There are, once again, bubbles everywhere. US markets are at all-time highs and Japan is at a thirty-year high, according to David Scott. Government bonds (as opposed to their yields) aren’t far off all-time highs and - importantly - the returns are minimal if not negative. Traditionally, that would be a warning sign that all is not well – normally when one is high the other is low. But these are no normal times. The cause is all that money-printing.
In the FTSE-100, apparently safe plays are held to ransom by lockdown after lockdown and this wretched government’s inability to stick to a decision. The High St is closed and seems set for almost permanent closure – the winner being Amazon, which (in case nobody has noticed) is a US company so the Treasury won’t benefit at all; pubs and restaurants are closed and vast swathes of them will disappear once the furlough scheme is finally wound in. I have said it before and I’ll say it again: this is not a backdrop conducive for growing a business. Indeed, it is a recipe for further carnage. Right now that devastation is being kept from view by Rishi Sunak’s furlough scheme, but the unemployment will come – and it will be terrible. Then there are the small matters of currency debasement, government debt, corporate debt and inflation. It seems for now - like the cash running out amongst AIM-tiddlers - that Mr Market has forgotten about that.
We currently don’t see inflation because it doesn’t get included in official (twisted) figures like CPI inflation, but it is there. Soon it will feed through, and when it does I fancy the stock market will take a very cold shower as reality bites. So call me a bore, but as per last year, my view is that anything to do with Gold will go up. We are through the correction which set in at the beginning of August with the yellow stuff at an all-time high of $2063 per oz, and the market put in a low point of $1762. But the price has recovered somewhat, putting in an all-time year-end high of $1898. ShareProphets’ favourite technical analyst Jordan Roy-Byrne of TheDailyGold.com reckons the correction is over and precious metals prices will grind higher. There is big resistance overhead for Gold at $1900-1925 or so and it may take a while to clear that. And of course there is now the all-time high at $2063. But his view is that those hurdles will be overcome and the Gold price could move to the mid-to upper $2000s – even $3000 – over the coming year or 18 months. Roy-Byrne is annoyingly right so much of the time and I hope he is right about that. But even a more modest target of, say, $2250 would transform Gold stocks. But there is another part to this: many people hold bonds to counterbalance equity risk. But bonds are largely offering negative yields whilst equities are at all-time highs. My thinking is that some will move out of bonds and into Gold because of the improvement to the yield prospects – after all, zero is better than a minus! I’m not suggesting a complete exit from shares in general, but it seems to me that Gold remains a sure-fire bet for the foreseeable future.
My biggest gold-holding is still Ariana Resources (AAU). Shareholders passed the corporate deal with Ozaltin with a 100% majority and next stop is completion, followed by the long-awaited special dividend of perhaps 0.7p. The Kiziltepe plant is being expanded, Tavsan is waiting to move into construction and the Salinbas project should take more shape over the next 12 months. But Ariana will have boat-loads of cash and I fancy CEO Kerim Sener has something up his sleeve for some of that. At 5.15p and up to 5.5p I still rate the stock a buy, with an initial target of 7.5p. My second largest holding is Golden Prospect (GPM). The stock is now 53.5p against last stated NAV of 66.18p – a discount of a very tasty 19.2%. That, surely, is a buy too – and if gold moves sharply upwards I suggest that Golden Prospect will outperform heavily, with the bonus that the discount to NAV will close which is why it was my first tip of the year for 2021. I still have my holding in Centamin (CEY), which I still see as a buy at 123.7p. It promises a final payout of 3 US cents to add to the interim 6 cents, and a minimum of the same next year which means if offers a yield of 5.4%. But production improvements, cost savings and rising gold should see that yield move upwards and I still reckon we will see £2 per share this year. I also continue to hold the Junior Gold unit trust, GDX and GDXJ ETFs and Standard-listed Panther Metals (PALM) which is a speculation, but the upside could be spectacular. As previously mentioned, I sold my holding in BlackRock Gold and General unit trust. I still rate the fund very highly and expect to move back into it in due course, but right now I want to position myself to make the most of another bull-run in the yellow metal and in my view that means smaller stocks, explorers and those heading into production. So I expect Golden Prospect and Junior Gold to do extremely well, and to heavily outperform the BlackRock fund in the shorter term. But if I am right, it will then be time to shift back into the BlackRock fund as I look to lock in profits from more volatile plays. Let’s see how that plays out.
Filed under: gold, Trainline, IDE Group, Great Western Mining, shorted shares, TomWinnifrith.com
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