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How I found Gold in White Water Rapids

by trusted insight posted 5years ago 217 views

Or you Love it? In which case you may be a crackpot doomsayer preparing for War against the government.

Translated into English from native Afrikaans (a Dutch derived language) it means “Ridge of white waters” and refers to a 56-kilometre escarpment of hard, erosion-resistant quartzite rock, over which several rivers form waterfalls.

What perplexes most analysts about Gold is its fuzzy logic, that is, no one factor can always be counted on to dominate for a successful foray into the Gold Markets.

Our answer to the above is a resounding YES! All of the above are/were true at some time or another.

A 20 year Bear Market can and did affect an entire generation of investors who became acclimated to thinking of Gold as a dead instrument NEVER worth owning.

Then as if a Phoenix from the ashes Gold started moving higher during the 2000-2002 equity Bear Market.  At that time the boom was imploding (fear), credit spreads were widening and a recession was on the way. Real Interest Rates were falling as the Fed lowered interest rates and inflationary expectations waned (the opportunity cost for holding Gold became lower).

Of interest is Golds performance during the 2008 crisis where it initially dropped ~30% but swiftly regained its status as a fear trade as a banking crisis swept across the financial landscape.

For our own book we spent most of that decade Down under in Australia. Dabbling in junior miners and having a helluva time doing so. We even took a trip to Perth Australia - the most isolated city in the world and relatively close to Western Australia’s Gold, Uranium, and other Base Metal ore bodies.

As if the exuberance got too much, 2012 – 2015 saw a correction in Gold. Quite logically a bear market was required to dampen the spirit of the bulls and reawaken the fears of another secular decade long disappointment (good investments need a lot of public skepticism to work). Not by chance, this period coincides with a general equity bull market and hence overall financial fears subsided.

Our attention to Gold recently piqued again as it once again pierced its 20-month moving average (figure 1 – 2016 onward) moving higher.

We know from experience that the SA miners are highly leveraged to the price of Gold. They have high debt: equity ratios, are plagued with labor and other operating risks and stand to benefit from a collapsing South African Rand.

Mid-tiers and juniors that are creating value through growth look undervalued to us due to market concerns over project financing or acquisitions. Some of these companies may need additional capital if gold prices average around $1,100 or less.

Of particular interest are the Australian mid-tiers and junior miners because the Australia market does not carry the same financing stigma as some of its global peers.

Sentiment toward Gold has recently become more positive which is a short term warning sign to us that a pullback is possible, but the signs for a more enduring move higher in the long term are quite apparent!

Thank you for reading my post. I regularly write about private market opportunities and trends. If you would like to read my regular posts feel free to also connect on LinkedIn, Twitter or via Atlanta Capital Group.

Greg Silberman is the Chief Investment Officer of Atlanta Capital Group. Atlanta Capital Group specializes in creating custom private market solutions for RIA/Family Office clients and is an active acquirer of independent wealth management practices.

Nothing in this article should be interpreted as a recommendation to buy any security. Please conduct your own due diligence.  

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