GOLD NEWSLETTER ALERT #906
March 22, 2018
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Gold Gets Fed
According to pattern, gold gets its usual post-Fed bump.
Is this the start of a new rally? Likely so, but nothing’s guaranteed these days.
Ho hum. Another Fed meeting, another gold bump in its wake.
That might be over-simplifying things somewhat, though. Gold’s propensity to weaken during the approach to an expected Fed rate hike and rally immediately thereafter has become so well known that the metal actually rose $8-$10 in the hours before the Fed announcement of a quarter-point hike yesterday and the release of its policy statement.
But that pre-positioning didn’t dampen investor enthusiasm for the metal post-announcement, as gold more than doubled those gains after the meeting and press conference.
By the end of yesterday’s session, spot gold had added $21.00, or 1.6%, to reach $1,331.80 bid. Silver offered encouraging leverage, adding $0.38 (2.35%) to $16.55, and the gold stock indices all surged around 3% or more.
With such a rousing rally in the metals sector after a rate hike, it’s not surprising that the market is taking a pause today. At last check, spot gold was off $6.60 (0.50%) at $1,325.20 bid, while silver was off $0.21 (1.24%) to $16.35. Platinum was trading $8.00 (0.84%) lower at $948, while palladium had fallen $4.00 (0.41%) to $982.
With the broader equity markets diving into the red (and the Dow down over 350 points) the gold stocks had no chance. The major indices are only off about 1%, though, so the damage hasn’t been too bad, and the two-day net is quite positive.
So the real question is whether this is a one-day wonder or the start of a bigger, longer rally.
And that question is impossible to answer. As I’ve been saying, the markets are responding in unpredictable fashion to the headlines. And with the headlines themselves being impossible to predict, anyone wishing to make short-term bets is simply playing a guessing game.
That said, gold is just below some important resistance levels around $1,330-$1,331, and some of our technical indicators had, before yesterday, delivered sell signals. So we’re in a crucial area, where a break through $1,331 over the next few days and through the end of the month could turn the charts solidly positive.
The opposite, of course, would be true if we don’t break through resistance.
Seems it’s always that way, doesn’t it?
So, as usual, we’ll track the daily moves, but keep our eye on the bigger picture — one that paints a long-term downtrend for the dollar and a corresponding uptrend for gold, as big investors switch their allegiance and money to currencies other than the greenback.
Drilling down, figuratively and a bit literally, I have a new recommendation for you...and it doesn’t have anything to do with gold.
In fact, it’s a play on lithium. You’re probably well aware that this sector has been hot in recent months and years, for all the battery-related reasons that we’ve all heard ad nauseam. Specific plays have also made headlines as they’ve been promoted high and low through major digital advertising programs.
But now that the sector has quieted a bit, I’m finding some interesting opportunities.
Specifically, I’ve had my eye on Far Resources (FAT.CN; FRRSF.OB; C$0.48) for a while. The company traded as high as double current levels when lithium plays were hotter.
At the time, I thought a little market-induced weakness would give us a good entry point, and indeed it has done so. Generally, the sector has cooled somewhat. But much more specifically, Far Resources has also been hit by the sudden illness and tragic passing, earlier this month, of highly regarded CEO Keith Anderson.
Keith first introduced me to this company a little over a year ago, and he was an exceedingly able and enthusiastic leader of the company. So much so that the stock took off before I could complete my due diligence and get a recommendation out.
I thought I’d missed the opportunity. But, again, the entire sector has settled back. And Far itself has encountered its own particular heartbreak with Keith’s passing.
The company is soldiering on in the face of the tragedy, with Interim CEO Toby Mayo at the helm. Far’s portfolio includes two promising lithium projects and a gold project that it is in the process of spinning out into a separate company.
Of its lithium projects, its Zoro project in Manitoba is the most advanced. A recently completed winter drilling program intersected wide intercepts of spodumene on a number of the dykes outlined on the project.
Along with the lithium brines of the “Lithium Triangle” in South America, lithium-spodumene bearing pegmatite is a key source of the lithium the world’s battery factories are currently gobbling up.
And while Australia is the largest producer of lithium from pegmatites, Canada has its share of lithium pegmatite projects, and Zoro is an excellent example of the type.
Far Resources has identified eight lithium-bearing pegmatites on Zoro to date. The recent work on Dyke 1 will help it bring that target’s significant historic resource into NI 43-101 compliance.
Prior work conducted on Zoro in the mid-1950s included 78 holes drilled and lithium grades as high as 1.4% over 49.8 meters. Intriguingly, the pegmatite mineralization appears to thicken at depth.
In addition to strong results from Dyke 1, the winter program at Zoro also encountered spodumene zones in Dykes 2, 4, 5 and 7.
It also encountered a new dyke of mineralization on a Mobile Metal Ions (MMI) geochemical anomaly. Holes from this target included Hole 34 and Hole 35, which graded up to 36.5 meters of spodumene-bearing pegmatite.
The assays from these and other holes will hit the market in the days and weeks ahead, providing a potential short-term catalyst for the share price that adds some urgency to this recommendation.
Longer-term, Far’s geologists will use the data from the recent work to build a three-dimensional model for grade and tonnage. Looking at the bigger picture, the grades at Zoro are quite good, and Far’s job will be to prove up a more-significant resource at those grades.
Given the recent drill results, the fact that surface samples have demonstrated exceptionally high grades and the on-going discovery of new dykes, I’ve concluded that the chances are excellent that the company will prove up a substantial hard-rock lithium resource at Zoro.
Management is excited about the momentum that strong assays from Zoro’s winter program may give the company. It is also enthused about the tantalum values it has encountered in soil sampling on the project.
With systematic field exploration of the project ongoing and the results of this latest drill program to be incorporated into a resource estimate, there are a number of potential news flow catalysts for Far Resources’ share price in the coming months.
Add in the longer-term potential of its Hidden Lake lithium project in Northwest Territories and the impending spin out of its gold asset in New Mexico, and you have a news-making lithium company with a gold kicker.
To participate in that kicker, though, you’ll need to own Far Resources prior to the spin out. The current lithium market appears to be cooperating by giving us a good entry point for Far prior to the coming flurry of news. It’s a buy.
— Brien Lundin
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