If Golds Over $2100 Now What Happens When The Fed Cuts? | Arcadia Economics
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Steve, if we’re not yet back to the point where we’re full focus on cuts and you have a $2100 gold price. Now, obviously there will be ups and downs in the process as we see things unfold, but what happens when they actually do start cutting the land of Arcania? Well, hello there, my friend. Friends. Chris, Mark is here with you for Arcade Economics and excited to dig in because as we’re recording on Monday morning this week, we have a gold price back above $2,100, a sizable distance above $2,100 too.
And be interesting to see what happens in the next few days following that. But going to be digging into that and some of the other news affecting the metals and miners with Steve Cope of Silver Viper. And, Steve, before we get started, how are you doing today, my friend? Doing good. It’s nice to be on the show when gold’s actually running up. We closed at an all time high on Friday or all time high close and now pushing through and trying to test the day.
All time high, hopefully. So it looks like we’ve got a little bit of a tailwind here, helping out metals prices, and hopefully it’s just the start of the big run that we’re all expecting over the next few years. Yeah, and I might add, as I pull up our gold chart here, we have gold at 21 23. This is with hearing talk about the possibility of a rate hike in the past couple of weeks, ever since the last CPI and PPI reports came out.
Seems like that has died down a little bit. Yet looking at the way the markets look forward to, whether there’s cutting or hiking coming, seems like a bit of a shift from what we saw earlier this year, where many people were pricing in rate cuts as early as March and five or six cuts throughout the year certainly seems like that’s been backed up. But Steve, if we’re not yet back to the point where we’re full focus on cuts and you have a $2,100 gold price now, obviously there will be ups and downs in the process as we see things unfold, but what happens when they actually do start cutting? I hope that’s what we’ve all been hoping for for years.
This is when silver needs to break out, start hitting all time highs. Gold is going to push through and continue to move up and be the rock star metal that it is. When you look at the gold chart over the years, it’s a great chart, and people have just disregarded it because the equities don’t perform in line with gold over the last little bit. But the gold chart, when you start going five year, ten year charts, it’s a great chart.
It’s shocking that our sector doesn’t get more attention. That’s what you want to see on a chart everywhere. I think it’s going to have its day. It’s going to start breaking out. I think you’ll see it disconnect from the cryptos and start to outperform bitcoin because I think bitcoin is in for a pullback here moving forward. I’ve seen some people even calling for as much as being cut in half on the price here in the short term after hitting new highs.
So gold, I think, is, as we all know, and silver are the ones that ride out and have been the great performing through history. It’s your insurance against your other investments. It’s what you need to have money in. And one of the things that’s going to happen here with gold and silver is all these people that aren’t invested in gold and more, so are the big funds and that, that just get bored of something that doesn’t perform at the same rate as their blue chip stocks.
And you’re going to see money start to pour back in from all those different sources to get back in and get 5%, 10% of their portfolio and get exposure to gold again. And that will help the equities, it’ll help physical metal prices. And that’s what’s really going to trigger the big run up in the price as we move forward is when they get on board here and realize that they need to start protecting their other investments by getting back into gold.
Because the equities and the Dow and the S and P 500, those types of stocks are going to have a pullback and they’re going to get hit as we move forward. Yeah, and we’ve seen that on the central bank level, obviously, where the two years ago we had a record level last year, just 47 tons short of that. So not sure that we’ve seen that yet in terms of institutional investing here in the US or a wave of gold interest, although certainly this is the kind of thing that could bring some more attention to that.
Looked on CNBC a little while ago, no mention on the front cover yet for gold, even as we are now at a new all time high in terms of during comex hours. Obviously that other move above 2100 about, I guess that’s about three months ago now as we enter early March during the night session as markets open in the east and a real quick look at our Fed cut probabilities priced in 50% chance in June, not seeing a probability of a hike in our near future.
We did have that higher inflation numbers that came out with the last CPI report, and certainly if you look at those, makes it a little bit challenging for the Fed to start cutting in the face of that. Although as we see here is the PCE numbers. That is what we are told the Fed likes to use more and more PCE year over year in January, down to 2.
4%. So I guess we’ll see how these numbers continue to evolve and the differences between the two. But Steve, how do you think the Fed is looking at that, and are they going to be able to cut into this decline yet? Still some persistent inflation that we’ve seen? Yeah, I still think there’s other factors factoring in that’s putting the pressure on the Fed to have to cut. I’ve stuck with June as being since November.
I thought end of Q two was when we would see these first rate cuts, and I think we are still very much in line with that. I know some of the run here this last few days has been people expecting even sooner than June, but I think June is the time. And I think that’s a fair enough period of pause from all the rate hikes that they will then start cutting.
But you get into the idea of some of these banks still failing, them not wanting to bail out trillions of dollars, and we’ve seen that having interest rates up where they are right now, and the pressure and how that’s hurting the banks. And again, that might be partly what’s causing a run up in gold, is fear that some of these banks may fail. Yeah, of which we’ll find out a bit more about as we’re a week away from the expiration of the bank term funding program that the Fed launched last year when banks were failing, and we’ll see how that goes.
Although, Steve, we did have some good news on the mining side since you and I last talked, because I wouldn’t call it a wave of investment dollars coming in, but a couple of weeks ago, we had Stanley Druckenmiller picking up Barrick and Newman shares. And then a little bit after that, we saw that Elliott investment management looking to allocate about a billion dollars to mining assets. So some signs, again, to be clear, I’m not saying that there is a wave of money coming in yet, but curious, your reaction to these and perhaps anything else that you may have had in your conversations over the past month or so.
No, I’ve seen this too, and I’m curious at the rate at which they buy those shares, because you’re seeing it a little bit and this is how it always starts. I mean, this is, again, this is how it starts in our sector. You see the money come into those largest producing companies first, and as they start to push up and hit all time highs and there’s not as big of value gains available in the eyes of investors, then it starts trickling down and trickling down, trickling down all the way to the junior explorers, sometimes actually quicker to the junior explorers.
Sometimes it’ll skip over the developers or the small junior producers. And people get to the explorers quicker because they see the massive gains that can be made there separate from everywhere else. But that’s how these bull runs start. They start with money starting to pour back into the producers and they’re always a great indicator of the health of the market is seeing how their share prices are performing.
And that’s what’s been frustrating over the last two years, is those senior producers. Even though we’ve had record revenues and gold prices for the most part, for the producers, their share prices are sitting at 50% of their all time highs in a lot of cases or less. So it’s shown all the way through the entire market, not just the smaller companies, of how much of a struggle it’s been to get open market investment in the gold and silver stocks.
And so seeing some of these bigger players come in and start to place those bets is a great sign. And I think that’s, again, when we hit true bull markets in our space, they go for many years and the level of money that can be made is great. It’s just, it’s those long terms in between the bull runs that are very frustrating and wear on people. So for those investors that have been patient or have capital now that can continue to deploy and be a contrarian investor and buy all these stocks when they’re at historic lows, you’re going to do really well.
You just have to be patient. Yeah. And Steve, any thoughts on what we’ve seen so far out of the earnings for some of the companies that are reported in the first quarter? It seems a little bit mixed even with the higher realized gold price. But anything you’ve taken away from what you’ve seen so far, I think it’s been pretty much as expected. You’ve seen some of their costs creep up for sure, with the inflation and what’s going on, but a lot of their contracts are locked in or their mining costs are different things, so they’re not fluctuating a ton.
And we’ve seen fuel prices go up and down and balance themselves out here as well over the last year or so. So again, I think the gold companies still are, a lot of them are sitting on the cash that they’re producing. You’re seeing those cash positions increase in a lot of those senior producers. And I think the general idea is their initial investments back into the space themselves are going to be to acquire additional production from either, either mid tier producers or large producers that are going to merge together as there’s a race to be in that top three to five senior producers in the world.
So I think you’re going to see that run up and that’s what they’re doing. They’re sitting on their cash and they’re going to do those acquisitions without diluting or diluting a lot, as little as possible. And I think that’s going to, again, it’s going to trigger a wave of investment because as you free up that capital in those takeovers, the funds that own those other stocks, oftentimes that’s their chance to get out of some of those positions and then redeploy that capital downstream to the smaller company.
So again, it’s another heavy sign that we’re at the start of a big wave in the space. You get a rising gold market, you get the producers more active on acquisitions. And then as they start competing with each other and moving, they’ll start to move downstream and realize, okay, these acquisition costs are too high. Now let’s start investing and pushing money into smaller companies and get our positions for future production.
And that’s what happens in a healthy market in our space. And again, what’s been lacking here the last two to three years is very little investment by the producers. The funds have had virtually no inflows, mostly outflows. So again, you’ve had pressure on the equities across the board because they’ve constantly had to sell stock to pay off the outflows to the investors. So all of these things are pointing to the start of a healthy run in our space.
And again, I’m excited for it. It’s been long overdue. We’ve been beat up. And when you’re daily people are asking why is your share price so low? Or why is this happening? And you look and it’s the whole sector, and you say, likely there’s nothing you can do. Companies put out spectacular drill results and they go down ten cents, fifteen cents on the junior side, it’s just because they’re liquidity events.
So I’m certainly ready and excited for a bull market. I think a lot of our investors are. And again, if you haven’t placed those bets yet, I wouldn’t wait too much longer, because there’s definitely starting to be a lot of signs that things are about to turn and turn very aggressively in our space. Yeah, I think a lot of people are looking forward to that. We have seen some signs.
Again, I would imagine the gold price, if it stays over 2100, that perhaps one of the best advertisements to capture the market’s attention that we could get. Although, Steve, another thing. I would love to get your opinion on something obviously unfortunate that happened in Turkey, where there was a landslide that shut down the SSR mine. And how is that going to impact the permitting, general market conditions in terms of the mining side going forward? Obviously, this is not a good situation.
And just if you could explain for people how this impacts the way capital is going to look at mining and certainly any changes that management has to adjust to after you see something like this. Yeah, this was definitely a tragedy and very avoidable, unfortunately, again, it’s tough because this is what happens oftentimes when you have stuff that’s operating in countries that don’t operate at the standard, like you say that we do in, you know, where there are very strict guidelines and requirements as far as permitting and mine designs and following up.
And these mistakes happen in Canada, too. I mean, obviously, we’ve seen there are freak things that can happen. It doesn’t take much, especially when times are tough and companies are cutting capital corners. And I’m not saying that’s what SSR did, but it is stuff that happens, and it’s unfortunate. And it’s one of the things over the last decades that you’ve seen longer and longer permitting times, making sure additional checks and balances are in place when you’re designing the mine.
And I don’t know 100% by the story, but I believe SSR bought this mine. It wasn’t that they built this to. As the canadian company, I would expect the standards that they built it to. I believe this was built by another company, and then SSR purchased it. But SSR is still responsible. Obviously, it needs to make sure, if there was an issue, that things need to be fixed.
So this doesn’t help. It never helps in our industry when there’s something that happens, when lives are lost and you hope that it’s avoidable. But accidents. Stuff happens. Things are going on in the earth, and we know it is a dangerous business at times, but again, it’s going to lead to more checks and balances, always should, in the industry, making sure that the producers are even once things are built, that the engineers are being consulted constantly and reviewing and making sure that things are as safe as possible at these mines.
And that will probably result in some increased costs at times for some of the big producers. But day to day, I don’t really think it’s going to change costs overnight or anything like that for the various mining companies. But it’s another just constant check where you need to have people looking at it. And more people are going to ask those questions like, are you following? Are you being safe? Are you doing, are you rebuilding? Are you reinforcing everywhere you can to try and prevent these things? And that obviously is the hope, because there ever should be a case where people are losing their lives due to an accident like that in our industry.
Yeah, and it certainly points out that mining is not, on one hand, the easiest process, and there are things that can go wrong at the same time when you have. You and I were talking about how the IEA has said they called for a tripling of renewable energy between where we are now in 2030. So it is a challenging business. Yet if you need those metals, where does that boundary lie in there? The same time, we have continued talk about the ban on open pit mines in Mexico.
And again, from the political permitting side, obviously people are familiar with the closure of the first quantum mine. Again, a lot of the silver coming as a byproduct of copper, and these things aren’t making it easier to go out and get these metals. So at some point you figure you would have an impact on the price of some of the metals. And interesting, we did have a situation in the cocoa market where following decades of underinvestment across West Africa, there has been a shortage.
And we’ve seen a significant price spike as you get into that situation. And obviously not exactly the same. Cocoa is not something that stays good infinitely versus the silver that’s out there that can be stored. But interesting example of what happens if you do reach the point where there’s a shortage, which when you combine all these conditions, at least leaves open the possibility that we could be heading there.
Yeah, well, I mean, isn’t that one of the frustrations that we’ve had forever with silver? Normal commodities follow the rules of supply and demand. And if you have shortages or you have less production than you have consumptions, prices should go up. And that’s been the big knock. And big frustration that we bang our heads against the wall in silver for years. Here we have prices that you can’t run a primary silver mine at because you lose money just off of that.
The prices should be higher to at least let companies break even if they’re going to bother to mine. So, again, we need to transition. And that’s why silver, when people look at it, it’s just ticking time bomb ready to erupt in price. Because when we can finally get away from the paper market that controls the price and allow these companies to start making money and to start putting more silver mines into production, because they’re needed for, like you say, you want to triple the amount of renewables that are going to be needed.
Well, we need a massive amount of silver, and it doesn’t exist. You just don’t have that production. And then you factor in mines that are being shut down. Mexico, there has been a massive pushback from a lot of the state level and that on that. And they were quick to say, well, this is just the proposal. This isn’t a law or anything. That’s changing overnight in Mexico and the open pit mining, but they haven’t issued a new mining permit since 2018 towards open pits under this regime.
So, again, that’s why we’re all really excited about the potential moving forward into the election that we’re going to have here within the next year and seeing what really changes in Mexico. But, yeah, that push across Latin America, where you’re seeing more and more countries swing heavily to the left, and in a lot of instances, they’re nationalizing or shutting down mining or the large mines. So prices should go up.
And that’s one of the reasons why copper right now, I believe it’s calling for similar prices to what cocoa is. Actually, I think I saw BMO for next $6,000 a ton as far as what copper priced today. So again, they’re calling for nickel because the car batteries, now you’ve got this phosphate based battery where you kind of replace nickel. And nickel prices have been going plummeting, and nickel mines have been shutting down across the world, where a year ago, there was talk that, oh, there will be the next ten generations of batteries are going to include nickel and cobalt.
And yet, very quickly, we see when supply starts becoming an issue or pricing becomes an issue that people can adjust and change very quickly into what your new components of something will be. So I think you should be very bullish on copper, you should be very bullish on silver, you should be very bullish on gold. I’ll take note that nickel probably has had its day and we’ll go on the back burner until it gets cheap enough and maybe it makes sense to go back to a nickel battery.
Or we start splitting and having the nickel based batteries, the phosphate based batteries, whatever next mineral they’re going to use that will create a new effective battery until we get into hydrogen fuel cells again and that becomes the lead way and you replace all electric batteries. So it’s just as the human race is pretty adaptive. We’re not just going to say, oh, this is it, we don’t have it, we’re going to move on.
But there are underlying commodities. Can you, Nick, help me? Give me a new, more conductive metal than silver that’s priced cheaper and there’s nothing even in the stratosphere that’s closed. So I’ll stick with the fact that that isn’t going to get replaced. And at some point we need silver prices to move up. And even if they double, triple, quadruple, it’s still the cheapest, most conductive metal that you’re going to have because you’re not going to start using gold.
I think it’s a great place to invest. I think all of mining is a great place to invest right now. It’s just we need to get away from the disconnect of what happens in Turkey and that mining is evil. And look how horrible we are at managing the environment and our people. And it’s one instance, but it paints the mining companies again as this evil entity. But yet you’ve got this contradictory green movement that needs for electrification and solar and everything else and you need to be calling for it takes three times the amount of mining of the earth versus say like a nuclear facility for producing power.
But it’s where governments are entrenched. And obviously, again, the idea of uranium and creating different things on that front has always been painted as evil. So it’s kind of the double whammy. It’s mining and then it’s also this other toxic thing that doesn’t, it’s become a lot cleaner, it’s become a lot better and probably where we all should be focused for our electric output moving forward because frankly, I don’t think the amount of silver and other metals exist in the world.
And as we continue to shut down additional mines, we have to do something different. But as long as the governments are hung up and stuck on the fact that copper, silver, electrification, solar panels, and that is where we’re going to get our power and that’s how we’re going to be green moving forward. Well, the prices have to go up because the supply doesn’t exist. Yeah. And it’s just interesting to watch these contrasting dynamics unfold, where you see the issues in mining, yet you see the demand for a lot of the metals, and then we see what happens in a commodity that does reach a shortage.
So certainly something we’ll keep an eye on in the next couple of years. Who knows how long we’ll be watching that? But at least when we look at the things that are out there today, suggest something to keep an eye on. Of course, in addition to monetary demand going forward and will be fun to watch. Again, we talk about monetary demand like silver. That’s what’s so special about this cycle, this time around is silver has always been monetary.
It should always be tied to gold. And it’s baffling that silver hasn’t moved up with gold like it normally does. To this point, where gold is pushing new highs and silver is still sitting at under 50% of its high. Now, this cycle, we have the industrial demand for the first time. You have a significant enough component to silver of the industrial side that it needs to break out even further.
But even if you ignore the industrial demand and just say, you know what, it’s poor man’s gold, it’s a monetary thing. It’s your hedge against currency. We’re going to stack it. We’re going to do everything great. On the physical side, silver should be trading astronomically higher just based on that, never mind the industrial side. So if you combine that industrial electrical side and what we need all of a sudden for actually physically using the metal, not just using it in bullion and stacking and storing it away in our vaults, now, we need it.
We need it in all these different electrical components, all these different parts, and we don’t have the supply of the silver to do it. So you should be astronomically just on the monetary side. But this industrial side, it’s not the days of old where you had the classic film and you use silver, and maybe a little bit in medical, the uses for silver now and where it’s needed are astronomical.
So it’s got to go up. Well, that was what drew me more towards the silver side when I started studying the metals. Jeez, I guess it’s 15 years ago now, and that you have so much of it consumed and that you have that additional possibility that you could have a shortage develop at some point, which is less case on the gold side. And yes, relative to where they’ve traded and the rate they’re coming out of the ground.
I think that’s what leads a lot of people to silver over gold, although perhaps a balance of both is a good thing to keep in mind as well. And speaking of a balance of both, Steve, perhaps you could give us an update on how things are coming along at silver Viper. And it’s been a little while since you’ve talked about the balance of silver versus gold that you have in there, and perhaps you could touch on that, too, so people know what they’re getting on that side.
Yeah, I believe we continue to be very cautious moving forward with where we’re spending our dollars. It’s still been a very tough equities market and for the juniors, but we have about 60% gold, 40% silver. When you look at our resource and how our project holds together, and we’ve done a lot of drilling since our last resource that we would like to update that towards the end of this year and push our resource number a lot higher.
But we’re sitting at about 700,000 gold equivalent ounces right now. Again, 60 40 gold, silver, no base metals in the resource part of that, we have some signs of base metals that I think will become a bigger part of the story as we drill the project at depth and grow the underground component to the project. But it’s a very exciting asset. It’s in a great jurisdiction in Mexico.
This is the number one gold producing state. Obviously, we touched on it earlier about the current regime in Mexico, talking about blocking open pit mining. And I mean that mining is the number one industry in this state in Mexico. And most of those mines that you see on that list are open pit heat bleach operations. So it’s an interesting injury proposition, because I don’t think you’re getting a lot of votes for that government regime talk like that, coming to an election in this state, because, frankly, most of these industries need open pit heat bleach mining.
It’s what the state’s known for, and it’s what it’s designed to. You know, we’re curious how everything’s going to move forward again. I don’t think this isn’t a lifetime ban on open pit mining in Mexico. And like I say, it’s just a proposal right now. It hasn’t even been put forward to be voted on yet. There has been a massive amount of pushback, not only from the industry, but other powers that be in Mexico and state level again.
I mean, we move forward, and obviously, a part of our deposit we bank on starting as an open pit heat beach operation when it goes into production. So it’s something we very much monitor. But we also have our very high grade structures that you could mine by themselves on an underground basis. So when it comes time for someone to mine our project, I could very much know, depending on what the law is in place or what’s happening in Mexico, you design a different mine plan based on what you’re focused on.
Obviously, there’s a lot more ounces if you are, including the open pit potential of the project and those lower grade ounces that you wouldn’t mine underground. But it’s a very nice project. It’s going to grow. We’ve got lots of targets that we’ve identified here over the last year or two that once we get back to drilling are going to be potential and will be new discovery. Some of them will be new discoveries on the project.
So very exciting. And that’s why I kind of get excited to see the market finally starting to turn and money coming back in our space, because I think it’s going to mean big things for our shareholders and people, especially right now, that are accumulating shares at such a cheap price. And something else is that it’s actually quite a large land package. So obviously you have the El Ruby deposit and also macho libre and El Molino that are targets now.
And I know that you guys have been out there doing a lot of sampling as you wait to get the drill back and turned up. So again, people can find more information about silver viper@silverviperminerals. com. And click the contact tab here on the top to get any of your questions answered. And Steve, appreciate what you’re doing out there and appreciate you joining me on the show again today to go through some of the latest developments.
And I think each month, though, this helps to put a good summary around things that are going on, the factors that we’re looking at. Why expect money to come into silver and gold, but also eventually the mining space, too? So appreciate you being here, and we’ll look forward to doing this again. A couple of weeks. Sounds good. Always a pleasure, Chris. .
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