The Fed Pause and Gold

If you’re a student of market history, you’ll notice that Fed pauses and subsequent rate cuts have been historically favorable environments for gold prices. We had the pleasure of speaking with Shane Williams, CEO of West Red Lake Gold Mines Ltd. (TSXV: WRLG) (OTCQB: WRLGF) to share his gold insights and expectations for the company this year.

Market Trends: Tailwinds for Gold

Shane shared his market outlook – that macro trends in our current high-rate environment are pointing towards strong tailwinds for gold. When the Fed takes a pause, the economy usually dips into a recession – then they are forced to respond with rate cuts.

Shawn’s assessment is correct; the last five rate pauses have lasted on average about 8 months; we’re six months into the current pause with expectations that something will break soon, heralding the threat of a looming recession.

Rates have been raising at a rapid pace over the past 12 months. As recessionary threats emerge rates are cut – an action that makes gold move. Gold has held up quite well, in the 2000 range which has been bullish for producers with leverage to the spot price.

The market is pricing in the first rate cut by March of this year, and a Fed Funds rate of 3.75% by this year’s end.

Investors should take note that during the last three pause cycles, gold rallied 143% in 2000, 196% in 2006 and 54% in 2018 respectively, after an initial pause.  Since the start of the current Fed pause (July 2023), gold is up 3% – lots of upside relative to history.

2023 Performance, 2024 Strategy

West Red Lake Gold was a standout resource company last year, rallying 62% and significantly outperforming both their junior and senior mining peers.

Surprisingly the company only acquired Madsen, their flagship project located in the Red Lake District in Canada in 1H of 2023. Their primary focus moving forward is to unlock the value on the 47 km² site. It’s a historical asset with mill infrastructure; Shane and his team were able to pick it up at a deep discount with $350 million already invested in its development.

The site is adjacent to Evolution Mine, formerly Gold Corp. Gold Corp discovered the high-grade zone being explored by West Red Lake and were able to extract 70-gram material, transforming the value of the region. The company went from a 50,000 lbs/year producer to a 500,000 lbs/year producer. So, the goal for West Red Lake is to de-risk Madsen but also to run a successful drilling program deep in the zones in Madsen, which have thus far remained unexplored.

Institutional & Retail Demand

Its quite rare for a resource company this size, to attract this amount of institutional and shareholders of note. Shawn has observed that the majority of his peers rely heavily on the retail investor; many that are in for a quick trade seeking short term profits. West Red Lake Gold was fortunate to pick up major long-term investors early, that understand their management, strategy and their project’s potential. Mining financier and philanthropist Frank Giustra, Van Eck Gold Fund, and Sprott are some of the notable investors that have bought into the West Red Lake Gold story, with large shareholders representing about 50% of shares held today.

Catalysts: 2024 Forward

The company has a two-pronged strategy this year. The continuation of de-risking and additional growth from exploration will round out the year of the company’s activities in 2024. In 2H, Zone 8 will be explored further; the deposit is mineral rich with a resource of 100,00 oz @20 g of gold. Shane believes this approach will generate excitement in the market, anticipating similar growth in the share price as seen in 2023. 

 

West Red Lake Gold 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.

Duane Hope is a Partner at Capital 10X, he brings over 15 years of communications and research experience to the firm. His research and writing have appeared in publications for North American, European and Asian audiences.

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