In this months newsletter the following is discussed and will be the focus of articles:
- New speculative investment in Gold and Uranium.
- Update of the AA watchlist.
- Gold market analysis in the face of the surging? economy.
1. Gold and Uranium. The Asymmetric Advisor is still in. its infancy as an advisory newsletter, so we don’t have a lot going on yet, but I believe we’re off to a great start. This month I’m looking to add to new issues to our portfolio, one is a producer, the other is a royalty.
The producer is Agnico Eagle Mining (AEM). I brought it up for the first time in a veiled way, as my number one pick of the miners out there most likely to acquire Gold Standard Ventures (GSV). As you know, GSV was our first speculative investment, and has done spectacularly well since we acquired it. Recently I pointed out Agnico as a miner I would want to own. Why is that? Well, besides the fact that they are one of the biggest gold producers in the world (market cap: $13.9B), and a first-class operation, they are one of the only producers out there that has ZERO negative SWAP lines (read this post on why we like SWAP Lines). In other words (one of our key criteria), not a single one of their holdings is at risk in terms of being inside a preferred central bank with a tight relationship with the federal Reserve. This minimizes the risk of Agnico from losing a mine in a country that might decide to nationalize it, and simply take it away. This would never happen in a country where we share a SWAP Line.
Agnico is a great company, they have a small but growing dividend, and at under $60 they are a good value for a first tranche. I would prefer it at $30, and had this newsletter been more mature during the bottom of the market in mid March 2020, I would have shouted from the roof tops to acquire tranches 1 through 3 of 5. That being said, I wouldn’t add to the position unless Agnico dropped significantly in price. This chart shows the levels I would wait for.
Our next speculative investment for June will get us footing in the nuclear market with a uranium royalty company called, wait for it…Uranium Royalty Corp (URC). Love those unambiguous company names. URC recently went through a successful IPO last year, and as per the deal there will be approximately 19 million shares coming available to the public. About 7 million of those shares are held by company insiders, so the remainder is held by speculators from the IPO, many of which will be looking to execute their exit strategy, especially after getting spooked by the huge pandemic induced price dip.
What this means is there will likely be a lot of selling which will drive the price down. At least that’s what usually happens when a bunch of people sell a bunch of stock. This is our opportunity to grab some URC at a very nice price, perhaps even a better price than the people who bought into the IPO. So, the deal is to wait for a price worth digging into. The current price on the Toronto Exchange is about $1.09 and on the US Over the Counter market at about $0.81. When you do the math, this is very close, if not under book value of all their holdings.
The plan? I would wait for lower prices than what I just quoted, and start with a first tranche position.
Uranium is one of those natural resources that the US Government considers of national security level importance. And as such, they keep very close tabs on the supply, demand and import and export. There was an updated report on uranium done a year ago in April of 2019, but it doesn’t yet show up in the Bureau of Industry and Security’s website. There was a lot of speculation on whether there would be stricter guidelines on quotas, which would materially affect the market price of Uranium. Anyways, here’s the link where you would monitor such reports.
By the way, Uranium is one of those commodities with National Security implications, that also has the greatest degree of negative SWAP Line exposure. Not a good position to be in. Hopefully that will be rectified in the near future.
2. The AA Watchlist. This is a list of speculative and Investment quality plays that I’m interested in, and hopefully you are too. If you are wondering about the difference between a Speculative and Investment play, please read the following Member Guide. The guide introduces the tactics and strategies of the Big Idea Portfolio Framework, which I will go into more depth this summer as we explore how to implement the Dragon Portfolio. You might want to review the May 16th Webinar where I discuss the Long Volatility strategy part of the Dragon Portfolio, or the May 2020 Part 3 of 3 newsletter where I show how the Dragon Portfolio model works.
The companies in this spreadsheet are companies that I have either actively invested in, or recommended that you invest in them, or they are companies that I’d like to own if at the right price. I’m not going to put all those details here in this report, instead I’ll map out a plan of acquiring each of these in separate advisories or inside the Discord channel. I’ll just keep going forward with this process of research, Identify, Discuss, Recommend. By the end of the Summer of 2020, we should have a nice portfolio defined for members to shoot for.
3. Gold Market. As you know I provide a continuous stream of my analysis of the stock and commodities markets, as well as my take on the geo macro economic and political condition in the various channels on the Trader of Futures Discord server, as well as in my YouTube account. Please subscribe, and comment as often as you can on the YouTube, as engagement is the number one factor in a channel’s growth.
I’ve been talking about the Gold neckline at 1750-1770 (necklines are hardly ever well-defined), that if it didn’t get above the neckline and hold it for a while, then I don’t see a positive short or near term future for Gold. So far, Gold has been unable to take 1750 and remain above it for more than a few hours or days, then it drops down to form over the past 2 months a fairly regular channel between approximately 1670 and 1770. See the chart.
A lot of people think gold should rise based on the supposed increased inflation, due to the massive spending from our government is doing in the face of this pandemic and lockdown. And while it’s true that Gold has shown to be an excellent hedge against inflation, when it’s present, the fact is that there simply isn’t any inflation right now with so many people out of work, and the entire nation on lockdown, with the velocity of money near a standstill. In fact there’s massive deflation, which is evident from the PMI and ISM manufacturing reports that show massive contraction.
Gold simply is doing one of its main things, acting as a store of vale against the tide of a depressed market. Over the long-term Gold tends to stay constant relative to the larger market. And when inflation hits, Gold tends to hedge it. But until we get the economic gears turning, get people back to work, manufacturing pushing out goods, and domesticate global supply chains, I don’t see inflation coming.
In fact, I see Gold pulling back some, creating a massive divergence, where I believe the stock market and overall economy will recover. Then this divergence will build up incredible energy, so that when it finally lets go, Gold should surge in price. And when gold surges, Gold Royalty and Streaming companies surge even more, so that’s where we want to be.
