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    The Market Huddle

    Gold is Inflation (guest: Chris Ritchie)

    Sat Feb 24 2024
    Precious MetalsMining IndustryInvestingGoldSilver

    Description

    The podcast episode features a discussion with Chris Ritchie from Silvercrest Metals about the long-term direction of precious metals and the mining industry. Patrick shares technical analysis insights using graphs and charts during the episode. The hosts enjoy a British beer, an Earl Grey IPA, with a 6.8% alcohol content during the show.

    Insights

    Gold is seen as a more secure investment compared to cryptocurrencies due to the absence of liabilities.

    Investing in mining companies involves high risks with only a small percentage of projects making it to production.

    Operating costs for mining companies have been increasing over time, impacting profit margins despite high gold prices.

    Mining industry's reporting of all-in sustaining costs may not accurately reflect the total expenses involved in extraction.

    Social media has changed the stock pricing environment, especially with the rise of retail investors and right tail events.

    Companies now focus on creating products that attract customers who then create the brand through social media and viral marketing.

    Mining companies have not fully tapped into the power of retail investors and social media for marketing and capital allocation.

    Investing in gold miners can provide leverage compared to investing directly in gold or silver due to potential outsized returns when capital flows into the sector.

    Taking a small percentage of brick countries' foreign reserves could have a significant impact on the gold market.

    China's increasing gold reserves indicate a shift away from US dollars, leading to potential long-term demand for gold.

    Chapters

    1. Chris Ritchie's Background and Career
    2. Transition from Tennis to Finance
    3. Transition to Silvercrest Metals and Investment Insights
    4. Insights on the Mining Industry and Gold Investment
    5. Supply Challenges and Gold as an Inflation Hedge
    6. The Power of Retail Investors and Social Media
    7. Challenges and Opportunities in the Mining Industry
    8. Investing in Gold and Strategic Assets
    9. Gold Market Dynamics and Potential Price Dislocations
    10. Trading Strategies and Wealth Preservation
    11. Economic Climate and Market Trends
    12. Inflation and Central Bank Policies
    13. Global Economic Conditions and Market Predictions
    14. Tech Stocks and Market Analysis
    15. Trading Strategies and Market Analysis
    16. Technical Analysis and Market Insights
    17. Insights on Uranium and Market Analysis
    18. Market Trends and Biotech Stocks
    19. Bond Market and Interest Rates
    20. Leveraged Trading Strategies and Volatility
    21. Insights on VIX Trading Strategies
    22. Holiday Experiences and Unique Drinks
    Summary
    Transcript

    Chris Ritchie's Background and Career

    00:02 - 07:00

    • Chris Ritchie, the president of Silvercrest Metals, shares his unexpected journey from growing up in London, Ontario to becoming a mining company president.
    • Sports played a significant role in Chris's life, teaching him accountability and competitiveness that translated into his career.
    • Chris Ritchie talks about his experience playing collegiate tennis at Miami-Hyle (Miami of Ohio) and briefly attempting pro tennis before pursuing finance.

    Transition from Tennis to Finance

    06:32 - 13:22

    • After pursuing a tennis career, Chris Ritchie studied finance and earned an MBA in finance despite initial uncertainty.
    • Early finance jobs provided foundational knowledge and lessons in risk management, including experiences during the financial crisis.
    • Covering clients in New York, Chris learned about the importance of understanding client mandates and career risk in decision-making.
    • Stepping outside traditional investing ideas and avoiding groupthink mentality prevalent in major financial centers like New York is highlighted as a challenge.

    Transition to Silvercrest Metals and Investment Insights

    12:57 - 20:08

    • Chris Ritchie transitioned from working in finance to joining Silvercrest Metals after helping raise money for the predecessor company.
    • Taking a pay cut and investing heavily in the new opportunity at Silvercrest Metals was driven by a desire to learn and grow.
    • Discussion on the limitations of paper currency as a store of value compared to hard assets like gold and silver due to debt levels and money printing.
    • A comparison between investing in traditional assets like gold and newer options like Bitcoin, with the speaker leaning towards gold for capital preservation.

    Insights on the Mining Industry and Gold Investment

    19:40 - 26:51

    • Gold is seen as a more secure investment compared to cryptocurrencies due to the absence of liabilities.
    • Investing in mining companies involves high risks with only a small percentage of projects making it to production.
    • Operating costs for mining companies have been increasing over time, impacting profit margins despite high gold prices.
    • Mining industry's reporting of all-in sustaining costs may not accurately reflect the total expenses involved in extraction.

    Supply Challenges and Gold as an Inflation Hedge

    26:31 - 33:44

    • The mining industry struggles to curtail supply due to logistical challenges and long-term planning.
    • Gold and silver are seen as assets that preserve purchasing power over time compared to fiat currencies.
    • Companies in the mining industry consider holding onto precious metals as a strategy for long-term value preservation.
    • Using gold as an inflation hedge is a governance topic that boards should consider for preserving purchasing power.
    • Social media has influenced stock pricing dynamics, as seen during the GameStop phenomenon.

    The Power of Retail Investors and Social Media

    33:14 - 40:35

    • Social media has changed the stock pricing environment, especially with the rise of retail investors and right tail events.
    • Companies now focus on creating products that attract customers who then create the brand through social media and viral marketing.
    • Mining companies have not fully tapped into the power of retail investors and social media for marketing and capital allocation.
    • Investing in gold miners can provide leverage compared to investing directly in gold or silver due to potential outsized returns when capital flows into the sector.

    Challenges and Opportunities in the Mining Industry

    40:07 - 47:37

    • China's rapid growth in the past led to excessive spending and a subsequent hangover, affecting the mining industry.
    • Current inflationary wave and ESG movements have deterred capital investment in new projects.
    • Expectations of supply issues leading to potential increase in gold and silver returns over the next years.
    • Shift from monetary stimulus to fiscal stimulus may result in increased inflation rates.
    • Concerns about demographic shifts impacting tax base and government spending decisions.
    • Challenges ahead for governments funding new mining projects due to aging mines and limited capital availability.

    Investing in Gold and Strategic Assets

    47:10 - 54:46

    • Investing in actual gold can be a hedge against production cost inflation and margin constraints.
    • Royalty and streaming companies are favored by investors for providing exposure to gold without operational risks.
    • Streaming companies benefit from fixed prices, stable streams of metal, and immunity to cost increases.
    • Holding onto gold can offer flexibility in managing capital allocation and reducing investor risk.
    • By holding onto gold, the company aims to differentiate itself, attract investors, and change industry norms.

    Gold Market Dynamics and Potential Price Dislocations

    54:21 - 1:01:20

    • Taking a small percentage of brick countries' foreign reserves could have a significant impact on the gold market.
    • China's increasing gold reserves indicate a shift away from US dollars, leading to potential long-term demand for gold.
    • Central banks buying gold as a store of value could influence the price of gold in the future.
    • Investing in commodities as stores of value and strategic assets is being considered by major economies.
    • The dynamics of supply and demand for metals like gold and silver could lead to potential price dislocations and leverage for commodity producers.

    Trading Strategies and Wealth Preservation

    1:01:11 - 1:07:44

    • Showcasing patience and keeping dry powder is crucial in trading for seizing opportunities
    • Investing based on future potential rather than current popularity can lead to success
    • Energy sector shows promise due to self-reliance and potential for stock buybacks
    • Learning curve in transitioning to a new role involves understanding known and unknown risks
    • Understanding the difference between real return and nominal return is essential for wealth preservation amidst inflation

    Economic Climate and Market Trends

    1:07:23 - 1:14:20

    • The discussion includes the challenges faced by young people trying to buy a house and get ahead in the current economic climate.
    • Real returns and their impact on portfolio building are explored, highlighting the importance of understanding both compounding and inverse compounding.
    • The podcast features a conversation with a representative from Silvercrest, emphasizing the company's strong financial position, resilience, and strategic decision-making in the mining industry.
    • There is a discussion on various market trends including oil prices, market breadth, and inflation numbers.

    Inflation and Central Bank Policies

    1:13:50 - 1:20:44

    • Market reactions to inflation numbers were short-lived, with investors quickly buying the dip.
    • There is a debate about the return of inflation and its long-term impact on the market.
    • Predictions and discussions around potential upticks in inflation rates and their effects on bonds and the economy.
    • Job numbers are being closely watched for trends that may impact market movements.
    • Global central bank monetary policies, including potential rate cuts, are under scrutiny in relation to economic conditions.

    Global Economic Conditions and Market Predictions

    1:20:15 - 1:27:35

    • European economy may have more room to cut interest rates compared to the US economy
    • Global central banks seem to be waiting for cues from the Fed before making decisions
    • Japan is slowly getting out of a disinflationary/deflationary funk by being slow to tighten monetary policy
    • Discussion on S&P rip and mag 7s with potential market impact due to open interest on calls
    • Bubble phases in markets can be unpredictable, with references to past experiences and quotes from Jim Rogers and Bob Farrell

    Tech Stocks and Market Analysis

    1:27:19 - 1:34:22

    • Discussion on the potential peak of the Eiffel Tower Formation in relation to NVIDIA stock reaching $1000
    • Advice on staying long in NVIDIA but being cautious about turning paper profits into real profits
    • Analysis of market trends with a focus on specific tech stocks like Amazon, Meta, Microsoft, and Lily driving the index higher
    • Observation of S&P 500 breaking to a higher high while NASDAQ lags behind due to breath deterioration and few major growth names leading the market
    • Prediction of a final bubble phase with certain stocks making significant moves before a possible correction by March OpEx

    Trading Strategies and Market Analysis

    1:33:56 - 1:41:05

    • The US dollar is in a primary trend, with the euro potentially weakening again
    • Currency pairs like US dollar yen have been strong, but the timing of trends changing is uncertain
    • Trading strategies include analyzing retracements and market movements for potential opportunities
    • Gold prices are at a pivotal level, with potential for improvement if certain levels are surpassed
    • Central buying influences gold prices more than rates or the dollar
    • Gold miners' stocks are currently in a downtrend, with uncertainty about potential turnaround

    Technical Analysis and Market Insights

    1:40:36 - 1:48:09

    • The speaker discusses the challenging chart of a stock they love but find ugly, waiting for a bullish signal.
    • They mention selling puts in crude oil dips and observing buy-on-dip traders to gauge trend strength.
    • There's analysis on natural gas futures, potential bottoming formation, and increased ETF shares despite price decline.
    • The large futures position in natural gas could lead to a violent move up if fundamentals change.
    • Discussion on contango in natural gas prices and strategies to navigate the market dynamics.

    Insights on Uranium and Market Analysis

    1:47:41 - 1:54:15

    • The collapse of the front of the curve has caused the spot price to drop, potentially due to a supply glut.
    • Uranium is trading at $98 while U.U.UN has been heavily impacted, possibly indicating an accelerated move on the closed-end fund relative to spot.
    • There's a discussion on whether Uranium will revert to a 10% discount or maintain a premium if prices rise significantly.
    • Speculation suggests that there may be spikes up to 25% in the discount or premium to nav for Uranium.
    • The trade involving Uranium is expected to unwind soon due to aggressive selling and potential bounce back opportunities.
    • The Nikkei index is discussed with an upper target set at 39-40,000, but there are expectations of consolidation around 39,000.

    Market Trends and Biotech Stocks

    1:53:56 - 2:00:56

    • European markets like Nikkei and Eurostock are showing bullish momentum compared to US equities.
    • Discussion on biotech ETFs XBI and IBB with technical analysis highlighting potential bullish trends.
    • XBI breaking out of a multi-week flagging formation, indicating a bull trend in accumulation.
    • Speculation on the future performance of XBI if the broader NASDAQ market turns bearish.
    • Caution advised regarding potential pullbacks in XBI around $92 to maintain a bullish trend.

    Bond Market and Interest Rates

    2:00:27 - 2:07:41

    • 30-year interest rates have dropped significantly due to factors like declining inflation and the Fed's pivot on rate hikes.
    • The bond market saw a shift in sentiment after the September FOMC meeting, leading to a decrease in bond yields.
    • The COVID-related economic shutdown and injection of credit caused an inflation surge, leading to record interest rate hikes and a bond bear market.
    • The current leg of the bond bear market may be over, with expectations of bouncing and retracement in the bond market.
    • Contango can impact leveraged products differently based on market movements, with choppy markets potentially accelerating Contango decay.

    Leveraged Trading Strategies and Volatility

    2:07:18 - 2:14:10

    • Understanding the impact of daily fluctuations on leveraged ETFs is crucial for investors.
    • The path and volatility of a security play a significant role in leveraged trading strategies.
    • Changing timeframes on charts can affect the interpretation of moving averages like the 50-day and 200-day.
    • The VIX and straddle trades differ in terms of calculation, behavior, and exposure to volatility.
    • Owning a straddle involves being long Vega and benefiting from volatility expansion, while the VIX focuses on at-the-money strikes.

    Insights on VIX Trading Strategies

    2:13:48 - 2:20:27

    • Owning a straddle and owning the VIX are essentially the same trade, especially when moving away from the strike.
    • Trading VIX options as a debit spread is not preferred by some traders who prefer to own the features directly.
    • Buying options on the VIX can be used as a hedge strategy but works rarely and may not be suitable for all traders.
    • Tea has more caffeine than coffee but releases it slower, providing a steady burn compared to the quick hit of coffee.

    Holiday Experiences and Unique Drinks

    2:20:02 - 2:23:03

    • The Tappache drink did not carbonate properly, resulting in a flat taste
    • The hosts discuss their holiday experiences, including island hopping and trying unique fermented drinks
    • One host shares a story about kayaking in a bay with bioluminescent plankton in Grand Cayman
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