Much mooted, more misunderstood: The case for "Real" assets

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Much mooted by many as the “digital, gold alternative”, Bitcoin was sold off by as much as 40% during the week.

Does that mean some of that released money will now find its way back into traditional “safe haven” assets, gold and silver?

Back in 2022, we sat in a Melbourne Mining Club lunch presentation by the AngloGold Ashanti CEO, who had slides about bitcoin absorbing a lot of capital that would usually go into gold.

(the fact that a major gold company CEO spoke about bitcoin diverting funds away from gold lives rent free in our heads)

Either way, it’s been another week of extreme volatility for gold and silver, with vertigo-inducing swings up then down, then up and down (and last night up.. a lot).

In the midst of this violent price discovery, small gold and silver stocks have seen some spooked investors leave the building on Friday.

(Despite the wild swings, gold and silver are gyrating at historically high levels. We think once the market settles on a “new normal” higher price range, the precious metals juniors will run)

During the week, we saw a sell off in big US tech stocks.

First because everyone suddenly thinks AI will kill traditional “software as a service” businesses.

...then later, OTHER tech companies that are building said AI got sold off because they were spending too much on building... AI.

(damned if you do, damned if you don’t - what on earth do people want?)

And when the tech heavy US market sees a sell off, the ASX sells off too.

And small stocks are no exception (in fact, they get hit hardest).

Nothing to do with fundamentals of any stock - just fear overtaking greed for the day.

On a positive note for next week, overnight everything seemed to sort itself out and went up.

At session close a few hours ago, Bitcoin ended up ~14%, silver up ~10%, gold up ~4% - extreme sized swings.

US Dow was up 2.5% and NASDAQ up 2.18%.

C’mon ASX on Monday...

Sentiment forecast: We are expecting the wild daily swings to continue...

On another positive note, this week, there were a lot of major announcements in the US critical metals space.

Including a US$12BN critical minerals stockpile commitment and a speech by the Vice President of the US (JD Vance) laying out a blueprint to rebuild critical minerals supply chains.

More on all that news in a second.

But first...

As we said earlier, once the markets finally decide on “new normal” prices for gold and silver...

(We expect it to be much higher for both and the swings in the meantime to get there will continue to be big in both directions)

We think ASX gold and silver juniors will be the next batch of stocks to move.

Especially the juniors with existing deposits (that could get even bigger)...

In mature regions surrounded by mines, close to existing processing infrastructure...

Sitting on Mining Leases... with realistic pathways to monetise their gold resources in a high gold price environment.

That’s why this week we added BMG to our Portfolio.

BMG owns 100% of a WA gold project with:

• 518k ounce gold resource (gold is currently at ~$6,850 per ounce - drilling to grow this resource starts in ~8 weeks)
• In the famous WA “Northern Goldfields” gold region hosting many, multi-million ounce gold deposits.
• Sitting within trucking distance to two giant mills - with one mill owner planning to raise $200-300M via a ~$400M ASX listing and has publicly stated they are looking at “growth initiatives, and/or corporate transactions”. (and BMG already has a toll treatment MoU with them - more on this in a second)
• “Scoping study into a potential low-capex, fast payback mining proposal” due this quarter
• and the “moonshot” exploration theory - BMG says the project could host a similar style deposit to the $2.5BN, 2.1M ounce “Never Never” discovery made by Spartan Resources.
  

(source)

Oh, and that other project, BMG has in WA - the owners of the neighbouring 4.5M ounce gold deposit themselves are interpreting their orebody to trend into BMG’s ground:

(That image overlayed on the right is from Minerals 260, source, source)

BMG expects to be drilling in 8 weeks time and has a “Scoping study into a potential low-capex, fast payback mining proposal” on the 518K ounce resource due this quarter...

We will be listening into management's plan in the webinar on Tuesday, 10th February at 12:00 AEDT..

Read more: Our Latest Investment: BMG Resources (ASX: BMG)

Our take on market volatility - what’s noise and what has fundamentally changed?

Yesterday was one of those days you just throw your hands up and step away from the screens 10 minutes into the open.

There was no point suffering in the unrelenting seas of red.

(Monday looks like its going to be big green though, a day to stare at the screen without blinking)

Most things on the ASX got sold down after a pretty rough mid week on the US markets.

But what's driving the selling?

AI apocalypse? Bitcoin being down? swings in the gold/silver prices?

We think the volatility has nothing to do with fundamentals for any macro thematic.

We think it’s just a washing out of leverage from parts of the big end of the market - which inevitably creates fear and forces selling in the smaller end of the market.

The reason the small end sells off is that the part of the market we play in is probably the purest form of markets - where there are real human buyers and real human sellers, and leverage is low but emotions are high.

When everything else is down, the humans willing to buy small stocks step away from their screens, the ones that want to sell (or were on the fence) smash the sell button... and it can cause some pretty harsh, downward daily moves.

We have seen it happen hundreds of times before (even during the most frothy parts of the 2020-2021 bull market).

We think the fundamental picture for most of the macro thematics we have exposure to have actually gotten a lot stronger - and once the short term negative sentiment is gone we think the market will play on from where it left off.

(Of course we could be wrong too)

Here is why we think the fundamentals are only getting stronger:

US critical minerals had, possibly its biggest week yet

First, on Monday, February 2nd (US time), the Trump administration announced it would pour US$12BN (~A$17BN) into a US critical minerals stockpile.

(source)

We remember last year, when the US government announced a $1BN commitment to stockpiling, the market lost its mind about how much that would impact the market.

Now that commitment has been 12x’d...

The market decided to sell off critical minerals stocks (and most other small stocks) because the US market sucked the night before...

The announcement and news specifically mentioned:

• US$12BN funding initiative to launch a critical minerals reserve which includes - a US$10BN in the form of a loan from EXIM over 15 years (the largest in its history) and US$2BN in private sector investment.
• Commitments from companies like Clarios, GE Vernova, Western Digital, Boeing, GM, Stellantis and Alphabet to purchase specific quantities of material at pre-determined prices AND for them to replace whatever they use from the strategic national stockpiles.
• A focus on minerals like: gallium, cobalt, lithium, nickel, antimony, tungsten, indium, rare earth elements plus silver (basically everything that has been included on the US critical minerals list).

Here are all of our critical minerals stocks with projects inside US borders: VKA, LSR, AW1, LKY, RML,GGE, PFE, MAN, SS1, BKB.

Then the US Secretary of State Marco Rubio hosted a Critical Minerals Ministerial “with partners and allies” (over 50 different countries) centered around a “whole of supply chain” fix for the critical minerals in the West....

Trump’s Vice President, JD Vance’s speech, stole the show though...

Here is a link to the full speech: Vice President JD Vance Delivers Remarks at the Critical Minerals Ministerial

And here is a 3.5 minute clip that made the rounds on X:

(source)

For those who would prefer to read, here are some of the comments from Vance that really caught our attention:

3:25:

“I think a lot of us have learned the hard way in some ways over the last year how much our economies depend on these critical minerals. So, every man and woman, I believe in this room understands what we're confronting together today.”

5:44:

“Now, across Europe, North America, there are dozens of mining and processing initiatives that have been suspended or completely abandoned because sustained price weakness makes financing impossible”

7:30:

“We should have the kind of global markets, the kind of domestic markets that reward long term planning, that reward strategic thinking, and that's exactly what we're trying to do”

“We all face the same vulnerability, access to the things that protect our people and sustain our way of life. Everything from missile defense systems, to energy infrastructure, to advanced manufacturing, to emerging technologies, the fundamental supply chains that support these industries”

10:12:

“We've mobilised public financing tools at an unprecedented scale, providing up to $100 billion in lending authority for critical minerals to the office of strategic capital. We've overturned old orthodoxies and taken direct stakes in high value mining and processing companies”.

10:53:

“And on Monday, the Trump administration announced Project Vault, America's first ever domestic critical minerals stockpile. With these moves, we intend to build an ironclad network

of new industrial supply chains to span the entire nation. But we seek to make sure our friends and our allies are part of this and that you all are covered as well”.

It really was a powerful speech, if you have any interest in the US critical mineral macro thematic, then it's definitely worth a listen.

Just take a look at how the mainstream media headlines covered the event:

(source)(source)(source)(source)

After listening to Vance’s speech what is clear to us is just how early we are in the US critical minerals macro thematic.

The US seems serious about building a whole new supply chain out of nothing, which we think won't be a 6-12 month fix.

We are probably coming out of the planning stage now, where multi billion dollar commitments/announcements get made.

The next 3-5 years (and possibly longer) will be the execution phase, where the cash gets deployed - flowing into companies, bringing projects online and so, slowly an alternate supply chain gets built...

In fact, Vance even mentioned that despite all of the backing the US government has given the industry to date, capital just hadn't reacted yet (implying there is a lot more work to be done to get projects off the ground).

Tying all of that in - where are we in the US critical minerals macro thematic?

This is probably a non-consensus view in the market - but we think we are still fairly early... maybe just about to enter stage 3:

Again, here are all of our critical minerals Investments with projects inside US borders:

• SS1 - Silver, Antimony in Nevada
• BKB - Silver in Texas and gold in Nevada
• RML - Gold, Antimony, Tungsten in Idaho
• LKY - Antimony and rare earths in California
• ION - Critical minerals recycling & a rare earths deal in the US.
• AW1 - Indium in Utah, copper in Canada
• VKA - Tungsten in Nevada
• MAN - Lithium, Uranium in Utah
• PFE - Silver and antimony in Arkansas
• LSR - Heavy rare earths in Arizona
• GGE - Acquired an option on a silver-antimony project this week.

How about gold & silver?

First on silver...

When silver was running hard up to US$120 we thought we were well on the way to entering “stage 4” on our 5 stages of a macro theme model.

Then silver quickly came down to the mid $70’s, poured a big bucket of cold water on sentiment (aka greed and FOMO), and pushed us back into stage 3.

The market needs to be convinced that this silver price rise is real - to find a “new normal” price range.

This could take weeks or months to find.

Or it might go to new highs... or even go down some more.

After the pullback, we think we are somewhere near the middle of stage 3 right now.

(We are still expecting a serious silver mania to come)

We have said before, but we don’t think stage 4 for silver comes until the silver price finds a new floor (at a higher level) and the market believes the move is sustained.

Once the market believes in the rally and re-rates silver stocks more broadly, stage 4 starts.

So now, it's all about waiting for the silver price to stabilise, so that valuations adjust to the perceived “new normal” price for silver.

As for gold...

Gold had its repricing moment when gold ran from US$3,000 to US$4,000.

Most of the mid cap gold stocks re-rated to valuations that consider a US$2,500-3,000 gold price as the perceived “new normal”.

BUT since then, gold has gone up even more to US$5,000 per ounce (and is now trading slightly below that level at US$4,966/oz).

We think that means there is likely to be another leg up for the market to price in maybe, US$3,500 or US$4,000 per ounce gold as the “new normal”, which hasn’t happened yet.

There is also the real possibility of another leg up in gold prices.

There are still a few big catalysts that could play out that trigger that run - they are long shots, but we aren’t discounting them completely...

Things like the debasement trade (a devaluing US dollar which pushes the price of gold up), and a potential shift in global reserves from the USD to something else (like gold).

(Why is China's central bank stacking physical?)

(source)

These days it feels like there is always some major global incident around the corner to freak everyone out... and into gold.

While gold may look like it's already run hard, we think there are rational, fundamental reasons that may trigger a more aggressive rally.

IF/when that happens, we expect to see an aggressive broad based rally in the junior gold stocks - which is why we added BMG to the Portfolio this week.

(We are still looking for gold and silver opportunities and have had a few very interesting ones come on our radar in the last 7 days - so send through any you think we should look at).

So, for gold, we think we are somewhere here in our macro investment theme lifecycle model:

Gold actually finished up overnight - just below that US$5,000 per ounce level and silver also finished in the green - so the Monday open on the ASX will hopefully be a lot more positive relative to yesterday.

(source)

Here are all of our gold Investments - TTM, KAU, BKB, RML, MTH, AVM, BPM, PUR, TG1, LSR, L1M.

And here are all of our silver Investments - SS1, IVR, BKB, MTH, RCM, WCE, AVM, PFE

See our updated gold/silver eBook here:

See you next week and have a great weekend

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