Central Banks to Give Up on 2 Inflation Targets

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Central Banks to Give Up on 2 Inflation Targets

Summary

➡ Central banks, such as the Federal Reserve and ECB, are starting to give up on maintaining a 2% inflation target due to the challenge of monetary management amid changing economic relationships. The ECB has openly abandoned the target, leading to a fall in the value of the Euro and a rally in European stocks, while the Federal Reserve maintains its focus on achieving stable prices, with some speculating it could abandon its target soon as well. The author discusses gold investments as a way to benefit from expected higher inflation.
➡ The mismanagement and setbacks from Pure Gold Mining led to a class action lawsuit from investors, despite the company managing to produce 9000oz of gold in Q3. Eric Sprott, the second largest holder, lost a significant amount, but there’s potential in the project under West Red Lake Gold, purchased by a team of turnaround specialists. Their four-part plan includes reducing ongoing liabilities, reengineering the mine, restarting the new mine, and starting production. The project, previously worth nearly 1 billion, holds potential value given neighboring deals and previous investments. If executed properly, it could produce 100,000oz per year in two years, which would significantly increase its current valuation.

Transcript

Central banks give up on the 2% inflation target? Well, central banks have mandates to control the monetary order. For example, the US. Federal Reserve has a dual mandate one, stable prices and two, full employment. So legally, they are to manage the monetary system to keep prices stable. So I guess they’ve done a pretty bad job. But really, how do they manage stable prices? Well, well, of course, by an arbitrary number, by focusing on 2% inflation.

And as hard as the central banks around the world have tried to fight inflation, it looks like some of the central banks might be ready to throw in the towel and give up on the 2% number. So in this video, I’m going to break down which central banks are on the verge, what exactly they said, where the US. Federal Reserve sits on this and what asset prices are already doing in response to this, and hint they’re going to blow up.

And I’m going to discuss some of my favorite ways to play this as it all unfolds. So let’s go. Hey, welcome. If you’re new to the channel, my name is Mark Moss. I make these videos to change the way you think about money, because almost everything we’ve learned is wrong, almost everything you’re seeing is wrong. But don’t worry. We’re going to take these complex subjects and make them easy to understand.

We’re going to make them actionable. So you know what to do. And today we’re talking about the central banks abandoning their target. Now, you already know the central banks around the world have been tightening monetary policy by raising rates to fight off inflation, and they’re trying to bring it back down to this arbitrary 2% inflation target. But as we’ve been talking about, it’s not working. And in many cases, it’s actually just making things worse for many reasons.

And as the central banks are caught between this proverbial rock and a hard place, there’s been lots of talk about why the 2% target is even there, as it was just a thrown off the cuff remark from New Zealand’s finance minister 30 years ago, and it stuck. Most central banks, including the Federal Reserve, adopted the 2% target in 1990. But today, it’s starting to sound like banks are ready to abandon the target, and one of the largest banks in the world just did.

While there’s been lots of chatter that the Federal Reserve is abandoning the target, jerome Powell has so far seemed to stay pretty focused on it. But keep in mind, this is also the same guy that told us inflation was just transitory and that it wasn’t a problem. And also keep in mind the Fed’s mandate is stable prices, and it’s not a particular number, so they can determine what they think is stable.

But for the second largest central bank, the ECB, they seem to have just caved in and actually thrown in the towel. Last month during the Federal Reserve central bank symposium at Jackson Hole, Wyoming, ECB President Christine Lagarde said, quote, that the world could be seeing the start of a new economic hmm. Okay. She went on to say that, quote, we may be entering an age of shifts in economic relationships and breaks in established regularities.

For policymakers with a stability mandate, this poses a significant challenge, end quote. She went on to say, quote, we must and we will keep inflation at 2% over the median term, but in order to achieve our goals, we need flexibility in our analysis. We cannot make policy based on simple rules or intermediate targets in an uncertain economy. And this means that we cannot exclusively rely on models that are estimated with old data attempting to fine tune policy around point forecasts.

End quote. So do you hear what she’s saying? Can you hear what she’s saying through there? So we’ll get to 2%, but maybe over a long average. Now they’re all being forced to adopt this new view because it’s getting difficult to see how inflation could fall. We’re seeing commodity markets continue to see broad supply constraints, keeping food and basic material prices elevated. And the oil markets are ripping higher as the US.

Strategic petroleum reserves are almost empty. And OPEC plus are busy cutting back on the supply, leading to what looks like an oil shortage in the fourth quarter of this year. And then just this week, the ECB announced a 10th consecutive hike. But in a market moving statement, it also indicated that further hikes may be off the table. In the statement, they said, quote, Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target, end quote.

They went on to say that, quote, The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary. End quote. So this is what we call in the United States, we call it Fed speak, meaning you have to learn to read between the lines and the market. Sure did. Right after the meeting, the euro fell sharply on the announcement, and it was down 0.

5% against the US. Dollar, which is a three month low, and European stocks rallied. Central banks like the ECB and the Federal Reserve will be forced to choose between supporting their economies or keeping inflation under control. I don’t think they can do both, especially with sovereign debts that are exploding. Now. The US. Just announced it will be running $2 trillion deficits, doubling last year’s increase. So I expect more inflation and you should too.

Maybe not hyperinflation, but headline inflation above three or 4% during the next couple of years is not unreasonable, which will be a great environment for commodities and gold, which is why you see many analysts calling for a $3,000 gold price target next year in 2024. Now, there’s a few ways to own gold and play the gold trend. And I cover them regularly. So first you have physical gold.

You got jewelry, Buoyan, you got coins, things like that. Then you have ETFs that supposedly buy and hold gold for you like GLD. And then you have miners, majors, miners and explorers, which give you a leveraged play on gold. Because if you have 1 millionOz in the ground and the price of gold goes up by, say, $300, that’s a 300 million dollar price swing. And I have a story for you today that you’re going to want to hear about.

A mining company that I’m looking at today that’s a proven producer. And once you hear the story, you’re going to know why. I just bought a good chunk of it myself, and I plan to hold it for two years until it pops. Now, full disclaimer. This is a promotional video, and I am not telling you to buy this. I’m only making this video for educational purposes only, so you can learn how and what I’m looking at so you can find your own diamonds in the rough.

All right, let me explain why. The company is called West Red Lake Gold, which is in the prolific gold region of Ontario, Canada, called Red Lake. They’ve been mining this area for just over 100 years. This area is home to many giant gold mining companies like Gold Corp. Which is one of the largest gold mines in the world. And they have mines in this same area. We’re going to come back to that in a bit.

Now, an important part of this is the project. West Red Lake Gold isn’t just some exploration company, and the project is not just a piece of land or a hole in the ground. No, this project is at the 90 yard line. They have the mine, they have the mill, and it’s ready to go. So what happened to it? What’s the story here? Well, it’s interesting. Several years ago, this project got a ton of attention in the investment world and the gold mining space under the name of Pure Gold.

They went on to raise hundreds of millions of dollars to build this thing up, bringing on some decent investors, including the arguably largest name in the resource mining space on board sprott. With all of this in place and the potential of the project, they were able to get the valuation of this company close to $1 billion. But things started to unravel very fast. First they got hit with COVID and then the shutdowns, and then the delays, and then the inflation.

Then they had poor management, first taking on too much debt, then not managing the debt properly. And they also royally mismanaged the mine. One of the key causes of the company’s lack of funds can be traced back to Pure Gold’s rough start at its Red Lake mine. The company initiated the project by unknowingly mining at the incorrect end of the deposit. According to the company management’s discussion and analysis from quarter two of 2022, it said, quote, execution diverged from planning with grades significantly below plan.

Puregold was mining small and or low grade slopes and was incorporating significant dilution into slope designs. So they diverged from the plan and they mined in the wrong areas, low grade. Even so, even with that, they still managed to produce 9000oz of gold in the third quarter, which was actually within its guidance of 8700 to 12,000oz of gold. But the mismanagement, the delays, the setbacks were too much.

The investors were angry, and they filed a class action lawsuit against the company. Now, mining legend and financier Eric Sprott was the second biggest holder of Pure gold with a 6. 7% stake. And he was quoted saying, I don’t think I lost 100 million, but it could very well be. Now keep in mind, this project is in the prolific gold mining area that’s produced for over 100 years.

There’s several really big projects nearby, including Rubicon Minerals Corp. That also went bankrupt but was purchased by Australia’s Evolution Mining last year for a $4. 8 billion valuation. Also, another company called Great Bear Resources was purchased by Kincross Gold Corp. For 1. 8 billion. And the mining project wasn’t even built yet, and they had no proven reserves. So if you’re following along, this project under Pure gold was worth almost 1 billion.

Another neighbor property went bankrupt and was purchased for 4. 8 billion. Another neighbor property with no proven resources was purchased for 1. 8 billion. And the price of this project today, the West Red Lake gold is only 70 million, which is about 93% off. And the new team that bought it is a team of turnaround specialists who have long and strong track records of turning these things around for huge paydays.

So West Red Lake Gold will, one, reduce ongoing liabilities, stabilize, and show the market they know what they’re doing. Two, with many defaults at the old mine, they’re going to reengineer and rebuild the new mine. Three, they’ll restart the new mine, where to put the mine, the shaft, the blueprint, and then finally, they’re going to start production. And this is going to take about two years. Now, are they able to pull this off? You know, as an investor, the first thing that you’re always looking at because what you’re really investing into is the team.

And this is an all star studded, all star cast of team of turnaround specialists. So first we have Frank Gustra. He’s the co founder and advisor to the company. He’s also the largest individual shareholder and has some serious skin in the game. Frank was a co founder of Goldcorp, one of the largest gold mining companies ever, and he’s founded several billion dollar companies. His track record speaks for itself.

Now, sure, he’s had some losses as well. You can’t bat 100, but his successes are in the billions. The next is you have the CEO, Shane Williams. Now, Shane has 20 years experience building gold mines. In fact, he’s built four in the last 20 years. He’s a mine builder. His last mine was for El Dorado, which is one of the largest in the world. And with his expertise at CEO at his previous company, their stock price went from one dollar to sixteen dollars.

Next, we have Tony Makush. He’s a director. He was the CEO at Kirkland Lake Gold. You probably know the name. During that time there, he increased production four times from 315,000oz to over 1. 4 million. In that deal, Sprott took home over $1 billion. The stock went from seven dollars to thirty five dollars, and he was able to get them merged with Ignigno Eagle. Then we have Duncan Middlemus.

He’s the former CEO of Westom Gold Mines, previous chairman for Ontario Mining Association, previously with Barrett Gold Corp. And Kirkland Lake Gold. And under leadership, he was able to get the stock from one dollars to $15 a 15 X. Now, these four, the Dream Team, have all created massive wealth and not in a distant path, but right now. So now that we have the team, how do we get the value of this project? How much could it be worth and how much money could we make? So let’s take a look at it from a few different ways.

First, as mentioned above, it was previously worth almost 1 billion and had some great investors like Sprott on board at that billion dollar valuation. Now, I also talked about a few other neighbor deals worth 1. 8 billion and 4. 8 billion. So that’s kind of the price range. Second, you have the hard cost. This project has the mine, but it also has a mill, which was $100 million to build out.

With this mill, they’re going to be able to negotiate and consolidate with other mines in the areas. Now, the total project has over 350,000,000 in investment funds put into it. So that’s like the liquidation value. If they wanted to sell it, the appraisal would be at least 350,000,000 or more because that’s the replacement value. But it’s probably worth more like 700 million, because with inflation, it would cost way more to do it today, and it would take about four years of time.

Now, the co founder, Frank’s Mo, is to acquire poorly managed and distressed mines just like this one, and then turn them around. And if him and his Dream Team execute this properly, in two years time, this could be it should be producing 100,000oz per year. And companies that are producing that much gold on this level are trading between 500 million to 1 billion, which is about seven to 14 times on our price.

We can get in today, which I think can happen in the next two years. Now, this isn’t some speculation like a normal resource explorer would be. This is a strategy to execute against. And we can see from recent insider filing statements that Frank Shane and others on the team are buying more stock right now. Their last purchases have been in the 50 cent range, and we can actually buy in cheaper than them right now.

Now, maybe they’re wrong, maybe they’ll fall. We don’t know. But it’s not just them. Sprott, who I mentioned earlier, was one of the largest owners of the previous project under the old company. They’re back in the deal as well, so they must really believe in it. In fact, he’s known as one of the best commodity, asset allocators in the space, and they have a 23. 4% ownership in the deal.

Also legendary. Vanek gold from the GDX fund owns 6. 5%. Their neighbor, Evolution Mining, one of the biggest mines in the same area with a $7 billion market cap, is also in on this deal. And as I said, full disclaimer, so am I. Now, this is for educational purposes only. I’m not saying that you should buy this, but it really is cheap. But it could get cheaper, which is why I plan to hold for about two years, because we need time to let this deal develop for it to be built out.

It’s going to take some time. Now, speaking of time, I did a video on two of my favorite uranium plays that took a long time to move, but they’re finally moving. I told you, uranium is one of my favorite plays. It’s finally moving. It continues to be one of my favorite plays. Now, I covered a company called UEC on July 30 of last year, and it’s up 120% since just May of this year.

I covered another one, Uroy, on February 26 of this year, and it’s up 55% in the same time frame. So when you’re playing with these small companies, they’re volatile, and you have to allow them time to develop. You have to allow the trend to develop. And I think Frank, Shane and Tony over at the West Red Lake Gold have the asset, they have the strategy, they have the plan, and they have the experience to pull this off.

But let’s just wait and see. But let me know what you think down in the comments down below. If you like to play in the resource space at all or if you just stay away and buy the physical gold, let me know in the comments down below. Of course, as always, give me a thumbs up if you like the video. If you don’t, you can give me a thumbs down.

That’s okay. But at least tell me why in the comments down below. And that’s what I got to your success. I’m out. .

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central banks class action lawsuit economic relationships Eric Sprott European stocks FEDERAL RESERVE gold investments higher inflation inflation target investors monetary management neighboring deals ongoing liabilities production Pure Gold Mining stable prices turnaround specialists West Red Lake Gold

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