Time to Deploy Capital in Gold?

by JDH on October 10, 2020

Last week I said Keep Your Powder Dry.  I also said this:

I assume that by Canadian Thanksgiving he will be back in the White House, on the road to recovery, and he will be able to say “this was serious, I should have been more careful, but even for a 74 year old obese male you can recover, so it was worth it to protect American jobs!”  The public will rally, and he will win.

Well, I was half right.  He was back in the White House well before Canadian Thanksgiving, but he didn’t get around to saying “I should have been more careful”.  We’ll know in a few weeks whether or not he wins the election (I assume so).

But back to my “keep your powder dry” comment.  Since the beginning of August gold has been in a downtrend, dropping from around $2,075 to $1,850, but that downtrend was broken on Friday (barely), gold had a big “up” day, and the RSI is at a perfect break-out level.  Should you “use your powder”?

Perhaps, but be selective.  October is traditionally a “turn around” month for gold.  It’s often the month where down trends end and uptrends begin, but it’s never a smooth ride.

So, pick the stocks you like, and put in your stink bids.

If Trump wins, the markets will be volatile.

If Trump loses, the markets will be volatile.

See the pattern?  It therefore is prudent to have cash available to deploy as needed.  I’m moving towards a position where I’m half in cash.  I’m not there yet, but it’s possible that that’s where I’ll be by the end of the month.  We’ll see.


And if you want to diversify away from gold and high tech, palladium is another metal to watch.

As this chart from kitco.com shows, an ounce of palladium is worth a lot more than an ounce of gold, and it’s had a long uptrend over the last five years.  It became over bought and, like everything else, crashed during the March crash, but it has recovered nicely, and is on track to make new highs in the coming months.

Palladium is used in cars, and has other uses, so in addition to being a “precious” metal it will also do well as the economy recovers.

The issue, of course, is how to play it; you don’t really want to be storing bars of palladium in your backyard.  (You could, but it’s not as easy to sell as gold or silver).

Consolidation in the industry has left few ways to play it.  One option: Palladium One.

It’s a junior, with a market cap of $22 million Canadian, so it’s small, but last week it announced impressive results.

I won’t bother to interpret them for you because I’m not a geologist, but

Palladium One is backed by Eric Sprott (who owns 21 million of the 126 million outstanding shares), and he is patient, and he’s also good at “talking his book”, so as additional positive drill results are released, this stock will do well.

Case in point: he mentioned Palladium One at the end of his podcast on Friday, and the stock was up 20% on the day.

Full disclosure: I own it (but nowhere near the holdings of Mr. Sprott).

Another note: if you review the company’s share structure you’ll see that they have 8.7 million options outstanding (at 10 cents and 15 cents) and 67.6 M warrants with a strike price of 12 cents.  If the average share price over ten days is 20 cents or higher, the company can force the conversion of the warrants.  That’s good for the company, because it allows them to raise over $8 million in capital, which gives them sufficient cash to drill and explore for an extended period of time.

But, of course, that will likely put pressure on the stock price, temporarily.  I don’t know who holds the warrants (it’s not me), but if I can buy something for 12 cents and immediately flip it for 20 cents, why not?  I’m not saying that will drive the price down to 12 cents, but it is a “head wind” to watch for.

My recommendation: under 20 cents it’s probably a good buy, and at 13 cents to 15 cents it’s a steal.  With a market cap this low, a mid-sized explorer could snap it up very easily, but even if they don’t, continued good drilling results will drive the price higher.

So, there you go, something to ponder this Thanksgiving weekend.

Have a good one, more next week.