Gold has been soft since the Iran conflict started, not only because it had already moved up so strongly in the weeks prior, "buy on the rumor, sell on the news", but because the war sent the dollar up, while the oil price spike had central banks focusing on the inflationary impact and discussing raising rates. A strong dollar and higher rates are bearish for gold. Every time the negotiations to end the conflict seemed to be going badly, gold fell.
Then on Friday, June 5, more strikes by both sides and (seemingly) strong U.S. economic reports sent gold down sharply. I say "seemingly" because, though certainly stronger than expectations, increased hiring by local governments and the government-dominated health care accounted for almost all new jobs created, while temporary hospitality jobs, because of the World Cup, accounted for more than the remainder of new jobs. Meanwhile. Initial jobless claims rose, while in the latest survey, small business hiring plans fell.
Gold Broke Through Support Level
Gold had been sitting on the crucial 200-day moving average but broke through Friday morning, setting off numerous stop losses. This was the first drop below the 200-day MA since 2023. Gold fell $150 to its lowest close this year, while the gold stock index GDX fell almost 9% (and over 10% for the intermediates represented in the GDXJ).
This came even as central bank activity for April was reported, showing a strong April, with less selling, on top of a strong first quarter (the highest quarter since the end of 2024), despite high-profile sales. In April, central banks had net buying of 17 tonnes, or nearly 600,000 ounces.
Gold holdings in central bank reserves have now overtaken U.S. Treasuries as of the end of the year, according to the European Central Bank. Gold holdings stood at 27%, while Treasuries fell to 22%. The first was up, from 20% the year previous, the latter down from 25%. The third largest asset in central bank reserves was the Euro, at 15%, unchanged from the previous year.
However, even as official sources were buying, retail and small institutions were selling. Using the GLD, the largest physical ETF, as a proxy, there were 763,000 ounces sold in just the last two weeks; this number does not include any selling from Friday. So, private selling is overwhelmingly central bank buying.
This is gold, very much reacting to fundamental developments. Just 10 days ago, we had gold setting up for a strong recovery, with positioning at extreme lows for the year, as the juniors (GDXJ) outperformed the seniors (GDX). This has, in the past, set up for a multi-month if not multi-year recovery.
When Will Gold Recovery?
When the conflict ends, then the narrative will shift, we believe, as the dollar will lose its war premium, and central banks may shift their focus from the inflation effects of higher oil prices. When that will be, we do not know, but the setup for gold after it occurs is strong. At the same time, let's remember that mid-cycle corrections are the norm, as much as 45% in the middle of the bull market of the 1970s, and 34% in 2008, before a move over 180% in the next three years.
As for the gold stocks, the valuations are now close to the long-term lows, despite strong margins and cash flows. If you are underinvested, this is a good time to buy.
New Spin-Out Report for Barrick
Barrick Mining Corp. (ABX:TSX; B:NYSE) is evaluating a plan to merge its African assets with Endeavour Mining Corp. (EDV:TSX; EVR:ASX) and list on the London exchange, according to a Reuters article based on "unnamed sources". At the same time, the company would IPO a small part of its North American assets on the NYSE. Under this plan, Barrick would retain its main Toronto listing holding shares in both the African and North American units.
What would happen to the copper mines under this plan is unclear. Lumwana in Zambia alone represents 15% of Barrick's NAV as well as strong near-term growth potential. We note that Reuters previously reported that Barrick would spin off its African assets last November. Barrick had previously listed some African operations as African Barrick in 2010, which it subsequently re-acquired. These plans still leave the massive Reko Diq in Pakistan, as well as several smaller assets from Argentina to Papua New Guinea.
There have been many rumors or media reports about possible Barrick plans. It seems likely that these are leaks from inside the company intended as trial balloons to test the market reaction. However, too many conflicting trial balloons can fail to have any impact after a while, while leaving the impression that the company does not know what it wants to do.
Hold.
Strong Earnings From Orogen, as It Continues to Execute
Orogen Royalties Inc. (OGN:TSXV; OGNNF:OTC) reported record revenue for its first-quarter, with revenue from its Ermitaño royalty of $3.4 million, up from $2.1 million in the year-ago quarter.
Revenue from its prospect generation activities at $1 million was double the year-ago figure.
At the same time, G&A expenses were down 35% from last year, when heavy M&A expenses were incurred. The company ended the quarter with a solid working capital position of $30 million.
Reduced GEOs Ahead but Solid Balance Sheet
GEOs received from the Ermitaño royalty, though higher than a year ago, were down 5% from the previous quarter; higher prices led to the record revenue. Looking ahead, the Ermitaño royalty may see a period of lower realized ounces before ramping up again with adjacent deposits. We expect the prospect generation business to remain volatile but strong, while G&A will continue to show declines from last year. With a rock-solid balance sheet, Orogen can withstand a period of lower royalty ounces.
Separately, Orogen continues its string of PG activity, when it and partner Altius Minerals Corp. (ALS:TSX) agreed to option 100% of its undrilled Table Mountain Project in Nevada to Toogood Gold Corp. (TGC:TSVX; TGGCF:OTCQB). Orogen will receive shares and a royalty with phased work commitments.
At today's price, Orogen is a Strong Buy.
Research Report Puts 2X Target on Lara
Lara Exploration Ltd.'s (LRA:TSX.V) Planalto project copper project in Brazil "will be a mine", according to a new report from SCP Equity Research.
The report gives Lara a price target of $7.25, still only 50% of the report's NAV estimate.
Buy.
Vote Fox Proxy
Fox River Resources Corp. (FOX:CSE) has issued its proxy materials for shareholders to vote on the proposed acquisition by a unit of Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE), in an all-cash transaction of $1.10. A special meeting will be held on June 23, though brokerage firms require votes to be cast prior to that, as much as a week earlier.
We urge you to vote in favor of the acquisition. If you have not received a proxy, contact your broker to vote.
Hold.
TOP BUYS this week, in addition to the above, include Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE), Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), OR Royalties (OR:TSX; OR:NYSE), Fortuna Mining Corp. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), and Midland Exploration Inc. (MD:TSX.V).
With gold's sharp fall on Friday, it is a good time for those underinvested in gold stocks to pick up some of the best; hence, we have several gold stocks in our "top buys" above. As discussed, however, sharp drops in markets rarely reverse immediately, so you can be patient in adding to positions.
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- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Agnico Eagle Mines Ltd., Orogen Royalties Inc., Lara Exploration Ltd., Fox Riv Res Corp., Altius Minerals Corp., Franco-Nevada Corp., Or Royalties Inc., Fortuna Mining Corp., and Midland Exploration Inc.
- Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: None. My company has purchased stocks mentioned in this article for my management clients: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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