Ann: Capital Raising Presentation December 2018, page-134

Hi Binwood,

As per lots of people on these threads I have been watching the macro developments closely, trying to read the tea leaves and work out when it was favourable to once again enter the gold sector.

The biggest issues I had are/ were:

(1) FED was on course to keep raising rates as long as the market let them. Goldman thought 5 x rates by end of 2019. This in turn has been very supportive of the USD as interest rate differentials attracted capital flows.

(2) Additionally, the US equity markets have been the sole performer globally and thus an attractive place for offshore capital to flow.

(3) In the event of an initial market decline, gold and gold miners get trashed just when you think they should work for you as everyone runs to the USD. This has been proven time and again over the past several years, including 2008.


In my opinion on the 3rd October, the FED did indeed break something. As per Kevin Muir today, do not ignore the inverted yield curve despite what anyone tells you.

The market initially broke down on the 3rd October after Powell uttered "... a long way from neutral ..."

The market freaked. It has been trying to find its footing ever since which has, obviously, been very hard to achieve with all the bat-sh!t crazy stuff going on with our global leaders.

Gold in foreign currencies (from a USD perspective) is starting to show strength. I have also been encouraged with how gold is holding up in USD terms when the USD itself is c. 97 on the DXY.

So ...

To me, it looks like Powell has destroyed the 5 x rate hikes by end of 2019 narrative when he blinked earlier this week in the face of falling markets.

Any positive developments between China and the US look to be in flames after the Huawei CFO was arrested.

US economic indicators are rolling over.

What were headwinds, I think, are easing and potentially may become tailwinds.

However, my main question is ... have we had the initial knee jerk drop in gold/ miners in the week or so following 3rd October when everything was highly correlated to the downside ... or is it still ahead of us ??

I am hedging my bets and easing back into the sector having some counter hedging with cash in USD (in case I am wrong) and a fair bit of physical U, which is currently priced around 1/2 the AIC of production and with some decent tailwinds at present. I also have some other themes/ company specific stuff too.

Just all my flawed logic (or lack thereof) Binwood ... as clear as mud.

Cheers
John