Markets and Metals Weekly Navigator (July 26th, 2020)

Mining Company IAMGOLD's (IAG) production guidance shows it likely won't capitalize on rising gold price.

Break Out! Gold Breaks $1,900/oz and Silver Smashes through $20/oz

Precious metals enjoyed a historic week with silver breaking $20/oz with authority and gold cracking $1,900/oz – inching its way to its all time high of $1,921/oz.  Silver was up 18% for the week and gold finished up 5%.

Gold & Silver Performance for the Week of July 20th – 23rd/2020

Silver Ready for Prime Time

Capital 10X highlighted the dynamics of the last silver bull market on June 9th, 2020 with our first volume of the Silver Insights Series.  In that edition we mapped the silver/gold ratio historically, highlighting the potential for a significant break out.

Silver ETF vs. Gold ETF Ratio

Source: YCharts

Looking at the gold/silver ratio (the inverse of the previous graph) on a longer time horizon (70 years) – the average is 53x, this would imply 50% upside relative to gold.

Gold-Silver Ratio: 70 Years

Using the average ratio of 53x the implied price of silver is $35/oz, this would bring the metal to its previous high (March 2011).

Silver Chart: 1950-2020

Capital 10X launched the 2nd installment of the Silver Insights Series last week on July 20th/2020 where we quantitatively analyzed the best positioned mid-cap and large cap silver miners – a must read research report. The summary video is presented below.

 

Gold Inching Towards “Blue Sky” Breakout

When gold cracks its all-time highs of $1,921 it will be a blue sky breakout moment for the metal. The combination of rising geopolitical tensions (America vs. China) and massive global central bank money printing are more than enough kindling to drive speculative fervor.

Gold Price Chart: 2000-2020

The gold mining equities have done very well YTD, significantly outperforming gold.

2020 YTD: Gold ETF (GLD), Senior Gold Miners (GDX) , Junior Gold Miners (GDXJ)

However, on a longer-term view gold mining equities have significant ground to make up – investing in mining companies rather than the metal continues to the more attractive risk/reward proposition.

2010-2020: Gold ETF (GLD), Senior Gold Miners (GDX) , Junior Gold Miners (GDXJ)

Copper Remains the Under-followed Inflation Play

Copper and copper miners have had a strong rally off the bottom, however still significantly lag gold and gold miners. The same dynamics that have drive gold higher will ultimately drive copper higher too, namely inflation. As we’ve highlighted in the June 28th edition of the weekly, copper continues to be plagued by significant supply disruptions.

2020 YTD: Gold vs. Copper. vs. Copper Miners

Sierra Metals (NYSE:SMTS, TSX:SMT) remains a very attractively positioned poly-metallic miner with significant copper exposure.  Even with the headwinds of COVID-19 the company Q1 2020 production was only down -10% on a copper equivalent basis.

Sierra Metals is currently in the processing of ramping back up to full capacity at its major mines, additionally discovered a new high grade silver zone at its Cusi Mine in Mexico that offers meaningful resource upside.

Cannabis Week in Review

A tough week for cannabis equities, the Horizons Marijuana Life Sciences ETF was down -5% for the week, while the S&P 500 was flat.  The weakness can be attributed to Organigram’s poor quarter (discussed in more detail below).

Organigram (TSX:OGI, NYSE:OGI) had a very challenging Q3 2020 result with revenue down -27% year-over-year, inventory write downs and large headcount reduction (25% of the workforce).

Aphria (TSX:APHA, NYSE:APHA) is set to announce Q4 2020 earnings on Wednesday July 29th before the market.  Consensus revenue is estimated to come in at $108M and EBITDA at $5.8M.

Aphria is the best performing large-cap Canadian cannabis producer over the last year, down -12%; the rest of its peers are down from -47% to -86%.

Aphria trades at one of the lowest forward Price/Sales multiples in the group at 2.7x, only Village Farms trades at a lower Price/Sales ratio at 1.9x.

 

 

Sierra Metals is a market awareness client of Capital 10X.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Editor
Capital 10X gets down to the real money business, actionable financial insights for traders and investors. We analyze company earnings, interview management teams and help teach the fundamentals of financial analysis and options trading. Our mission is to hunt for genuine 10 baggers.