Markets & Metals Navigator (September 27, 2020)

Gold & Silver Retreat in the face of US Dollar Strength

Gold and silver had their worst weekly setback since March of this year, with gold off -4.5% and silver off -14.5%.  Prior to this week’s selloff precious metals have traded very well through a weak US stock market tape and high associated volatility.

The recent strength of the US dollar has been a headwind for gold. Gold has a high correlation to both real interest rates and the US dollar.

We believe the US dollar can show glimmers of strength but can never shake the structural challenges of debt and money printing. This is a problem for all fiat currencies.

Interest Rates in Perspective – 700 years!

If there’s one chart that encapsulates the war on savers it’s this one, 700 years of falling real interest rates.  As a reminder, high interest rates deter investors from owning gold, and low rates incentive gold ownership (smaller opportunity cost).

Copper Remains Resilient: First Quantum and Sierra Metals Offer Attractive Value

On August 7th Capital 10X published “Copper – The Catch-Up Inflation Trade”, where we identified copper as the undervalued inflation hedge relative to gold and silver.

We published an update to the original report last week, since we made the call on August 7th copper has meaningfully outperformed both gold and silver.

In the update report we highlighted First Quantum (TSX:FM) and Sierra Metals (NYSE:SMTS; TSX:SMT) as the two copper miners trading at the most attractive valuations. Both stocks trade at a deep discount on price-to-cashflow and price-to-sales metrics vs. Lundin Mining (TSX:LUN) and Freeport (NYSE:FCX).

Capital 10X Interviews Kim Rivers, CEO of Trulieve

Capital 10X had the pleasure of sitting down with Kim Rivers, CEO of Trulieve (CSX:TRUL) to discuss their latest medical cannabis geographic expansion into Pennsylvania through the acquisitions of PurePenn and Solevo.

Kim also discusses opportunities for further growth and differentiates between recreational and medical markets. She also helps us understand the drivers that have enabled Trulieve to have best-in-class returns on equity in the Cannabis Industry.

Aurora Cannabis Q4 Results – The Challenges Keep Mounting

Capital 10X highlighted the bearish outlook for Aurora earlier this month, a new CEO couldn’t mask the structurally challenged nature of the business.

Aurora announced Q4 results last Tuesday (September 22nd) after market, net loss for the quarter was an astounding -$1.9 billion and -$3.3 billion for the full year.

The company took another massive writedown (which it announced earlier this month) and saw retail selling prices fall a whopping 30% in just the last quarter.

Among Canadian cannabis licensed producers it’s clear that Aurora has decoupled to the downside versus its peers.  Aurora is down -81% year-to-date vs. Aphria -19%, Canopy Growth -33%, Cronos -34% and the Horizons Marijuana ETF -33%.

We would caution investors to try to call the bottom here, on a forward price-to-sales valuation basis both Aphria and Organigram are cheaper than Aurora.

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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.

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.
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