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New Covid Variant Spooked the Markets; Gold Fundamentals Remained Solid

2021.11.27
US and Canadian stock markets fell sharply on Friday in reaction to a new coronavirus variant originating in South Africa.
The Dow Jones Industrial…

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This article was originally published by A Head of the Herd

New covid variant spooks markets; gold un-moved but fundamentals solid

2021.11.27

US and Canadian stock markets fell sharply on Friday in reaction to a new coronavirus variant originating in South Africa.

The Dow Jones Industrial Average had its worst day of the year, at one point dropping over 1,000 points before recovering about 100 points at time of writing. The S&P 500 and the Nasdaq each lost 2.2% while in Canada, the S&P/ TSX composite index sold off nearly 500 points, as the price of oil tumbled over 10% on demand destruction fears.

The World Health Organization on Friday declared the new South African strain of covid-19 a “variant of concern” and named it omicron. The WHO defines a variant of concern as one that shows genetic changes that in theory could give it the potential to affect transmissibility, severity of disease, or how well vaccines or treatments work on the virus.

Up to now the most serious version of covid has been the delta variant.  

According to a report by CNBC, South African scientists identified a new variant they say is behind a recent spike in infections in Gauteng, the country’s most populous province. The covid mutation was also detected in travelers to Hong Kong and Botswana.

Cases in South Africa ballooned to 1,200 on Wednesday and 2,465 on Thursday, compared to a daily count of just over 200 in recent weeks. Scientists are worried that “omicron” has a high number of mutations (30) in the coronavirus’ spike protein which could affect how easily it spreads.

This concern was enough to prompt British authorities to make travelers arriving in the UK from South Africa and neighboring countries to self-isolate for 10 days. The United States will also restrict travel from the region starting Monday. CNBC quoted an infectious disease specialist at Imperial College London saying that the new variant has an “unprecedented” number of mutations and that compared to previous variants, the South African version might evade current vaccines.

That could trigger widespread travel restrictions and renewed curbs on social activity, potentially even lockdowns, throwing a wrench into the machinery of economic recovery for most of the world’s major economies.

Investors and traders didn’t like what they were hearing and on Friday they sold off risky assets like stocks and bitcoin, which was down over $4,600 at time of writing, or 7.5%, to $54,292.

Bond yields also fell sharply, with benchmark US Treasuries on track for their biggest drop since the start of the pandemic in early 2020. The yield on the 10-year slipped over 15 basis points to 1.485% while the 30-year fell to 1.826%, in mid-day trading Friday. Yields move in the opposite direction of bond prices, which typically rise on market uncertainty.

To us at AOTH it’s all good for gold.

There is a strong correlation between rising gold prices and falling bond yields, although gold’s performance Friday was oddly weak. Despite climbing to $1,814 per ounce at the start of the session, strong selling pressure pushed the precious metal to an intra-day low of $1,784; it was changing hands for around $1,791, at time of writing.

5-year spot gold. Source: Kitco

Gold has been on a run, a week ago trading at its highest level since June. The latest US inflation data (6.2% in October) has reinforced concerns over rising prices, especially after seeing the central banks’ approach to soothe the situation.

While a growing number of Federal Reserve officials have indicated they are open to tapering the Fed’s bond-buying program, if inflation holds, and would move more quickly to raise interest rates, the latest covid variant scare appears to be pouring cold water on that notion.

Bloomberg reports that Money-markets pushed back the timing of a first 25-basis-point rate increase by the Federal Reserve to September from June, while briefly pricing out any more hikes unit 2023…

It’s a similar story in the U.K. where the Bank of England is now expected to tighten policy in February instead of next month. Wagers that the European Central Bank will raise its deposit rate by the end of next year were also slashed…

With gold widely seen as a hedge against inflation, it makes sense for the safe-haven metal to be in demand.

It’s also important to note that gold has been rallying despite a stronger US dollar, which competes with gold as a safe store of value. This indicates that investors have looked past this to focus on its traditional role as an inflation hedge.

In the near term, there’s optimism that rising price levels could offer more support for the gold market.

Analysts at UBS have lifted their gold price forecasts, highlighting risks of further strength in inflation in early 2022. The Swiss investment bank’s March-end gold price target was raised to $1,800/oz, up from $1,700.

While some, including UBS, are predicting a moderation in inflation expectations for the coming year, this will likely take longer than most have anticipated.

The Fed’s official line is that inflation is “transitory” based on supply chain disruptions resulting from the pandemic. We don’t buy it. Sure, we accept the idea that high demand for products and services in countries coming out of the pandemic has led to supply shortages and higher prices in a number of industries. But there are several inflation manifestations that simply cannot be called temporary or transitory. We have reported on most, if not all of them.

To recap, an energy crunch has pushed coal and natural gas prices to record highs. We also have energy inflation because of too massive a shift to renewables and a de-investment in fossil fuels, before renewable energy is ready to take the place of oil, natural gas and coal. The problem isn’t about to sort itself out anytime soon, because even though solar and wind power are getting less expensive, many parts of the world still depend on coal and natural gas as a primary source, or as a backup.

Research from Dalhousie University’s Agri-Food Analytics Lab, quoted by BNN Bloomberg, shows that food inflation in Canada is close to 5%, well above the normal 1-2%. A similar trend is happening in the United States. In September food prices jumped 0.9% with the largest rise since April 2020 driven by a surge in meat costs.

It isn’t only retail food shoppers that are feeling the pinch of climbing prices. Recently the Green Markets North American Fertilizer Index hit a record high, rising 7.9% to US$996.32 per ton, and blasting past its 2008 peak. Higher fertilizer prices are usually passed onto the end user, the buyer of grains, fruits, vegetables and meats, for the grower/ farmer/ rancher to preserve his profit margin. This is precisely what we see happening right now.

Climate change is affecting not only the prices of agricultural commodities and food, but the entire commodities complex. As global temperatures warm, practically everything that is grown or mined is impacted. The prices of a number of industrial metals, including copper, zinc, nickel and aluminum, have seen healthy gains this year due to a constellation of factors, including robust demand from top commodities buyer China.

As for what the new coronavirus variant could mean for gold, we see a “rinse and repeat” scenario taking place.

If the new stain turns out to be as potent as it seems, central banks will shrink away from monetary tightening, instead choosing to fall back on their current dovish monetary policies (low interest rates, bond-buying, money-printing), which are great for precious metals.

Depending on how quickly and to what extent it spreads, US states (and Canadian provinces) may be forced to re-instate mask mandates, social distancing measures, school closures, etc., to prevent health care systems from being overloaded. If stimulus check disbursements continue, along with potentially hundreds of billions in new stimulus measures to fight a strengthened pandemic, it could easily push inflation higher.

Note that in 2008, “quantifornication” i.e., rock-bottom interest rates and the monthly purchases of mortgage-backed securities and government bonds did not cause inflation, so the idea that tapering QE will stop inflation doesn’t make sense, imo.

Finally there is a good amount of geopolitical risk in the world right now that should boost safe-haven demand for gold.

Despite a friendly online meeting between US President Biden and Chinese President Xi, the US government recently added a dozen more Chinese companies to its restricted trade list, citing concerns that some of the firms are help to develop the Chinese military’s quantum computing program.

Tensions between the United States and China over Taiwan are also ratcheting up, after five US lawmakers this week arrived in Taiwan to meet with government officials. Beijing considers the island to be a renegade province and has made re-unification with the Motherland a top priority.

Meanwhile over in Belarus, there are fears that Russia is trying to sow chaos in the landlocked Eastern European country as a pretext for an invasion of Ukraine to the south. The European Union has blamed Minsk, the capital and seat of government, for flying in thousands of Middle Eastern migrants, who are hoping to make it to Europe, yet instead are stranded on the border between Belarus and Poland in terrible conditions. This week Ukraine reportedly deployed 8,500 troops to the Belarusian border in anticipation of a clash with Russia, which according to the head of Ukraine’s military intelligence, has massed 92,000 troops around Ukraine’s borders and is preparing for an attack by the end of January or early February.

The world is clearly getting more dangerous and when combined with the resurgent threat of a covid variant that may be resistant to current vaccines, investors should be looking at safe investments that won’t be diminished by inflation yet offer solid growth potential. Junior gold stocks are an excellent choice in this type of environment and four of my favorites — all of them are undervalued and offer major exploration upside — are listed below.

Goldshore Resources (TSXV: GSHR) (OTC: GSHRF) (FRA: 8X00) has embarked on an extensive 100,000-meter drill program on its flagship Moss Lake project that will run for about a year until mid-2022.

Results of drilling so far have not disappointed, giving us a glimpse of what may be a significant mineralized system within northwestern Ontario, a historically productive gold-mining province. From the first three holes reported, the highlight was MMD-21-001, which was mineralized over 550m. This corresponds to an estimated true thickness of 422m and a 52% increase over the historical resource model.

Several higher-grade zones were identified:

  • 57.00m at 1.20 g/t Au from 4.0m and
  • 36.00m at 1.15 g/t Au from 182.0m in MMD-21-003
    31.00m at 1.18 g/t Au from 122.0m and
  • 16.30m at 2.09 g/t Au from 350.7m in MMD-21-001
     35.00m at 1.09 g/t Au from 100.0m in MMD-21-002

The three holes reported here represent only 2.3% of the planned 100,000 meters of drilling scheduled to be completed by the end of Q2 of 2022 as the drill program ramps-up from two to four drill rigs.

The property is located in an excellent jurisdiction with a number of major gold deposits nearby, including Kirkland Lake Gold’s Detour project with 15.7Moz proven and probable reserves at 0.82 g/t Au, New Gold’s Rainy River with 2.6Moz P&P at 1.06 g/t Au, and Cote (IAMGOLD & Sumitomo) with 7.3Moz P&P at 1.0 g/t Au.

Moss Lake itself hosts a number of gold and base metal rich deposits. These include the Moss Lake deposit, the East Coldstream deposit, the historically producing North Coldstream mine and the Hamlin zone, all of which occur over a mineralized trend exceeding 20 km in length.

Goldshore Resources has five properties located in northwestern Ontario, a district prized for its gold endowment.

Magna Gold’s (TSXV: MGR) (OTCQB: MGLQF) flagship San Francisco project in Sonora, Mexico, resumed production in Q3 2020 and achieved commercial production earlier this year.

Located 150 km north of Hermosillo, this 47,395-hectare property consists of two previously mined open pits (San Francisco and Chicharra) and associated heap leaching facilities.

The mine was previously operated from 1995 through 2000. During that time, approximately 13.5 million tonnes of ore at a grade of 1.13 g/t Au were treated by heap leaching, and 300,834 ounces of gold were recovered.

Magna Gold’s gold and silver properties in Mexico

An updated prefeasibility study (PFS) on the property last September showed total proven and probable reserves of 47.6 million tonnes, graded at 0.495 g/t Au, leaving 758,000 ounces of contained gold. Now at full capacity, the San Francisco mine is capable of producing as much as 90,000 ounces annually.

There is also ample room for resource expansion, with an estimated upside of 3Moz gold and 50Moz silver.

Meanwhile, Magna has also been advancing several of its other precious metals assets across Mexico. The next area of exploration focus is Chihuahua, where its newly acquired Margarita silver project is situated. The project is a low-intermediate sulfidation epithermal Ag-Pb-Zn system, which can be traced to many of Mexico’s producing silver mines.

Drilling programs are also planned at the San Judas and Veta Tierra gold projects, and the La Pima silver project.

In the southern part of the Golden Triangle in northwestern British Columbia, Dolly Varden Silver Corp’s (TSXV: DV) (OTC: DOLLF), silver project of the same name lies in an area well known for its base and precious metals deposits.

The property hosts four historically active silver mines: Dolly Varden, Torbrit, North Star and Wolf.

Dolly Varden project location

Historical records show that the Torbrit mine produced 18.5 million ounces of silver at an average recovered grade of 13.58 oz per tonne between 1949 and 1959, while the Dolly Varden mine had 1.5 million ounces at an average grade of 35.7 oz per tonne in the early 1920s.

Altogether, about 20 million ounces of silver were produced from the two historical mines over a 40-year period, with assays of ore as high as 2,200 oz (over 72 kg) per tonne.

Now, under Dolly Varden’s control, the path to restoring these silver mines back to production has begun, much like how Skeena Resources is reawakening the Eskay Creek mine up north.

An updated NI 43-101 resource estimate completed by the company in 2019 revealed 32.9Moz silver in indicated resources and 11.477Moz inferred, for a total of 44Moz silver, adjacent to the historical deposits.

An aggressive two-year drilling campaign is underway to expand these resources. Last year’s drilling returned consistent intervals of high-grade silver mineralization at the Torbrit silver deposit, which Dolly Varden believes has the potential to support economically attractive underground bulk-mining.

The company also hasn’t ruled out a gold discovery consistent with the +1 million-ounce resource at the adjacent Homestake property, in addition to the potential for another Torbrit-like silver discovery.

About 170 km northeast of Reno, Nevada, Getchell Gold (CSE: GTCH) (OTCQB: GGLDF) is in the midst of a drill campaign at the advanced-stage Fondaway Canyon project, comprising 170 unpatented lode claims in Churchill County.

The property has been the subject of multiple exploration campaigns dating back to the late 1980s and early ‘90s, with nearly 50,000m of drilling completed. It covers 12 known veins, including five mineralized areas — Colorado, Halfmoon, Paperweight, Silica Ridge and Hamburger Hill.

Map of Fondaway Canyon showing 2021 drill locations

The latest technical report on Fondaway Canyon (2017) provided an estimate of 409,000 oz indicated gold resources grading 6.18 g/t Au and 660,000 oz inferred grading 6.4 g/t Au, for a combined 1.1 million oz. Up to 80% of these ounces are within Colorado, Paperweight and Halfmoon, with the remainder found in parallel veins or splays off the main veins.

Five of the six holes drilled as part of a 2,000m program intersected significant gold intercepts within the Central Area, which is considered by company management to be the “nexus for the gold-mineralizing system” observed at Fondaway.

Following up on the drilling success, which Getchell says “blew the potential of the project wide open” by producing a revised geological interpretation for Fondaway that extrapolated the continuity of the gold mineralization over extensive distances, the company decided to proceed with a drill program twice the size this year.

The 2021 program is designed to complete sufficient infill drilling to confirm this new geological model, thus elevating the resource estimate from the current 1.1Moz. Getchell will also continue stepping out from known gold intercepts to expand the geological model.

The results so far have been promising, with the latest drill hole returning one of the best cumulative series of gold intercepts in the project’s 45-year history. This was also the seventh consecutive hole to hit substantive mineralization, with more results still to come.

Richard (Rick) Mills
aheadoftheherd.com
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Richard does not own shares of Goldshore Resources (TSXV: GSHR), Magna Gold (TSXV: MGR), Dolly Varden Silver Corp’s (TSXV: DV).

Richard owns shares of Getchell Gold (CSE: GTCH).

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Author: Gail Mills

Precious Metals

Eldorado Gold: BMO Reiterates $20 Price Target

This week Eldorado Gold (TSX: ELD) provided full year 2022 production and cost guidance as well as a 5-year production
The post Eldorado Gold: BMO Reiterates…

This week Eldorado Gold (TSX: ELD) provided full year 2022 production and cost guidance as well as a 5-year production outlook. By 2022, Eldorado expects total gold production to be 460,000 to 490,000 ounces, or about 7% higher than the prior guidance. Cash operating costs are expected to be between $640 and $690 per ounce, while the all-in sustaining costs are expected to be between $1,075 and $1,175.

Eldorado Gold also raised their 2023 and 2024 production guidance, bringing them up 4% and 7% respectively. The company additionally expects by 2026 to be producing between 510,000 and 540,000 ounces of gold per year.

Eldorado Gold currently has 11 analysts covering the stock with an average 12-month price target of US$13.50, or a 42% upside to the current stock price. Out of the 11 analysts, 6 have buy ratings, 4 have hold ratings and the last analyst has a sell rating. The street high price target sits at US$17.51, or an 85% upside to the current stock price while the lowest comes in at US$9.25.

In BMO Capital Markets’ note, they reiterate their outperform rating and $20 12-month price target saying that the company is “approaching the growth spurt.”

For the 2022 guidance, production came in line with BMO’s 471,000-ounce estimate while all-in sustaining costs came in slightly above their $1,070 per ounce estimate. Onto the improved 5 year guidance, they say that the outlook looks a little above their expectations.

Lastly, they say that if you take the midpoint of the 2025 guidance, which is 550,000 ounces produced, it would be a 5% 3-year organic CAGR, which is “a rarity among intermediate and senior producers at present.”

Below you can see BMO’s updated estimates.


Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Eldorado Gold: BMO Reiterates $20 Price Target appeared first on the deep dive.


Author: Justin Young

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Dolly Varden has 21 drill holes left to report, as gold, silver and copper prices bounce

2022.01.22
Predominantly a silver explorer, Dolly Varden Silver’s (TSXV:DV, OTC:DOLLF) flagship project is located in the southern part of British Columbia’s…

Dolly Varden has 21 drill holes left to report, as gold, silver and copper prices bounce

2022.01.22

Predominantly a silver explorer, Dolly Varden Silver’s (TSXV:DV, OTC:DOLLF) flagship project is located in the southern part of British Columbia’s Golden Triangle, an area well-known for its base and precious metals deposits.

The property hosts four historically active mines — Dolly Varden, Torbrit, North Star and Wolf — all have parts that remain unexplored to this day. More than 20 million ounces of high-grade silver have been produced from these deposits between 1919 and 1959.

Dolly Varden’s project lies to the west of Hecla Mining’s Kinskuch Project. It also borders Fury Gold Mines’ Homestake Ridge, which it acquired late last year to consolidate what it considers to be an emerging silver-gold district.

The consolidated project, named Kitsault Valley, is now among the largest, high-grade, undeveloped precious metal assets in Western Canada, with a combined mineral resource base of 34.7Moz silver and 166,000 oz gold in the indicated category.

Regional exploration and reconnaissance drilling also led to the identification of a large new porphyry copper-gold system that may be related to others in the Golden Triangle such as KSM, Treaty Creek, Saddle, Red Chris and Snowfield.

In December DV announced encouraging results from last year’s regional exploration and reconnaissance drilling on its 100% owned Dolly Varden project, which is host to two past-producing silver mines (Dolly Varden and Torbrit) and two other historically active mines (North Star and Wolf).

Encompassing 10 holes testing five regional exploration targets, the drill results demonstrated “excellent exploration and resource expansion potential on the property,” DV stated in the Dec. 10, 2021 news release.

Results are pending for the 21 holes drilled near Dolly Varden’s existing resource.

Dolly Varden Project

The Dolly Varden silver project comprises 8,800 hectares (88 sq km) in the Stewart Complex of northwestern BC, which is known to host base and precious metals deposits.

Dolly Varden project map

Mining activity dates back to 1910, when the original Dolly Varden Mine was discovered by Scandinavian prospectors.

In its early days, it was among the richest silver mines in the British Empire. The other deposit in the area to see production later was Torbrit, which, at one time, was the third-largest silver producer in Canada.

Historical records show these two deposits together have produced more than 20 million ounces of high-grade silver between 1919-1959, with assays as high as 2,200 oz (over 72 kg) per tonne.

Production subsequently ceased due to low silver prices, and the assembled property was eventually acquired by DV with a view to re-awakening the historical silver mine.

An updated NI 43-101 resource estimate completed by the company in 2019 revealed 32.9Moz silver in indicated resources and 11.477Moz inferred, for a total of 44Moz Ag, all adjacent to the historical deposits.

Dolly Varden project map

Drilling and underground work that went into the resource estimation confirmed that the mineralization occurs as two styles.

The first is VMS (volcanogenic massive sulfides) similar to that mined at Eskay Creek to the north. Once the highest-grade gold mine in the world, Eskay Creek produced 3.3Moz gold and 160Moz silver at average grades of 45/g/t Au and 2,224 g/t Ag respectively between 1994 and 2008.

The second is cross-cutting epithermal mineralization similar to that being developed at Pretium’s Valley of the Kings deposit (Brucejack Mine).

The southern part of the Golden Triangle is the least explored of all. Only 3% of Dolly Varden’s property has been explored in detail up until now, leaving plenty of potential discovery upside.

According to DV, both the Eskay Creek and Valley of the Kings deposits are located on the same structural trend to the north of the company’s ground. So, it is possible that Dolly Varden represents the southern end of a large silver district that extends northward.

To prove this, the company completed 40 drill holes (11,397m) in 2020, 19 of which were in the Torbrit area. The rest were reconnaissance and exploration drill holes, testing multiple areas on the property.

Highlights included 310 g/t over 6m, a stand-out 304 g/t over 45.82m, and 306 g/t over 5.10m. Higher-grade core within those intercepts featured 648 g/t over 6.06m, 1,595 g/t over 1.06m, and 1,290 g/t over 0.6m.

2021 drill results

Last summer, the company kicked off a surface diamond drill program on the Dolly Varden property. A total of 31 drill holes (10,506m) were completed during the 2021 field season.

This drill program was part of an aggressive two-year campaign to infill and expand the high-grade silver resource at the Torbrit deposit, and to test multiple highly prospective targets throughout the property.

The drill results encompassed 10 holes that tested five regional exploration targets on the property, including the Wolf Vein extension and Western Gold-Copper belt.

Drill hole location map

The highlight was drill hole DV21-273, which tested the southwest projection of the Wolf Vein, 94m down plunge from the current mineral resource at the Wolf deposit.

This hole intersected 1,532 g/t Ag, 0.44 g/t Au, 2.11 % Pb and 1.07% Zn over 1.22m, within a brecciated sulfide-rich quartz vein hosted within a broader pyrite stockwork breccia zone of 17.50m averaging 214 g/t Ag and 0.47% Pb.

The current resource estimate for Wolf is 3.83 million ounces of silver at 296 g/t in the indicated category. The deposit is located approximately 2 km northwest of the Torbrit deposit, which hosts most of Dolly Varden’s resources at 25 million ounces of silver indicated and 10.5 million ounces inferred.

Wolf Vein DV21-273 section, looking northeast

Hole DV21-273 is also significant as it tested the prospective Hazelton volcanic rock that underlies the sedimentary units of the Upper Hazelton for the Wolf Vein extension.

Discovering that the strong potassic alteration associated with silver mineralization within the volcanogenic Torbrit deposit continues beneath the sediment suggests that the mineralizing system continues to the west of the 4.5 km long surface anomaly.

According to DV, this opens up the exploration potential of the entire bottom of the Kitsault Valley north of Wolf towards the property boundary and onto the Homestake Ridge property, which the company recently acquired from Fury Gold Mines.

Dolly Varden and adjacent properties, including Homestake Ridge to the north.

Wolf is the northernmost deposit found at the Dolly Varden project. Modeling of the epithermal vein style deposit indicates a stepped vein system, offset by steep faults. The hanging wall has a strong barium signature and the veins contain barite and quartz. There are underground drifts at Wolf, but no historical production was reported.

Drilling at other silver prospects also returned promising results. At the Syndicate target, a near-surface vein in hole DV21-270 returned 126 g/t Ag and 1.31 g/t Au over 1.10m.

Hole DV21-272 was drilled to test the potassic alteration zone at Silver Horde, located approximately 900m north of Wolf. The structure returned 9.0m averaging 126.7 g/t Ag within the volcanic host.

In other exploration drilling, DV’s technical team is encouraged by long intervals of stockwork quartz with strongly anomalous gold (>100 ppb) over wide intervals (up to 303m) along with silver and copper at the Western Gold Belt area.

Hosted within early Jurassic volcanic rocks, this style of stockwork and alteration is analogous to numerous gold-copper deposits and mines found throughout BC’s Golden Triangle. These include KSM, Treaty Creek, Saddle, Red Chris and Snowfield.

Such a finding could be a game changer for DV, given it was previously positioned as a pure silver-focused explorer sitting on a high-grade, potentially bulk-mineable resource.

The Western Gold Belt is located on the west side of the Kitsault Valley and trends from near the Dolly Varden Mine northward for several kilometers towards Homestake Ridge.

According to DV chief executive Shawn Khunkhun, the strong porphyry-related gold-copper-silver indicators is perhaps the most significant exploration breakthrough on the property in years.

Therefore, the next phase of exploration drilling will prioritize connecting the historical mines and current deposits of the Dolly Varden trend with the deposits at Homestake 5.4 km to the northwest along the Kitsault Valley trend.

Of course, the high-grade silver intercept at Wolf is also significant, as it confirmed Dolly Varden’s resource expansion potential. Assays are pending for the 21 holes completed at the high-grade Torbrit and Kitsol Silver deposits.

The three metals Dolly Varden is exploring for, have all been posting gains of late. Gold and silver both rallied this week, as investors parked money in safe-haven metals on fears of inflation and geopolitical tensions, ahead of a Federal Reserve meeting Jan. 25-26. Gold gained $30, Wednesday, and silver climbed 3%. Copper rose for a third session on Friday, breaking above 10,000 a ton as investors fled a sliding stock market and sought protection against rising inflation, Reuters said.

Gold market update

As Kitco News noted, gold’s move up coincided with the Biden administration’s announcing $200 million in military aid to Ukraine, citing fears of a Russian invasion.

“And this follows on with reports over the weekend that the UK was providing military assistance to Ukraine. It’s just like a perfect mix here for gold prices in the very short term,” DailyFX senior strategist Christopher Vecchio told the precious news outlet.

Higher inflation numbers are adding to risk-off sentiment in the market, which is already pricing in rate hikes and the possibility of central banks making a mistake while tightening.

OANDA senior market analyst Craig Erlam believes that traders are inflation-hedging because they don’t think central banks are doing enough to bring prices down.

The US Federal Reserve, whose job is to keep unemployment in check and inflation (the Federal Funds Rate) in the “Goldilocks” zone of 2%, is telegraphing three interest rate increases of 0.25% each (1% at the high end of the range) this year.

The US Labor Department said that its Producer Price Index (PPI) rose 0.2% from November to December, bringing producer prices to a record-high 9.7%, the biggest calendar-year increase since data was first calculated in 2010.

The same report said US consumer prices increased solidly in December, led by gains in rental accommodation and used cars, culminating in the largest annual inflation rise in 40 years. The Consumer Price Index (CPI) surged 7% in the 12 months through December, which is the biggest year on year increase since 1982.

US inflation rate (CPI)

As we have argued, the Fed (and the Treasury) is between a rock and a hard place, the Fed can’t raise rates enough to combat high inflation because doing so will wreck the economy, and imo, the Treasury will soon struggle to find enough buyers for US government bonds because the real yields are so low, currently in all cases negative.

This practically guarantees the continuation of Fed bond buying (QE) despite the much-ballyhooed taper. As for raising rates, we proved that the Fed can’t do it, at least not at the levels required to beat current inflation, which even if covid-related supply chain issues get solved, leaves another 3-4% to deal with. (higher prices will, imo, stay with us for a long time due to persistent food inflation, wage/ salary increases due to a shortage of workers, a ragged energy transition from fossil fuels to renewables that has led to high natural gas prices, and climate change which has a negative effect on crops)

Then there is the debt problem. We’ve written extensively about the dangers of the mounting US debt load. Gold correlates strongly to rising debt to GDP ratios. The US’s debt to GDP currently sits at 127.3%.

The Congressional Budget Office (CBO) and the Committee for a Responsible Federal Budget (CRFB) — both reliable sources — project a deficit of $1.3T in 2022, and every year until 2031. This severely constrains the Fed’s policy options.

Each interest rate rise means the federal government must spend more on interest, reflected in the annual budget deficit, which keeps getting added to the national debt, which is almost $30 trillion. We are talking about interest costs nearing a trillion dollars per year, when the deficit is accounted for. 

Furthermore, the incentive for buying a US Treasury bill or bond is gone, the buyer’s purchasing power eroded by inflation.

The current Federal Funds Rate is .08%, but CPI inflation is 7%, giving a real (after inflation) Effective Federal Funds Rate (EFFR) of -6.94%. This is the most negative EFFR since 1954. The 10-year yield, which pays better interest, is -5.3% in real terms.

Negative real interest rates, as most gold investors are aware, are a strong buy signal for bullion.

The fact is nobody is going to want to buy US debt at 7% inflation. The Fed will continue to print money, buy bonds and keep interest rates below 1% for as long as it can — probably hoping that inflation will magically melt away — all of which is extremely positive for gold.

Silver market  update

The Silver Institute predicted that global silver demand will rise to 1.029 billion ounces in 2021, up 15% from 2020 and exceeding a billion ounces for the first time since 2015.

In a November report, SI said every area of silver demand was forecast to rise in 2021, including a record amount of industrial demand despite ongoing supply issues.

“The recovery in silver industrial demand from the pandemic will see this segment achieve a new high of 524 million ounces (Moz). In terms of some of the key segments, we estimate that photovoltaic demand will rise by 13% to over 110Moz, a new high and highlighting silver’s key role in the green economy,” states a press release that accompanied the Silver Institute’s Interim Silver Market Review webcast.

Demand for silver used in brazing and solder is expected to improve by 10%, aided by a recovery in housing and construction.

Silver bars and coins will continue to hold investors’ interest, with the Silver Institute predicting that physical investment in 2021 will increase by 32% to 64Moz, pushing the year-on-year total to a six-year high of 263Moz. US bar and coin demand is expected to surpass 100Moz for the first time since 2015, while in India, physical investment in silver is expected to recover from last year’s collapse, and surge three-fold.

A major source of silver investment demand, exchange traded products, are forecast to see total holdings rise by 150Moz. Last January to November, silver ETP holdings increased by 83Moz, bringing the global total to 1.15Boz, within a whisker of 2020’s record-high 1.21Boz.

The supply picture for silver is especially interesting.

According to SI, “In 2021 mined silver production is expected to rise by 6% year-on-year to 829 Moz. This recovery is largely the result of most mines being able to operate at full production rates throughout the year following enforced stoppages in 2020 due to the pandemic.”

“Overall, the silver market is expected to record a physical deficit in 2021, albeit modestly. At 7Moz, this will mark the first deficit since 2015.”

Silver demand is only likely to strengthen, given its use in solder, solar panels, 5G, EVs, and printed and flexible electronics — not to mention steady investment demand in the form of physical silver (bars & coins) and silver-backed ETFs.

Remember, less than 30% of silver production comes from primary silver mines, with over half sourced from lead-zinc operations, and copper mines, meaning that silver’s fortunes are tied to other industrial metals.

The prices of zinc, lead and copper have all done quite well, rising a respective 37%, 16% and 24% from a year ago.

Source: Kitco

Copper market update

Copper is coming off a historic year during which prices broke records on not just one, but two, separate occasions, hitting $4.76/lb in mid-October after peaking in May.

Source: Kitco

During the first half of 2021, copper rallied off the back of a sharp recovery in economic activity across the world, led by top consumer China. Also pushing prices higher was the belief that pandemic-related stimulus, plus the global push for decarbonization, will further lift demand for the industrial metal.

That saw copper prices break the $10,000/t level towards the end of April, the first time that has happened in a decade, and eventually surged to a new high the week after.

Then in the second half, copper received yet another boost amid an energy crisis that affected several major producers and threatened global supply. In October, a surge in metal orders from warehouses in Europe saw LME inventories plunge by as much as 89%, to their lowest in 47 years.

All these events factored into copper’s record-breaking year, though many believe that the red metal is just getting started. Click to read AOTHs in-depth copper market analysis;

In two decades, copper producers must, at the minimum, double the current production of 20Mt to have a chance of coming close to meeting demand. This equates to one new Escondida mine (1Mt annual production) every year for the next 20 years!

While such a feat is difficult to achieve, finding the right investments in projects leading to copper discoveries would help to close the supply gap. According to CRU, the copper industry needs to spend upwards of $100 billion to erase what it estimates to be a 4.7Mt deficit by 2030.

We aren’t the only ones feeling bullish on copper. Goldman Sachs is reportedly forecasting copper will, on average, reach $5.39 in 2022 and $5.44 in 2023. The investment bank said it expects “extreme deficits” coming as soon as mid-decade, due to a lack of new development commitments, combined with accelerating growth in green demand.

“To solve the long-term supply gap copper faces, we would need to see close to 40 new average-sized copper mine projects being approved,” LiveWire quoted Goldman saying. “And as we all know, bringing forward a new mine of any description is getting harder to achieve in a timely fashion.” Indeed in some jurisdictions, getting from discovery to resource definition to commercial production, can take upwards of 20 years.

Conclusion

Snow may have blanketed the Golden Triangle of northwestern British Columbia, putting a temporary halt on all mineral exploration activities, but there is still plenty of news to come out of Dolly Varden’s namesake project. Assays are pending for the 21 holes completed at the high-grade Torbrit and Kitsol Silver deposits.

In the spring, when DV returns to the property with boots on the ground, we expect to see continued investigation of the Dolly Varden project targets, including the Wolf Vein extension and Western Gold-Copper belt.

Also likely to be a priority is the connection between the historical mines/ current deposits of the Dolly Varden trend, and the deposits at Homestake Ridge 5.4 km to the northwest along the Kitsault Valley trend.

Readers stay tuned; this is a company we’ll be watching closely.

Dolly Varden Silver Corp.
TSXV:DV, OTC:DOLLF
Cdn$0.75, 2022.12.21
Shares Outstanding 130.6m
Market cap Cdn$98.1m
DV website

Richard (Rick) Mills
aheadoftheherd.com
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Author: Gail Mills

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Economics

Fear And Panic As Bitcoin Crashes 50% From All Time High

Fear And Panic As Bitcoin Crashes 50% From All Time High

Just two months after cryptos hit an all time high amid widespread euphoria that…

Fear And Panic As Bitcoin Crashes 50% From All Time High

Just two months after cryptos hit an all time high amid widespread euphoria that the newly launched bitcoin ETF would lead to even more substantial upside, the two largest tokens have lost half of their value, with the broader crypto sector suffering more than $1 trillion in losses amid an accelerating liquidation panic that the Fed’s tightening cycle will lead to another crypto winter. 

Such is the volatility in the sector where, as Bloomberg put it overnight, there has been just one constant recently: “decline after decline after decline.” Of course, for veteran hodlers, Bloomberg hyperbole seems trivial in a world where 80% drawdowns are the norm and the current drop may have a ways to go before it hits a bottom, before a new all time high is hit.

Where Bloomberg is right however, is that superlatives for the latest carnage have been easy to come by: Friday’s decline led to the liquidation of more than $1.1 billion in crypto futures positions and overall more than $1 trillion in market value has been destroyed since the last peak. In other words, “the meltdown is pouring salt on an already-deep wound.”

After the latest furious puke that pushed Bitcoin RSI’s indicator to the most oversold level since the covid crash in March of 2020…

… Bitcoin, which lost more than 12% on Friday, saw its price drop just above $34,000 with Ethereum sliding as low as $2,400, as the two largest digital assets now trade at a 50% discount from their all time highs and are back to levels last seen in late July, early August. Other digital currencies have suffered just as much, if not more, most meme coins mired in similar drawdowns.

While the selling has been relentless for the past two months, it accelerated in the past three weeks, after the latest Fed minutes – published in early January – showed its intention to not only hike rates but to accelerate the unwind of its balance sheet, which has sent all “bubble baskets” plunging, with bitcoin getting hit especially hard amid the carnage.

And while there have been much larger percentage drawdowns for both Bitcoin and the aggregate market, according to Bespoke,  this marks the second-largest ever decline in dollar terms for both.

“It gives an idea of the scale of value destruction that percentage declines can mask,” wrote Bespoke analysts in a note. “Crypto is, of course, vulnerable to these sorts of selloffs given its naturally higher volatility historically, but given how large market caps have gotten, the volatility is worth thinking about both in raw dollar terms as well as in percentage terms.”

Another fact that Bloomberg gets right, is that over the past year, cryptos have transformed from relatively uncorrelated assets providing diversification during market turbulence, into what is effectively a high beta stock. This is easily seen in the following chart showing the 60d correlation between cryptos and stocks. One can thank institutional adoption for that, because the same institutions that are now facing margin calls on their tech holdings, are also dumping cryptos to provide much needed liquidity.

“Crypto is reacting to the same kind of dynamics that are weighing on risk-assets globally,” said Stephane Ouellette, chief executive and co-founder of institutional crypto-platform FRNT Financial. “Unfortunately for some of the mature projects like BTC, there is so much cross-correlation within the crypto asset class it’s almost a certainty that it falls, at least temporarily in a broader alt-coin valuation contraction.”

Antoni Trenchev,, co-founder of Nexo, cites Bitcoin’s correlation to the tech-heavy Nasdaq 100, which right now is near the highest in a decade. “Bitcoin is being battered by a wave of risk-off sentiment. For further cues, keep an eye on traditional markets,” he said. “Fear and unease among investors is palpable.”

According to  Art Hogan, chief market strategist at National Securities, it’s useful to think of cryptocurrencies as living in the same space as other speculative sectors, including special-purpose acquisition companies and electric-vehicle makers. “When we’re in an environment where all of those riskier assets are selling off, crypto is going to find itself doing the same,” Hogan said. “When the Nasdaq 100 or any of the other more-speculative, rapid-growth, momentum-type asset classes start to gain some traction, so will cryptocurrencies.”

Unfortunately for Bitcoin longs, one place where the token’s correlation is especially high is that to such market naplam as Cathie Wood’s sinking ARK Innovation ETF, a pandemic poster-child of speculative risk-taking. That correlation stands at around 60% year-to-date, versus about 14% for the price of gold, according to Katie Stockton, founder and managing partner of Fairlead Strategies, a research firm focused on technical analysis. It’s “reminding us to categorize Bitcoin and altcoins as risk assets rather than safe havens,” she said.

Perhaps unaware what “hodling” means, data from Coinglass shows that more than 342,000 traders had their positions closed over the past 24 hours, with liquidations totaling roughly $1.1 billion.

“Digital-currency markets in total have been challenged this month,” said Jonathan Padilla, co-founder of Snickerdoodle Labs, a blockchain company focused on data privacy. “There’s definitely some pain there.”

Though liquidations have spiked, the numbers are rather muted when compared to previous declines, according to Noelle Acheson, head of market insights at Genesis Global Trading. Acheson points out that Bitcoin’s one-week skew, which compares the cost of bearish options to bullish ones, spiked to almost 15% on Wednesday compared to an average of about 6% in the past seven days.

“This flagged a jump in bearish sentiment, in line with overall market jitters given the current macro uncertainty,” she said.

Amid the pain, some of bitcoin’s most faithful are professing patience…

… while others are starting to wonder out loud at what point the battering might end. Famed crypto investor and (former?) billionaire Mike Novogratz mused on Twitter that “this will be a year where people realize being an investor is a difficult job.”

Unfortunately for Novogratz, 2600 did not hold and Eth is now trading below 2,400.

Still, many point out that like on all previous occasions when cryptos crashed, they eventually rebounded to new all time highs. At some point, sellers will become exhausted and the market could see some capitulation soon, said Matt Maley, chief market strategist for Miller Tabak + Co. “When that happens, the institutions will come back in in a meaningful way,” he said. “Once the asset class becomes more washed-out, they’ll have a lot more confidence to come back in and buy them. They know that cryptos are not going away, so they’ll have to move back into them before long.”

But it’s not just central bank tightening fears and liquidation technicals that have depressed cryptos: one can also throw in a relentless news cycle, where just in recent days, regulators from Russia, the U.K., Singapore and Spain all announced interventions that could undermine crypto companies looking to grow in those regions. Meanwhile, the Biden administration is preparing to release an initial government-wide strategy for digital assets as soon as next month and task federal agencies with assessing the risks and opportunities that they pose, Bloomberg reported late on Friday.

Testing the resilience and patience of the faithful, so far the sharp drop below the psychological level of $40,000 has failed to serve as an upward inflection point. Crypto proponents say heavy liquidations often serve to cut out the froth in easy-win asset speculation, helping to solidify new bottoms in the market.

Ultimately, the real support will come from none other than the Fed, which will soon realize that it is hiking into a slowing economy…

… and will be forced to be far more dovish during this week’s FOMC meeting, a reversal which should serve to send risk assets sharply higher.

“Fear and unease among investors is palpable,” Nexo’s Trenchev,said. “If we see a bigger selloff in equities, expect the Fed to verbally intervene to calm nerves and that’s when Bitcoin and other cryptos will bounce.”

In other words, the more the Fed tightens – or the more the Fed scares markets into believing it will tighten – the bigger the market selloff, and the worse the economic slowdown, until eventually Powell will be forced to ease, a key point brought up by  Bank of America CIO Michael Hartnett yesterday.

Incidentally, it also means that the faster markets crash, the faster the Fed panics, and is forced to stabilize stocks because even if the new and improved Powell Put is well below previous levels, the Fed can’t risk a market crash just to appease Biden’s demands for an inflationary slowdown so Democrats aren’t destroyed in the midterms.

And incidentally, this weekend’s ongoing selloff in cryptos means that while stocks are currently mercifully not trading, Monday should be another bloodbath, as Jim Bianco reminds us.

One thing is certain: several more 2% drops in the Nasdaq, and Powell – who two years ago crossed the Fed’s final rubicon and bought corporate bonds to halt a catastrophic collapse – will be making emergency phone calls to put an end to the carnage. As such, a continuation of the meltdown may just be the best thing that the bitcoin faithful can hope for.

Tyler Durden
Sat, 01/22/2022 – 13:04








Author: Tyler Durden

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