Gold Moves up on Rates as Well as Mid-East
Contributed Opinion

The gold price has moved up $100 since the horrific events of last weekend, partly, of course, out of concern about a spreading conflict. There are also significant ramifications to the conflict, apart from the human misery. The war has, at best, delayed Saudi Araba's rapprochement with Israel (was that what prompted the timing?) and, with it, a close military alliance with the U.S., which promised more oil to the West and support for the dollar. But geopolitical rallies in gold tend to be short-lived; think of the less-than 2-month move after the Russian invasion of Ukraine.

Monetary matters tend to be more important to gold, and this past week saw the failure of three Treasury auctions, the three-year, 10–year, and 30-year. We are not alone in pointing to the large increase in Treasury issuance coinciding with a lack of demand from traditional buyers (the Fed, China, Japan, and Russia, as well as U.S. banks).

Treasury issuance is increasing not only because of the widening deficit and the backlog of Treasuries from the debt-ceiling-related pause earlier in the year but also because nearly 30% of all outstanding Treasury will mature in the next 12 months and have to be rolled over. These events perhaps show that the Fed has lost control of the narrative.

Many commentators think that the Fed will be forced back into the Treasury market as buyers, and at any rate, the probably of a rate hike next month has dropped to just 7%, down from 30% a few days ago and over 50% in mid-September. We are clearly coming close to the point where the Fed can no longer tighten even as inflation stops falling. Just as the softening in the oil price in the second-half of 2022 and the first-half of this helped bring down the inflation numbers, so too the 30% increase in the last three months will flow through to the price of virtually every good in the stores. A weakening economy and widening budget deficit will prevent the Fed from raising rates more in an election year, even as inflation remains stubborn. The acknowledgment of that confluence will spark the next bull market in gold.

Gold Company Production Numbers for Third Quarter Are Mixed

Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) reported mixed operational results below consensus. Pueblo Viejo had expansion ramp-up difficulties, while the Carlin mine reported lower grades.

Although both gold and copper production showed increases in the prior quarter, and the company has indicated higher production in the fourth quarter, it is unlikely it will be sufficient for it to reach is annual guidance.

Similarly, though cash costs are expected to have fallen from the second quarter, they remain above the company's annual guidance. Barrick will release its full quarterly financials at the beginning of next month.

Barrick To Restart Porgera, Possibly by Year End

Separately, Barrick has been granted a mining lease for its Porgera mine in Papua New Guinea, clearing the way for a restart of the mine that has been suspended for three years. This follows arduous negotiations between the company and various others, including landowners. Once compensation is agreed with landowners, the mine can restart, probably before the end of the year.

Under the revised agreements, Barrick and its partner partner, Zijin, will own 49% of the mine and be the operator. Barrick's share of production could be as much as 250,000 ounces per year, making it the company's 10th largest mine. At present, Barrick has excluded Porgera from its 2023 and five-year guidance.

Barrick, up 15% in the last ten days, remains a Buy.

Osisko Production up on New Royalty

Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) reported record quarterly revenue, boosted by initial contributions from its new CSA royalties. However, both production and revenue were somewhat below expectations. The Renard diamond mine will not generate any reportable revenues for its shareholders in the last quarter, Osisko said, due to the decline in diamond prices.

The company ended the quarter with cash of $71 million and net debt of $245 million. Osisko will release its full quarterly financials next month. Osisko may meet its annual guidance, though likely at the low end. Osisko has a strong pipeline of development assets over the next several years. We are watching, however, to see who becomes the next CEO and if there are any signs of a slowing in the move toward becoming a more traditional royalty company.

Hold.

Royal Sales up on Reduced Inventories

Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) reported its third-quarter steam results, slightly lower than the prior quarter but above expectations.

Higher copper sales were responsible for the beat to expectations, boosted by reduced inventories. Streams represent about 70% of the company's total GEO production.

Royal is a Buy.

Pan American To Resume Mine, While Orogen Does Another Deal

Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) will restart operations Monday at its La Colorado mine after a brief suspension following an armed robbery of concentrate.

The theft and week-long suspension of activities is not expected to affect annual production.

Buy.

Orogen Royalties Inc. (OGN:TSX.V) continues its streak of getting deals on its properties, with junior Rackla exercising its option on the Astro project in the Northwest Territories in exchange for shares and a 1% royalty.

Given the shares' recent volatility, we will hold for now.

TOP BUYS THIS WEEK, in addition to those above, include Nestle SA (NESN:VX; NSRGY:OTC), Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), Midland Exploration Inc. (MD:TSX.V), Lara Exploration Ltd. (LRA:TSX.V), and Nova Royalty Corp. (NOVR:TSX.V). If you do not own top-quality companies like Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE), Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE), and Altius Minerals Corp. (ALS:TSX.V), you can take starter positions now.

In general, because the gold stocks are up following bullion on the back of the Middle East war, we do not want to chase prices in the near term. But equally, given that we are coming increasingly close to the point where the Federal Reserve will stop tightening even as inflation remains stubborn, the point that will serve as a trigger for higher gold prices, we want to make sure we have some exposure to the best companies.

UNPROFITABLE COMPANIES According to Goldman Sachs, half of all publicly traded companies in the U.S. are unprofitable. Rising rates and overall tighter monetary conditions — fewer banks making fewer loans — mean that many of these will have difficulties as they renew lines of credit and debt. To quote that memorable quip from Warren Buffett, "When the tide goes out, you see who has been swimming naked."

UPCOMING APPEARANCES November 1st to 4th is the annual New Orleans Investment Conference. Always educational, challenging, and fun, it is a must-event on my annual calendar. Speakers, too many to list, include Peter Boockvar, a walking almanac of all things economic; Robert Prechter, George Gammon, and the alwayscontroversial Prof. Dave Collum.

In addition, the guest speaker is Russian-born, U.K.-based satirist Konstantin Kisin, whose speech on cancel culture at the Oxford Union went viral. I am honored to say that I'll be interviewing him. Details can be found here.

A week later, Rich Checkan and I host the next of our quarterly On the Move webinars, November 9th, at 7 pm eastern, with our very special guest, the legendary Jim Rogers.

The author of several best-selling books, including Investment Biker, Mr. Rogers, now lives in Singapore. We shall discuss the commodities markets as well as China and emerging markets. It's bound to be insightful and valuable. Make a note of the date in your diary, and we'll provide registration details soon.

Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Barrick Gold Corp., Osisko Gold Royalties Ltd., Pan American Silver Corp., Orogen Royalties Inc., Fortuna Silver Mines Inc., Midland Exploration Inc., Nova Royalty Corp., Agnico Eagle Mines Ltd., and Altius Minerals Corp.
2. Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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