A BIG Gold Cycle is Brewing Now

I’m in a Melbourne skyscraper.

I can see the MCG across the city out the window. I’m chatting with an older gent that looks a bit like Willie Nelson.

‘I’ve been investing in gold stocks for sixty years,’ he tells me. ‘I can’t stop or change now.’

Another gent pipes up. ‘The outlook for gold over the next ten years is fantastic,’ he opined.

He smirked. ‘Problem is…I’m not sure I’ll be here in ten years!’

We’re at the Lion Selection Group [ASX:LSX] AGM. My buddy Hedley Widdup is the CEO.

He’s also one of the smartest guys in the junior mining space I know.

Hedley is seriously pumped for the opportunity in the junior resource space right now.

The stocks are on the floor but beginning to rumble.

I can tell you something else too. Hedley is not a ‘perma-bull’.

Back in 2022 he was warning anyone who cared to listen away from the mining space. I wrote about it at the time.

There’s been total carnage in the junior resource space since 2022.

Lithium and rare earth stocks, for example, have collapsed. Even the gold juniors got blasted despite a resilient gold price.

Lion cashed out at the top of the market. They’re now allocating funds at prices 50-90% down on where they were two years ago.

Hence this slide in Hedley’s presentation…

I will fault Hedley for one reason. He called Cameron Diaz – a total knockout in the movie this slide alludes to – as ‘Drew Barrymore’.

That aside…

All my experience around the mining space tells me Hedley is bang on

Now’s the time to consider scooping them up while they’re out of favour and primed to come back.

The good thing about mining stocks is you can dial up your risk versus reward ratio to suit your style.

You can go for cash producing miners. You can go for higher risk explorers or developers. You can simplify it by using ETFs.

You can see this spread of options at Fat Tail Investment Research.

Murray Dawes over at Retirement Trader recently recommended a uranium ETF.

Over at Diggers and Drillers, James Cooper covers all the metals.

I’ve been trading and recommending gold stocks lately for my services Australian Small-Cap Investigator and Small Cap Systems.

Two of my gold stock recommendations are Spartan Resources [ASX:SPR] and Brightstar Resources [ASX:BTR].

Spartan just released some more nice drilling results. The stock jumped last week.

Let me explain part of the mining dynamic you need to be aware of.

Developers like Spartan and Brightstar need money. That means they need investors.

To attract investors, obviously, people need to think they’re going to make a lot of money to give it to the mining companies.

Since 2022, mining IPOs have slowed to a trickle.

This is indicative that money for exploration and mining development fell off a cliff as investors became risk averse.

That’s beginning to reverse. Why?

You don’t have to look very far. The gold price is at a record high.

Look at gold compared to copper to see this in action…

What’s interesting is how much further it could go. Hedley made a good point about this.

Gold is not an industrial metal.

Companies (except jewellers) don’t have it as an input cost.

That means basic business economics doesn’t push back on the price like, say, copper.

A business can only absorb a rising price before they start looking for alternatives or become unprofitable.

Gold is like bitcoin, in that the higher it goes, the more people start chasing it!

My point is: a high gold price makes the ‘story’ that gold developers and explorers need to sell an easier pitch to get funding.

This money, in turn, is put to work drilling deposits.

Why do you care?

It’s the drilling that sets up the boom time results that certain miners are known for!

Look at Spartan Resources over the last year…

This is happening as Spartan’s drilling is discovering more gold at their Dalgaranga deposit.

That means SPR can provide a regular stream of news flow to the market…and fund managers can start to model the potential cash flows as they move into production.

Even better…the higher gold goes, the more profitable Spartan – and other gold projects – look.

It’s why Northern Star is going to swallow De Grey Mining – announced on Monday.

Go back to the lithium boom a few years ago. Some investors were able to make exciting returns.

Every market instinct I have tells me something similar could happen to some gold investors in this cycle. We’re brewing up for a big one.

My earnest advice is to start following the junior mining space as close as you can.

The hard part – for me too – is making sense of the technical details around deposits and drilling results.

There are many gold projects. Some are duds. Some are ok. Some are exceptional. It’s not easy to tell them apart without a trained eye.

The best place to start?

My colleague James Cooper over at Diggers & Drillers is a trained geologist.

He’s worked inside the mining industry. He spends all day poring over their market releases and projects.

But his decade-plus of on-the-ground experience means he doesn’t just know how to dig into and analyse the results and numbers…he knows the ‘dirt’, too.

And this puts his group of private investors at a distinct advantage.

Find out why – along with his ‘Big 4’ resource stock ideas – right here.

Best wishes,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator