LAWRIE WILLIAMS: PDAC in retrospect.Is the recent gold rally sustainable.

The annual Prospectors and Developers Association of Canada (PDAC) is a great convention providing one can see through some of the hype surrounding the industry.  It demonstrates the enormous enthusiasm for an unpopular industry.  Unpopular with the general public partly due to the environmental sins of modern-day mining’s forefathers and partly due to the often hugely exaggerated potential problems in bringing a new mine to production as expressed by NGOs and environmentalists around the world, all of whom may well have hidden agendas which are seldom revealed.

It does attract the real great and good of mineral exploration and mining, as well as the bad and the ugly, and in terms of a technical mineral exploration exhibition and conference has to be among the world’s best – if not the best.  Nowadays with the big investor attendance too, there are some great financially-oriented presentations at the conference itself, and commentary on its fringes, and most of these are thankfully free of the hype one hears on the convention floor.  Yes there are metals and minerals bulls making their cases, but these are usually well-reasoned, as indeed are those who may warn of impending doom and gloom.

But perhaps it is the sideline comments rather than pre-prepared presentations which are the best indicator of where the mood lies and which give the best advice. 

Pierre Lassonde of Franco Nevada – one of the real industry heavyweights, but always very much in the bull camp - told an interviewer from Canada’s BNN that gold could go to $8,000 an ounce for example – but without any timeframe specified.  He looks at the McDonald arches pattern of cyclical movement in the gold price and suggests we may be near the bottom.  He has also long held the view that at some stage in the gold price cycle it could reach a 1:1 relationship with the Dow – as it has at times in the past.  With the Dow currently standing at near 17,000 one might consider his $8,000 gold price prediction conservative therefore, but what is perhaps not stated is that if we are again to see a Dow:Gold ratio of 1:1 that also suggests a huge crash in the former, as much as a rise in the latter.  If the Dow were to crash to 8,000 or lower over time it might not be too surprising for gold to reach a similar level in US dollars, but the financial turmoil surrounding such a development would perhaps be too awful to contemplate. We don’t see it.

Jeff Christian of the CPM Group – sometime bête noir to the gold bugs , and particularly to GATA – was certainly not quite as positive on gold but still suggested that the Goldman Sachs ‘sell gold short’ call and predictions of a gold price fall back to $1,100 and below was rather out of touch with precious metals fundamentals.  He at least suggested that gold had bottomed back in December but anticipated a pullback in the second and third quarters of 2016 before making more sustainable gains in Q4.

Grant Williams – no relation – publisher of the brilliant Things that make you go hmmm... newsletter was another one predicting a pullback in the gold price, but was altogether more bullish on the metal overall.  He told Kitco news anchor Daniela Cambone he felt the right players were beginning to climb on board.

Sprott U.S. Holdings Chairman Rick Rule was another who felt the recent gold price surge was also not necessarily sustainable without seeing a significant pullback.  But he felt that those who might get shaken out by such a fall, he told Daniela Cambone, would miss the real upwards move which is to come.

There were actually few at the event who professed to be bearish on gold medium to long term, although as noted above there is obviously a degree of nervousness regarding the continuation of gold’s recent strong performance short term.  This is hardly surprising given we have seen gold price surges in both 2014 and 2015 which soon petered out with the yellow metal then going on to new interim lows.  Is this rally different this time?  There does seem to be something of the classic bull market in the performance in that although we have been seeing pullbacks within the rally, they have so far always been halted – usually above prior pullback lows.  But contrarily the yellow metal does seem to be having difficult breaking out through resistance in the low $1,270s.  But one should probably watch the gold ETFs which are still mostly in demand as institutional investors need to take a piece of what is perhaps the only positively performing major asset so far this year.

But as Grant Williams noted gold has this nasty habit of kicking its investors in the teeth one last time.  The big question is that if gold does pull back as so many analysts would seem to suggest, will that indeed be the last time before it truly enters a medium to long term bull market again, or will it disappoint once more?  The jury is still out.

10 Mar 2016

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com