It has been almost six years since the last mining conference was being held during in a +$1,500 gold price environment.
We sat down with David Erfle, the Junior Miner Junky, to get his take of the current market environment, stage of the mining cycle and the mood at the Precious Metals Summit 2019.
Recorded at the Precious Metals Summit 2019 in Beaver Creek, Colorado.
Special guest: Mickey Fulp, the Mercenary Geologist
Kai Hoffmann: Welcome everybody. My name is Kai Hoffmann. I'm the CEO of Oreninc. I'm joined by David Erfle, the Junior Miner Junky. We're sitting here in beautiful Beaver Creek, part of the Precious Metals Summit. It's day three. We stepped away from the conference to record this and have a nice cold beer, and talk about what we've seen in the last few days, but also talk about the macro environment and the environment we're in right now. That directly leads us to talk about the mood here at the conference and maybe the activity here.
Kai Hoffmann: David, I always look up to you and look forward to your gold commentary every Friday that you put out on Kitco and in your own report. I read it almost religiously because I think you're one of the best commentators on the macro environment in the gold space-
David Erfle: Thank you. Check's in the mail.
Kai Hoffmann: ... Because you put the GDX, GDXJ in context with that macro backdrop and you're usually spot on. You have a high hit rate in that regard. So tell us what you've seen this week, because we've seen gold drop massively and then bounce back like crazy.
David Erfle: Well, you know Kai, it needs to consolidate. That move got very overextended. This consolidation process needed to happen, so right now it's testing that 1480, 1500 level, the December gold, which is good support. But today we had a very interesting situation, where we had the expected ECB Bazooka come out and lower their rates even further to negative 0.5 and start more QE, and start doing more things that aren't working. And then we had a CPI that was expected coming out, and then all of a sudden Trump offers an olive branch to China and the move entirely reverses. But like I said, this is very healthy. This needs to happen.
David Erfle: So the GDX also, it back tested its 50 day moving average yesterday, it gapped up today and then it ended up red candleing down. So I expect the 26 level on the GDX to be tested very soon, and I think that holds if 1480 holds. And then if it doesn't then I think that 24 gap in the GDX on the daily chart comes into play, which is basically testing the breakout, which is what gold could possibly do also.
Kai Hoffmann: But that'd be healthy?
David Erfle: Absolutely. I think it'd be very healthy. Yes.
Kai Hoffmann: That also leads directly to the mood here at the conference. You've been coming here for how many years, three at least?
David Erfle: Ah, I think this is my sixth year.
Kai Hoffmann: Oh, sixth one now. Okay. Yeah.
David Erfle: It's the first time I've been here in somewhat of a bull market, so it's been-
Kai Hoffmann: Does it feel like it?
David Erfle: ... A welcome change. Absolutely. We're going in the right direction. It's interesting because it is a bull market for a lot of the companies here, but it's still a bear market for many of them who need to raise money.
David Erfle: The capital markets are still very tight for a lot of these companies, but we're also seeing very good projects being rewarded, and those projects that are being rewarded are also being rewarded in the marketplace with their share prices. They're being bought. But-
Kai Hoffmann: It's only a select few though.
David Erfle: Right, it is only a very select few. I think the big thing is silver plays. There's not a lot of them so the ones that are being rewarded with capital are making nice moves, and the ones that have really good projects, in good jurisdictions that have a lot of high grade silver in the ground that they're not mining, those are also being rewarded.
Kai Hoffmann: Interesting. So here at the conference what have you been putting your focus on primarily?
David Erfle: Well, my focus is on ... I have a newsletter and just about all the companies that I'm invested in are here.
Kai Hoffmann: How many do you cover, or how many are you invested in actually? Because-
David Erfle: I'm invested in about 25 right now, and I have another 20 on a watch list. So I target those companies first because I want to get updates for my subscribers and myself-
Kai Hoffmann: Yeah. Because you play with real money.
David Erfle: Exactly, exactly. My model is I have a real money portfolio, and every single company that I cover I own stock in, and so I want to get my subscribers up to date on all these companies.
Kai Hoffmann: The mood here at the conference, I still feel it's not a euphoric ...
David Erfle: No.
Kai Hoffmann: It doesn't feel like the $1500 gold press has hit the mood yet right?
David Erfle: No, it doesn't-
Kai Hoffmann: Because you hinted at the financing-
David Erfle: Right.
Kai Hoffmann: ... Activity, because it's still dismal up there.
David Erfle: Right. I mean it's all about capital markets you know. I mean let's look at the facts. I mean we had the GDX have an 84% loss from 2011 to January 2016, and then that 2016 pop for six months, the capital market's got enthused, retail got enthused, and capital markets went in full bore and they got burned.
Kai Hoffmann: Yeah.
David Erfle: So this move here, I think they want to make sure it's sustained about 1400 for at least a couple quarters before they really start loosening up the purse strings.
Kai Hoffmann: So we need to see quarterlies from the producers so people can trust-
David Erfle: Right.
Kai Hoffmann: ... Or investors can trust the current environment.
David Erfle: Absolutely, yes, and before they move down the food chain to the juniors more, they're going to need to see a strong floor at 1400 gold.
Kai Hoffmann: How are you positioning yourself and your readers for the next leg up now?
David Erfle: Well, I pretty much said, “Hey look, this thing is overextended: it's going to get hit.” I have a lot of new subscribers, so I really want to make sure to tell them that you're coming in at a time where it's very frothy. We've had a big move. It's very overextended. It's due for a correction. So if you want to get into these stocks you want to wait for a correction, especially the ones that are really overextended. But I have also a few juniors that haven't moved much. They're still offering good value. So you just got to make sure that you get into the companies that I own that aren't overextended. Now you could start scaling in, but the ones that are overextended you could wait because I think there's still going to be some more correction here.
Kai Hoffmann: That pretty much ties into what I was going to ask you next, like you're expecting more corrections, or your outlook for the next three months, let's say, to years end, and then in Q one 2020 what are you expecting?
David Erfle: Well first of all, 1455 gold. I think that number needs to hold. If we see a close below 1455 technically I wouldn't be surprised to see the 1400 gold tested. That wouldn't shock me. And so we have to mentally prepare for this because the gold market is famous for making these strong moves in the opposite direction that we think it's going in the longterm, to shake everybody out, shake the weak hands out.
David Erfle: But fortunately I got myself and my subscribers in to a lot of companies before the breakout, so we have really good positions. So the main thing to be concerned with is not losing your position. Sure, take profits when things get overextended and build up some cash to get into some things you may have missed, but do not lose your position in some of these things.
Kai Hoffmann: Taking cash off the table, or money off the table, is one point we wanted to touch on as well. You see already tax loss selling happening in September.
David Erfle: Right. You're seeing tax loss selling happening in base metal plays, in particular copper and zinc plays. Those are being sold for tax loss because ... I mean let's look at it common sense wise. You see a precious metal bull market now technically in silver and gold, and you see a lot of these things moving, and if I got a base metal play that's just sitting there and I see the trade war, and it's 13th round of talks, and even though there's a little optimism going on here right now, I don't see any breakthrough on intellectual property, which is the big one for me happening, so I'm selling my base metal plays right now and I'm building up cash to buy more precious metal plays once this correction is over.
Kai Hoffmann: Fantastic. Dave, where can people find you? Where can they subscribe to your newsletter?
David Erfle: JuniorMinerJunky.com, all one word, junky with a Y, and also I have a weekly column on Kitco, comes out every Friday.
Kai Hoffmann: Perfect. Dave, thanks for joining us. My name is Kai Hoffmann. I'm the CEO of Oren Inc., and please subscribe to our YouTube channel to get regular updates on our interesting talking partners.
David Erfle: Thanks for having me buddy.
Kai Hoffmann: Thank you so much Dave-
David Erfle: Always great to talk to you.
Kai Hoffmann: ... Appreciate it.