Yesterday I finished by describing the gap between me recommending a micro-cap and Gina Rinehart turning up on the register with 5%.
It steadily marched up the charts, but not necessarily like a rocket.
The story was building, but not many eyes were on it when I initially put it in from of readers.
The point is…
Being early on a small-cap or micro-cap and being wrong look identical from the outside.
They feel fairly similar from the inside too.
But not entirely.
And success often shows up later, when two very different things finally line up.
That’s the secret to a big win.
I want to walk you through both today, because one of them is why I have been recommending gold companies:
- The company itself
- Macro
On the first one…
I want cash in the bank, a sensible share register, and (ideally) a board with a track record of raising money without punishing the people already in the company.
That is half the work.
The other half is spotting the macro wave before anyone else looks up.
Why I like gold in a flat market
Over the last two months I have been recommending some gold companies across my services.
It felt lonely at the time.
And it still feels a bit lonely.
Gold peaked near US$5,600 an ounce in late January and has spent the months since grinding backwards, now tracking sideways around US$4,030 this week.
I think gold gets a second wind in the back half of this year.
The reason has very little to do with the inflation numbers in my view, so join me down the rabbit hole once more…
Something strange at the
heart of the money system
The well regarded Michael Howell of Capital Wars published a piece over the weekend that lines up neatly with what I’ve sensed in the ether of hundreds of charts and thousands of headlines.
He starts with a distinction most investors skip straight past.
Main street inflation is your groceries costing more, while monetary inflation is the currency itself being watered down.
Gold hedges the second one.
Then comes the interesting bit.
Howell argues that China is NOW the marginal pricer of gold, AHEAD of America.
That’s a big shift that no one is talking about much.
Official central bank buying is part of that story.
The bigger force he points to is the People’s Bank of China expanding its balance sheet to fight debt deflation at home.
Debt deflation means the debts stay exactly the same size while prices, wages and asset values sag underneath them. The historical escape route is to print into it.
Source: Michael Howell, Capital Wars
China runs two monetary circuits at once.
Capital controls, a ban on crypto and compliant state banks let Beijing water down the yuan at home while keeping the yuan to US dollar rate carefully managed.
Push the gold price up in yuan, and the US dollar gold price follows it.
Now for the startling bit.
Howell reckons gold’s slump this year lines up with China quietly turning the money tap off, roughly from the start of March to the middle of June.
Iran tensions at one end of that window, the MOU with the US at the other. Tap off, and bullion sagged.
On his reading, the tap is back on.
Source: Michael Howell, Capital Wars
He puts gold’s base near its yuan trend line at RMB27,000 an ounce, which works out at roughly US$4,000.
Gold is sitting almost exactly on that line right now.
Chinese bond yields are falling while American yields climb.
And the Shanghai Gold Exchange has started shoving London and COMEX around.
The gold regime is changing, big time.
Reading the room
If Howell is right, the most important number in the gold market is a PBoC balance sheet line that almost nobody in this country has ever opened.
That’s the kind of dormant, powerful macro theme I’m looking for.
By the time it lands on the front page of the AFR, the good gold juniors have already run hard.
So the setup I am hunting is simple enough to write on a beer coaster:
- Well funded company with a
- Capable board
- Decent register (big names involved) AND;
- A macro-theme that isn’t in the headlines…but will be soon
The trick is reading the room before the room reads itself.
If all of this sounds like arcane knowledge and a big mysterious riddle…
Strap in for tomorrows piece where I go further down the rabbit hole.
All the way to a tiny micro-cap that Gina just backed with a small portion of her SpaceX IPO exit liquidity.
And in a grand twist of fate – that money is to supply a material that SpaceX desperately needs…
Regards,
Lachlann Tierney,
Australian Small-Cap Investigator and Fat Tail Microcaps
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