We Just Witnessed A Major Capitulation In Gold Stocks – Investment Watch

The last time we spoke with 321gold founder Bob Moriarty one month ago, Bob was very clear that a major tradable low in precious metals was imminent. It turned out that Bob nailed the low in silver to the day. But gold needed to run everyone’s stop-loss orders with a sell-off below $1670 in the futures last week, before reversing higher and reaching a high of $1738 yesterday.

In this month’s conversation Bob explains why he believes we may have witnessed a major capitulation in gold stocks last week….

Goldfinger:

It’s good to speak with you today Bob, it’s the final day of the 3rd quarter (Friday September 30th) and what a quarter it has been. I want to start with what you and I talked about last time, and that was this idea that we were at a sentiment extreme, very near to a bottom in precious metals. That was a few weeks ago. I know you’ve written a couple things since then. Where are we today?

Bob Moriarty:

Well, interesting you say that because there was a bottom on September 1st, but somebody continued selling gold and gold didn’t bottom. And interestingly enough, I wrote a piece not very long ago. And I was pointing out that the sentiment of the US dollar , British pound and the Euro were at extreme low levels along with the S&P and the Dow, and that I thought they would turn. And in fact, that’s exactly what happened.

Goldfinger:

So when we spoke on September 1st it felt like a sentiment bottom, but as it turned out we needed a deeper washout in many of the mining stocks and gold. But silver notably diverged higher, and did not confirm the lower low that gold made on September 28th. The Gold Miners Bullish Percent Index (a breadth measure that can be useful at extreme highs/lows) appears to have made a major washout low last week when the BPGDM reached 3%:

Gold Miners Bullish Percent Index (Daily)

Bob Moriarty:

Well, for some stocks like Barrick Gold September 1st was the bottom, it was the bottom for silver too. And then three weeks later, gold bottomed, and then everything fell apart because of the British pound, and it continued down. But certainly if you look at gold today, it appears to be strong. However, I will say that I think from a sentiment point of view, we had a bottom on September 1st and then we had another retest of that bottom. And I think that gold, silver, and the shares have seen capitulation and should move much higher from here. Do you know who Ed Dowd is?

Goldfinger:

Yes.

Bob Moriarty:

He did an incredible interview with Greg Hunter on USA Watchdog called Unpayable Debt & Vax Causing Hell on Earth. I think the guy is absolutely great. He was managing billions of dollars for BlackRock, and he said in every way you measure it, sentiment is at the highest extreme, and he thinks gold, silver, and the gold stocks will go far higher shortly. Even though if you look at what happened in the UK, the bond market is about to blow up the world’s financial system. He is one of the few people who is constantly saying the debt that cannot be paid will blow up the entire system.

Goldfinger:

So let’s talk about that. Right now, this is Friday afternoon September 3oth. A lot of gold miner charts are having a very big rally this week. It seems like this could be a major turning point. Before we talk about the Bank of England, are you concerned at all about tax loss selling season, maybe making this not a bottom, or do you think the really poor performance and how much all these stocks are down in 2022 makes it much less of a problem that we’re facing with tax loss season?

Bob Moriarty:

I don’t think we’re going to have a big tax loss season. And again, that’s just an opinion. But we had major capitulation in gold stocks this week. Some of the best gold stocks I’ve ever seen were down 25, 30, 40% in the last two weeks. So my opinion is there will not be a tax loss season this year.

Goldfinger:

Let’s talk about the Bank of England for a moment. The British Pound was selling off very aggressively at the end of last week, and last Sunday night the gilt yields were spiking, so the UK sovereign debt was also selling off. This sharp decline in gilts and the pound were causing margin calls for some major institutions, including big pension funds in the UK. So the Bank of England stepped in and bought gilts on the market, and based upon what I’ve seen, they’ve bought about £10 billion worth so far in the last week. What do you make of this move by the Bank of England?

Bob Moriarty:

Well, actually, I think the way that you put it has it in reverse. It was the bond market crashing and pension funds collapsing that caused the British Pound to decline and Truss to start throwing money at it. Now, do you understand the mathematical relationship between the bond market, stock market?

Goldfinger:

Yeah, the risk-free rate affects how we value stocks and the risk-free rate is derived from the bond market in the form of the 10-year note yield.

Bob Moriarty:

Nope, here’s what I’m trying to get at, which is bigger.

Goldfinger:

The bond market is much bigger.

Bob Moriarty:

The bond market’s much bigger. Very few people get that. So pension funds in Europe, in the UK, in Japan, in the United States have put all of the pension money into bonds and bonds are collapsing because how can you invest with bonds at -1% when you’ve got 10% inflation? Now here’s the numbers I’ve seen in the last week. The German PPI was 45.8% higher than it was in August of last year. The German consumer price index went up almost 11%. It was just short of 10% for the EU. And of course, no bonds are paying that much. So what people are doing, anybody that’s in bonds has a guaranteed loss. And the longer you hold the bond, the more money you lose. So pension funds, and I believe, I think it’s gone over the edge. I think the pension funds are doomed and I think the borrow and spend debt based financial system, the West is collapsing right now.

Goldfinger:

So it’s interesting. Charlie Gasparino, who’s a reporter for Fox Business, made a tweet citing his Federal Reserve sources. So I don’t know how much credence we should put in it, but I’ll read it to you: “Federal Reserve officials are getting increasingly worried about financial stability as opposed to inflation as higher rates crush bonds. Fed growing worried about a possible Lehman moment with a 4% Fed funds rate as bonds and everything tied to them crash. Given the enormous debt issued in the past three years at super low interest rates. A Fed watcher told me the UK intervention was not a one off and systemic risk could happen in the United States too.”

Bob Moriarty:

That’s exactly my point and here’s the key: the bond market is so big that you cannot put a band-aid on it and fix it. We are not talking about a crash, we’re talking about systemic failure of the entire system. And candidly, I don’t think there’s any other possible alternative. Biden is pouring money into the system, which is increasing inflation. With an 8 or 10% inflation rate, how is a 4% Federal funds rate going to stop inflation? So the choice is hyperinflation to blow up the financial system or a deflationary collapse. And frankly, I think we’re seeing both of them at the same time. Real estate is collapsing. This thing with the Nord stream too, I think is the most insane criminal act in world history because it pretty much guarantees Europe’s going to blow up. So if anyone wants to deliberately destroy the financial system, they’re doing a really great job right now.

Goldfinger:

Regarding the Nord stream sabotage, and I know that we’re not going to agree on this, but I think there are some facts that we can establish. The facts that we can establish for certain are that two of the Nord Stream pipelines have been blown up by somebody and they are probably not fixable, or at least not fixable anytime soon. So that kind of destroys the whole Nord stream pipeline. We have multiple Putin statements this week. There’s multiple statements including this morning where he accused the US or their Western partners of blowing up the pipeline. He also mentioned that the US set the precedent for the use of nuclear weapons by bombing Japan during World War II, and then he mentioned twice that he’s not bluffing and that they would use any weapons at their disposal to defend Russia. And now these four annexed parts of Ukraine are now a part of Russia according to Putin. So we could say that the nuclear doomsday clock is ticking pretty fast now based upon all of this rhetoric, and it’s hard to see a peaceful resolution to all of this.

Bob Moriarty:

I would totally agree with that. What I would disagree with is the characterization that he’s threatening a nuclear war. Putin is saying he will defend Russia and Russia’s interests with everything that he’s got. He’s not going to allow Russia to be destroyed. And clearly The United States has made it clear that they’ve been attacking Russia since 2014. Now, I know that you totally disagree with this, but let’s compare the fair and free and internationally observed of both of the four provinces with the illegal US sponsored Coup e’etat in 2014. So the United States is taking the position that were against democracy and we’re for illegal intervention. The United States keeps attacking Russia and the United States is making a giant mistake of not listening to Putin.

If they had listened to Putin in January and February, there would not have been a war. Putin said, “Look, you agreed not to move NATO one inch to the East, and you lied.” And Ukraine agreed to stop attacking and to negotiate with Donbass directly, and they lied. It’s not Putin that’s the bad guy. It’s the United States and NATO. Putin is fighting all of NATO, with the exception of Hungary.

Goldfinger:

Putin is pure evil and the biggest threat to global peace and prosperity since Hitler. Every time I hear someone defend Putin or try to justify Russia’s attack on Ukraine it’s sickening to me.

Bob Moriarty:

But how can that be true? Putin said, “I’m going to defend Russia.” What’s evil about that?

Goldfinger:

Defending Russia is not the same as invading a sovereign country and killing tens of thousands of people.

Bob Moriarty:

You mean like Iraq and Syria and Afghanistan?

Goldfinger:

This is the neocon response to everything about Putin. When we were little kids, our mothers told us that two wrongs don’t make a right. And a lot of people forgot that. So two wrongs don’t make a right. And Gandhi said, “An eye for an eye makes the whole world blind.” So yes, what the US did in Iraq in 2003 was illegal and wrong. What Russia did in Ukraine this year is also illegal and wrong, period.

Bob Moriarty:

Strange enough, Putin is an extremely intelligent lawyer, and from an international law point of view, everything that he did is perfectly legal. And strange enough, he’s getting a lot of pushback from it’s own people because he didn’t use shock and awe. Putin didn’t go in and murder a million people like the United States did in Iraq, okay? Putin has killed somewhere between a hundred thousand and 200,000 Ukrainian soldiers who frankly are Nazis. I mean, they don’t make any bones about it whatsoever. And if you actually look at the conduct of the war, all of the atrocities are being committed by the Ukrainians.

Goldfinger:

Did you see Mariupol? Is this a city of 300,000 people? It’s completely wiped out, absolutely wiped out. And that was not by the Ukrainians. That was because they were surrounded by the Russians and bombed and shelled into oblivion for two months.

Bob Moriarty:

But they didn’t bomb civilians. They bombed Nazis. Good for them.

Goldfinger:

Oh, how do you not bomb civilians? It’s a city. There’s civilians everywhere. Of course, they bombed civilians, Bob. This is such an illogical and irrational argument you’re making.

Bob Moriarty:

All of the Ukrainian citizens are in Poland and Germany, and Latvia. They left Mariupol.

Goldfinger:

So Mariupol was attacked in the first days of the war. A lot of people didn’t have a chance to flee or they didn’t have the ability to flee. So look, I’m just going to end that there because we are never going to see eye to eye on Ukraine. I’ll finish by asking, is there a way for this to actually peacefully resolve? Let’s say the US tells Ukraine, “Look, if you keep trying to take back these four annex territories, you’re going to poke the bear a few too many times and Putin could go nuclear. So why don’t we just do this where you keep what you got, we’ll take you into NATO, don’t attack these territories anymore, and we’ll just kind of have a new border drawn.” And will that be a peaceful resolution?

Bob Moriarty:

Well, Merkel has come up and said, Ukraine should negotiate and Ukraine should recognize that they are not going to regain the territory. The former chancellor of Germany has come out and said, Ukraine should negotiate. It’s the United States and the UK who are telling Ukraine to continue fighting, and it’s total insanity. I mean, there’s no way in hell they’re going to win. And Robert, I’m telling you, the Ukrainians are getting their asses kicked and why they continue to fight is insane. Quite bluntly, you think Putin’s a bad guy, I’m going to tell you flat out. Zelensky and his buddies have been robbing Ukraine blind and everything the guy says proves he’s on drugs. Seven months ago the world understood Ukraine was the most corrupt country in Eurpope and now the Pope has put Zelensky up for sainthood. What am I missing?

Goldfinger:

All right, so turning to junior mining. So if this really is a sentiment washout, an epic sentiment washout. It’s hard to compare it to markets of the past, but it’s got to be up there with October of 2008, late 2015. It’s got to be up there on the list. So if this is the real deal, what stocks are you buying here? What junior miners have your attention?

Bob Moriarty:

In March of 2020, I’m going to read it to you. The gold miners’ bullish percentage index got down to zero. Literally every single stock that it tracked went negative. It’s at 3.45% now. It is at least as low today as it was in December of 2015. And from January of 2016 until August of 2016, the indexes were up 300%. A lot of stocks were up 500 to a thousand percent. If you take the stock, and I can’t bring it to mind right now, but I went to see Quentin in Colorado and Wyoming in October of 2008 and his company had gone down to ¢15 a share. They had ¢22 a share in cash when I was there and they went up to $1.65 in 18 months. You’re going to see that across the board.

You could buy the biggest piece of shit stock in the universe in the resource area, and it’s going to double or triple or quadruple. The really great stocks, and there are so many incredibly good stocks right now, are going to go up 500-1000%. I’ll give you an example of one, and let me make sure I pronounce the name right. There’s a stock called Kesslerun. The symbol is KES-V and it’s selling today for ¢3 a share. It’s got ¢3 a share in cash and they came out with the press release on the 22nd of September saying they had 11.6 meters, 14 grams per tonne. I mean there’s stock that should be a home run and it’s got a market cap of a $3 million and it’s got $3 million in cash. I don’t think you could lose money today. You could buy anything. It’s going to be a repeat of 2008 and 2016 and 2020. Do you happen to remember what silver went to in March of 2020?

Goldfinger:

Yeah, I think it dropped down to $12.

Bob Moriarty:

It went below 12. And do you remember what happened to it from there?

Goldfinger:

Yeah, it went almost straight up.

Bob Moriarty:

Exactly, silver went up 150% in 11 months between March 2020 and February 2021. 

Silver (September 2019 -April 2021)

Goldfinger:

That was an incredible move. And there’s a lot of silver stocks that are really, really beaten down right now. There are a couple of companies that we’ve talked about previously that I’d like to update. One is Eloro Resources (TSX-V:ELO, OTC:ELRRF) and they do have quite a bit of silver at the Iska Iska project in Bolivia. They published an updated model last week and a couple of drill results updates. Seems like they still need to drill these deeper holes into this tin porphyry target to prove their geological model correct. But as it is, the deposit(s) is getting quite a bit larger and they’re going to publish a maiden resource early next year. Is that one that you would buy that could benefit from a big move up in silver?

Bob Moriarty:

Strange enough, the stocks that are going to gain the most are going to be the stocks that are the cheapest, not the most expensive. Now, I had an ongoing argument with the management of Eloro who originally were talking about a resource of 500 or 600 million tonnes. I told Tom “you’ve got a Caldera, okay? And the whole thing is mineralized and you’ve got two to three billion tonnes” and they’re coming around to my point of view. I think it’s absolutely correct, they’re going to end up toward two or 3 billion tonnes. I think it’s going to be the biggest silver-equivalent deposit in the world. And they’ve got multple tin porphyry calderas. Tin is in a long term bull market. They’ve only got a C$220 million market cap, there’s just dozens and dozens of spectacular companies with great deposits that have been hammered.

I’ll give you another one. Cartier Iron (CSE:CFE) is selling for $.07 and they’ve got $.10 per share in equity holdings of Eloro shares, so if you want Eloro, you shouldn’t buy Eloro, you should buy Cartier, CFE on the Venture. But believe it or not, the really crap stocks, and I mean the bad stocks with poor management, they’re the ones that are going to go up the most.

Goldfinger:

Yeah, it’s interesting that you say that and just how cheap some of these juniors are right now. If we travel to the Yukon for a moment, the Yukon is home to some of the best stories in the junior gold sector. Snowline Gold (CSE:SGD, OTC:SNWGF) is a big new discovery story that some people are speculating could be as large as 50 million ounces. Snowline has put out some of the best results of 2022 in the entire sector, including an eye popping 283 meter intercept averaging 2.3 grams/tonne gold.

Snowline Gold (Daily)

And then Banyan Gold (TSX-V:BYN, OTC:BYAGF), if you take a look at Banyan today, it has about a C$100 million market cap on the venture exchange in Canada, and they have a resource of 4 million ounces of gold. And the CEO is Tara Christie, and she’s been talking about how she believes that it’s going to be six to seven million ounces when they put out a resource update by the end next year (PEA in 2024).

Banyan Gold Road Ahead: Resource Update in 2023, PEA and commencement of permitting in 2024

So if you think about it, if you take her at her word and plug in 6,000,000 ounces at today’s C$100 million market cap, you don’t have to be a rocket scientist to do the math. That’s about C$16 per ounce of gold in the ground for a very, very large gold deposit in a great location within 30 miles of an operating gold mine. That seems absurdly cheap to me. And if gold does run back up to $2,000/oz, my guess would be those ounces are going to be worth a lot more, they’ll be worth $50/oz or maybe even more.

Bob Moriarty:

Actually, it’s going to be a lot more, more like $400 an ounce in a takeover. Let’s jump for just a minute to the Fed. I think I commented and said that the Fed has painted itself into a corner. If the Fed reverses against the same thing that the UK did and goes from QT into QE, you’re going to see the price of gold and silver explode. And frankly, I think that’s what the Fed always does. When the stock market starts to crash, they start throwing money at it.

Goldfinger:

That’s certainly what markets have become accustomed to. Right now everybody’s betting that there’s going to be no Fed pivot this year. But obviously that’s dependent upon markets. And if the market does get much more out of control, then most likely we will see the Fed reenter the market with some form of yield curve control, something similar to the Bank of England, right?

Bob Moriarty:

Well, what happened in the UK, the pension funds collapsing is probably more important than the stock market collapsing. Okay. Nobody’s going to believe that until it happens. But what happened in the UK was an acknowledgement that the pension funds are totally underwater. The entire EU is so far behind the power curve in terms of interest rates that the bond market is confetti and every pension fund in Europe is invested in government bonds that have lost a third of their value so far.

Goldfinger:

Let’s wrap up with a final question as far as the broader stock market goes. So if we’re at a turning point for precious metals, does that also probably mean that stock indexes such as the S&P 500 will bottom out here soon?

Bob Moriarty:

I think there’s going to be a relief rally for the S&P – the S&P recently had a Daily Sentiment Index (DSI) of 5 and that’s pretty close to being a historic low. However, everything that’s pumped up as a result of the Fed pumping money into the system is going to collapse. And that includes the bond market and the stock market. One of the things that everybody seems to be missing and Putin’s been very clear about this, he believes that the debt based financial system of the West needs to collapse. And it’s his intention with China to come up with a new financial system that’s not based on debt. What the world needs to do, and I think one thing you and I can agree on, is the level of debt in the world can never be paid.

Now, quite blunt, the best solution would be a debt jubilee and nobody wants to talk about that. And everybody wants to pretend the debt is going to get paid. The debt is not going to get paid, period. There’s not enough money in the world. And when people realize it is not going to get paid, the bond market’s going to go to zero, but the stock market’s going to go to zero and everybody’s going to head for the coin store to go buy some silver and gold.

Goldfinger:

And on that note, I’m going to head over to my gold bullion dealer and buy some gold right now. As always, thank you for your time and insights Bob, until next month.