management, high reserves on the ground, in geopolitically safe areas. Furthermore, I have benefited from Canaccord’s resources in this sector as our gold team, both research and banking, are constantly looking for opportunities in this still under owned sector.

The core of my PM strategy is composed of low cost producers and royalty companies that I began acquiring in 2015, like my then BNN Top Pick AEM which had reached a low in the mid $20s. These producers will, and have, deliver levered earnings increases as gold continues to rise, with the bonus of increasing value for their reserves on the ground. Furthermore, I suspect that the new dividends that have sprouted since 2018 are but the beginning of good things to come as well as a great confirmation that history is repeating. 

The next step was to take advantage of the great growth we have seen since 2015 from our producers, with AEM now sitting in the high seventies as well as few takeout’s along the way  such as NPL and DGC. This liquidity allowed us to add a few gold properties that had been mothballed since gold last stood above $1500. Companies in this sector could be prime for an easy takeout considering that on average we paid $5 per ounce on the ground, and in 2012 these were trading above $150.  Lastly, I have been adding good quality exploration plays in order to take advantage of the drought in global exploration resulting from low PM prices. As prices rebound, global exploration has once again roared to life being led by some of the best geological teams, offering early entry points into some great prospects. Most of these picks have been brought to us by Canaccord’s capital markets team.

So far, the strategy I laid out four years ago is working, with the producers delivering equity growth to acquire new considerations. Furthermore, I speculate that this bull market is just getting going as very few investors are currently participating, reflected in the fact that participation in the sector is still anemic among institutional and retail investors.

Going forward I continue to advice caution due to the signals being given by the fixed income market, especially the REPO market, which continues to signal that something is not right; in early 2008 REPO rates signaled trouble ahead when rates jumped 50% from 4% to 6%, this time they jumped from 2% to 10% immediately forcing the FED to restart monetizing their balance sheet. I think caution and some hedging is advised for 2020.

Here is link to the entire 45 min interview; FULL INTERVIEW

The best way to follow my views and opinions is to follow me on either twitter @IJCarrasco, or on the blog I keep at linkedin.com/in/carrasco1.

Companies mentioned;

Past Picks; $NPL $KL $VLNS

Top Picks; $VET $FVI $GEI

Calls from viewers; $GOOS $PG $PDL $LUG $LABS $PDL $KL $VGW $AR $AGI $OGC $CCO $OR $YRI $AU $VET $FVI $GEI 

This newsletter is solely the work of the author for the private information of clients. Although the author is a registered investment advisor at Canaccord Genuity Corp. (“CG”), this is not an official publication of CG and the author is not a CG analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone and are not necessarily those of CG.