Equinox Gold: Big Win, So Taking Some Cash Off the Table

by JDH on April 25, 2020

Back on February 15, 2020, in my post on Equinox Gold – New High – What’s Next?, I said this:

As of today EQX is not part of GDXJ, but I expect it to be added over the next month or two.  When that happens a new wave of buying is required to include it in the index, and up goes the share price.

This was not “insider information”; it was common knowledge.  Once a stock gets to a certain size, it is eligible for inclusion in various relevant indexes.

Well, it happened, as reported in this Equinox Gold press release:

GDX and GDXJ Index Inclusion

Equinox Gold is pleased to announce that effective at market close on April 17, 2020, the Company will be added to the GDX (VanEck Vectors Gold Miners ETF). On March 20, 2020, Equinox Gold was added to the GDXJ (VanEck Vectors Junior Gold Miners ETF).

“Equinox Gold’s inclusion in both the GDX and GDXJ is a milestone for the Company, reflecting successful execution of our growth strategy,” said Christian Milau, CEO of Equinox Gold. “Listing on the NYSE American and graduating to the Toronto Stock Exchange last year, coupled with the increased scale of the Company following the merger with Leagold Mining this year, have significantly increased the Company’s liquidity and market visibility, bringing additional trading flexibility and value to our investors.”

Yup.

Unfortunately on February 15, 2020 I didn’t realize that the markets would crash a month later.  The peak in Equinox arrived exactly two months ago, on February 24, when EQX.TO – Equinox Gold Corp., my largest gold holding, traded as high at $13.50.

And that was it.  By mid-March it had lost half of its value, trading below $7.

When the market crashes, everything gets crushed.

If you get a margin call, you have to sell whatever you can to cover, so often it’s the good stocks that get sold, and that’s what happened here.

I didn’t panic, I didn’t sell, I held, and I’m glad I did, because this week I was able to sell some shares for $11.75.  Not the peak, but that’s a lot more than I paid for them, so I’m satisfied.

So why am I selling?

I’m not selling everything.  I’m lightening up.  I am now around 50% in cash.  I still hold a position in Equinox, but the market has recovered a big percentage of its losses, and markets don’t go up in a straight line, so it is logical to assume that there could be further weakness ahead.  “Sell in May and go away” is a common mantra, and it may prove true again this year.

COVID-19 is not done yet.  Some states (like Georgia) are re-opening, as are some provinces (Saskatchewan will be the first, because they have few cases, and a widely dispersed population), but big cities like Toronto and New York will not be back to even close to full operations before September.  That should keep the market somewhat compressed.

My guess is that the markets need to retest the lows, or at least get close to them, before they have a base on which to rise.

I do expect new highs.

I expect new highs before the US election in November, and I would not be surprised to see new highs before Labor Day.  But I expect the markets to fall before they go higher.

So, on days of strength, like we had this week, I’m “culling the herd”.  I’m raising cash.

If gold explodes upward, fine.  I’ve still got a position.

But with Equinox, they are now in the indices, so that bounce has happened.  Mining activity is slow, so there is no other impetus for a move higher in the short term, so I will bide my time, hoard my cash, and wait for the next buying opportunity.

That’s the plan.

See you next week.