Bob Moriarty: Tradable Bottom In Precious Metals, Liquidity Crunch Looms in September/October
After a rough few months in the junior resource sector there are signs that the worst may be behind us and the seasonal tailwinds just over the horizon are a welcome respite for weary investors. Given the potential importance of this recent inflection point I felt it was a good time to have a conversation with Bob Moriarty and get his insights on investor sentiment and where we might be in the investing cycle. The conversation didn’t disappoint. Without further ado here is Energy & Gold’s July 2018 conversation with 321gold founder Bob Moriarty…
CEO Technician: You put out a couple of pieces in the last week which pointed out that everything is lined up nicely for a bottom in precious metals. Can you elaborate on what you’re seeing?
Bob Moriarty: Have you read the piece I wrote on July 6th last year?
CEO Technician: Yes.
Bob Moriarty: I called it absolutely accurately to the day last year. The problem with this year is that the exact cycle low is on the 12th (July 12th) but we had a full moon on the 28th of June. I think we’ve seen it, I think we’ve made the low. Monday they were running the stops, platinum was down $40 or so and gold briefly fell below $1240 in the August futures. Now they always run the stops before they run prices back up. I think we’re going to have a two month rally and probably go up $150 on gold.
CEO Technician: You think gold will be back near US$1400 again within a couple of months?
Bob Moriarty: Yes.
CEO Technician: Have you also noticed that the gold miners have been outperforming the metal itself recently? GDX is basically back to where it was a few weeks ago when gold was trading near US$1300.
GDX/GLD Ratio (Daily – 1 Year)
Gold miners have been outperforming gold since February and we’ve seen an upside breakout in the GDX/GLD ratio in the last week.
Bob Moriarty: Yes, that’s a good indicator. That’s the sort of stuff we see at the end of declines. Now i’m not going to say this is a bottom but I will say it’s a tradable low. I think we will see at least two months of upside. However, I will put one proviso in, I think we are going to see the crash of the century sometime in September/October.
CEO Technician: You think we’re going to have a crash in the broader stock market?
Bob Moriarty: Correct.
CEO Technician: What will the catalyst be for that?
Bob Moriarty: It’s going to be a combination of the euro, interest rates, and inflation. What we know is that the world is functionally bankrupt and there are so many potential flashpoints. It could start in Italy, it could start in Mexico, it could start in Venezuela. We’re due a crash, and when is the only question, not if. It’s going to happen and I suspect it’s going to be in September/October. So while I think we’ve put in a bottom in the precious metals sector and we’re going to have a nice move up for a couple of months, I highly recommend going to cash in early September.
CEO Technician: You think the crash will be a liquidity event in which anything that can be sold to raise cash will be sold?
Bob Moriarty: Correct. If you go back to 2008 I called the top fairly accurately in March 2008 but I didn’t realize the gold mining shares would be crushed as badly as they were in September/October 2008. So rather than a buy and hold strategy, I much prefer a trading strategy which would mean getting into cash around Labor Day.
CEO Technician: I was just on a tour of the Yukon sponsored by the Yukon Mining Alliance. I visited about half a dozen camps for companies such as White Gold (TSX-V:WGO) and ATAC Resources (TSX-V:ATC). One of the popular topics of conversation was the trade war between Canada and the US and how it might affect various aspects of the mining industry in Canada. There were a lot of questions being asked but not a lot of answers on this subject. What are your thoughts on Trump’s trade wars and how it could affect the mining sector?
Bob Moriarty: When you are transporting liquid nitroglycerine what do you want to make sure you don’t do?
CEO Technician: Ummm…you don’t want to spill it?
Bob Moriarty: Or shake it. You want to be really stable. I think a good analogy of the world’s financial system is 50 million tons of nitroglycerine. I think the people wondering what’s going on and not having answers are exactly right. Nobody knows what’s going to happen. I certainly don’t have any clue. I just know from an economics 101 point of view that trade wars are always a disaster. Trump has pulled the pin on a hand grenade and that’s a very dangerous thing to have done. You talked about liquidity, if Trump destabilizes the world financial system there will be a flight to liquidity and everything will get sold off. This is going to be an exceptionally dangerous time. Think about 2008 squared….or cubed.
CEO Technician: Wow. Switching gears back to the juniors, a lot of companies are doing summer exploration programs right now, particularly in the Golden Triangle of British Columbia and the Yukon (areas where it’s difficult to work during the colder months of the year). We’ve begun to see some Golden Triangle stocks and some Yukon stocks moving up in anticipation of exploration news. What are your thoughts on how to play the summer exploration news flow from an investing/trading standpoint?
Bob Moriarty: I think we’re going to have a replay of last year in the Golden Triangle. I’ve talked to half a dozen different companies up there in the last few weeks, including White Gold which you mentioned earlier. There are a lot of great companies up there and these guys took advantage of the opportunity and got cashed up, and there’s a lot of good work going on up there. I think they’re going to be successful and the market is ready to reward success.
CEO Technician: I think you’re right about that and we need some new discoveries and good news in the sector. Are there any stocks in particular that you really like right now?
Bob Moriarty: I think you’re aware that i’m planning on doing a book about investing in resource stocks. What i’m doing is writing down thoughts that I will expand upon in the book. I write a book mentally long before I put anything down on paper.
One of things that i’ve realized is where a project is, what a project is, what the management is like, and how much money they’ve got doesn’t mean anything. In 2001 you could have bought the biggest piece of crap stock on the Venture and it was going to go up ten-fold. Then in March of 2008 you could have bought the best stock with the best project and it didn’t matter because everything went on to get killed that year. In early 2009 you could have owned anything and it was going to go up. Then from the end of 2011 to the end of 2015 it didn’t matter what you owned because it was going to go down.
The most important thing about investing in juniors is where we are in the cycle and understanding whether we are in a bull phase or a bear phase. We had a nice move from about mid-December to early February, then we drifted sideways to lower from February until last week. Now I think we will have a very nice rally for the next couple of months and believe it or not the biggest piece of crap stocks are going to go up the most.
CEO Technician: That’s a really great point Bob. I have had several conversations in the last couple of weeks about how all of these companies are slaves to the macro cycle. They do their exploration, they drill, they try to get their story out there but if the macro isn’t providing a tailwind and the macro isn’t working for the sector nobody really cares. If we’re in a bearish environment it doesn’t matter what news is announced because it will be used as a liquidity event; an opportunity to sell into the news.
Bob Moriarty: That’s absolutely correct. During bear market phases I’ve written about great companies that had great exploration results and all that it did was provide a liquidity event for people to bail out. One of the biggest mistakes i’ve made in the last twenty years has been buying ‘lottery tickets’ (speculative micro cap juniors) on a buy and hold basis. Now I don’t think it’s wise to do that. Lottery tickets have an expiration date. Buy the damn thing, make some money and then you’ve got to sell it, you can’t buy a junior and marry the damn thing. Take the example of NovaGold (AMEX:NG), NG went from $.13 to $20 back to $.46.
CEO Technician: Northern Dynasty is another example of a junior with crazy long term price action, extreme ups and downs. If you traded it well you could have done very well, but buying and holding hasn’t worked out very well.
I was talking to someone last night about this topic, juniors have a finite window to make an enormous discovery or get bought out. However, the longer they exist in mediocrity the worse they become from an investment standpoint. They’re like burning matchsticks in the sense that value is going to get slowly whittled away through dilution and all the things that slowly eat away at shareholder value.
Bob Moriarty: That’s absolutely correct.
CEO Technician: Let’s talk about Novo Resources (TSX-V:NVO). Is Novo at risk of falling victim to the junior burning matchstick curse? I think they’ve generated five assays in the last year and from my vantage point things don’t look to be going very smoothly over in the Pilbara.
NVO.V (Daily – 1 Year)
Bob Moriarty: I don’t think so, because so many shares are in strong hands. But I will say that investors are getting the shit beat out of them by the delays. You’re correct, in the last year there’s only been five assays. I will also say it’s out of the control of the management at Novo, it has to do with the technical issues of trying to measure nuggety gold. It is the worst project you could ever have for trying to measure the gold. You cannot measure the gold, you can only mine the gold. If you take the advice of trading the stock there’s been plenty of opportunities to buy when sentiment is depressed and take profits when prices have run up a lot.
CEO Technician: So to sum it up you’re seeing a rally in the precious metals sector for the next couple of months and then a time to exit to cash sometime in early September?
Bob Moriarty: That’s right. If you don’t go to cash in September you’re going to get crunched when the herd rushes for liquidity. Now I know the insider story of Novagold and I think it’s a useful lesson for investors today; there was an insider who had leveraged positions, he was buying stock on margin. The reason the stock dropped down to $.46 is that his brokerage firm came to him one day after a large decline and said “we’re going to be selling 100,000 shares a day until we get you off margin.” That absolutely killed the stock and brought it down to a ridiculously cheap level. You want to get into cash in September.
CEO Technician: Anything else you’d like to add Bob?
Bob Moriarty: Anybody who believes in bitcon or clyptocurrencies is delusional.
We would like to thank Bob for his time and insights. We’ve all been warned that we need to raise cash come early September.
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