Yesterday afternoon, John and I agreed that for today’s article, I should cover bitcoin, given that the cryptocurrency is looking so strong.
Then, almost as we were talking, gold broke the $2,000 barrier. It’s a historic moment – so gold it is. How could it not be?
Gold looks unstoppable – but just be aware that big round numbers can be tricky
There is no stopping gold at the moment. I thought it would meet with resistance at $1,920 an ounce – its old high. In fact, I had a spreadbet on gold and because of that supposition or target – whatever word you want to use – I placed a limit of $1,915, just below the old high. It went through that number like it wasn’t there, and here we are, barely a week later, and we are over $100 higher.
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Bull markets are amazing things. You make a lot more money if you don’t try to second-guess them. We could be several hundred dollars higher in a matter of weeks the way this thing is moving.
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I looked at Fibonacci extensions last week. They gave us targets – using round numbers – of $2,260, $2,360, $2,465, and $2,800. The way things are at present we might hit these in just a few weeks.
Charlie Morris over at Fleet Street Letter is talking $2,700. Bank of America is saying $3,000. No doubt some of the big-gun gold bugs are about to get into a prediction war – $5,000, $10,000, $20,000. For now, I’ll happily take my relatively modest extension targets.
In order to temper our irrational exuberance it is worth remembering what happened last time gold went through a large round number – the $1,000 mark. The year was 2008 and gold had been off on one of its runs; things were moving fast; there was a prediction war – you get the point. A lot of the same exuberance was flying about then.
In fact, the chart action is remarkably similar. In September 2007, gold broke out above its old high of $720 and then went pretty much straight up for the next six months. In March 2008 it broke above the $1,000 barrier for the first time in its history, hit $1,033, and then collapsed. By October it was back below $700. And it took another year to get back above $1,000.
Roundnumber-itis can be a funny thing.
Investors are so bullish that even Aim gold miners are going up
The big money has been made in the junior mining companies. I never thought I’d hear myself saying that again. But in Australia and Canada especially, they have been rocketing up: doubling, tripling and more. Even companies with known warts and bent management have been fetching a bid.
This is how ignited this bull market is: even some of the junior miners on Aim are moving. Aim is a horrible market in my view: illiquid, with such wide spreads between bid and offer that any profit is eaten away by the market maker taking his cut, nomads who don’t understand the company they are supposed to be representing. I could go on. (For a good guide to all this jargon and Aim trading in general, check out this excellent MoneyWeek piece from Michael Taylor).
But at present there is more value to be found in Aim juniors than there is Canada. That happens in bull markets – you start looking further and further down the food chain, and Aim is a lot nearer the bottom than it is the top.
For example, Greenland mining operation AEX Gold did a £42.5m IPO on Aim on Friday. It is looking to put an old underground mine back into production, hopefully by the end of next year. What’s interesting to me about the deal is that AEX is already listed in Canada. But it chose to raise money here in London (where it has quite a big following). The listing more than doubled its share count, and 53% of its shares are now on Aim. It would be more if AEX had made its £45m target, but it fell a little short (surprising in this market).
Word is that plans were already afoot to list on Aim when the Venture Exchange in Canada, after years of slumber, finally woke up in the spring. But it is still promising for Aim junior mining investors that a company like this has chosen to list here.
I don’t the own stock but I have watched interviews with its very (for mining) young CEO Eldur Ólafsson and there is no doubt he is impressive.
My current favourite Aim gold play – and this is one I do own stock in – is Altus Strategies (LSE: ALS), which operates in various countries in Africa. It is what you would call a project generator. Instead of owning one or two assets and exploring them, it owns multiple assets which it farms out in joint ventures, royalty deals and so on, getting others to pay for the drilling and development. It means it is better positioned to weather difficult markets.
I know CEO Steven Poulton of old and I and participated in the IPO back in 2017. The company has made extraordinary progress since then. One of its milestones came last week when it announced a PEA (preliminary economic assessment) on its Diba project in Mali, which it took over from Legend Gold when it acquired the company a couple of years back.
Independent consultants calculated a pre-tax NPV (net present value) of $115m assuming a $1,500 gold price, and $167m at $1,800. By comparison, at 45p a share, Altus has a market cap of £31.5m (70 million shares outstanding).
Altus is undervalued against the asset alone, and there are seven further targets within 7km of Diba, let alone all its other projects and royalties. It also has about £10m of cash and securities.
Altus is now also listed in Canada (ALTS.V) and has several billionaire backers including Ross Beatty and Eric Sprott, who, between them and the management, own 55% of the shares. They participated in the same IPO as me – that was, after consolidations, at 50p. It is still trading below that level today.
Why is it so cheap? Two reasons I’d say: one is Aim; the other is the business model – project generators, with a portfolio of assets, are never quite as easy a sell as single-asset focused companies. But if the company continues to make progress on the ground, then market recognition will soon follow, particularly in this market – even on Aim.
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