Gold Breaks Out: What Comes Next

Consolidation is over, momentum is back – why the breakout matters, where the price could go, and one high-upside opportunity I’ve been buying.

I have a new company recommendation for you today, plus a short update on Metals Exploration (MTL.L), but first …

Tantantara!

Gold has broken out to new highs. As I write, it trades at $3,545/oz.

Technically, it has done exactly what it needed to. Back in April we noted froth in the market and the need for consolidation. Over the summer it did just that, range-trading between $3,000 and $3,400, building cause. Now, as we head into autumn and the Indian wedding season, it has broken out.

The moving averages – short, medium and long term – are all sloping up. We are good to go for the next leg higher.

I’ll say this till I’m blue in the face: you should own some gold. The dollar, the pound, and the euro are not reliable stores of value. They are being sacrificed at the altar of government spending, and in five years they will buy you much less than they do now.

As always, if you are buying gold or silver coins to protect yourself in these “interesting times”, I recommend The Pure Gold Company. Pricing is competitive, quality of service is high. They deliver to the UK, the US, Canada and Europe or you can store your gold with them. More here.

Meanwhile, gold is resuming its role as the global reserve asset, a role the US is happy for it to have, as we noted last week. It has even overtaken US treasuries.

There is a lot of exuberance across social media about gold’s breakout, so a correction may come – but the omens are good.

Charlie Morris and I both believe $7,000/oz by the end of the decade remains a reasonable target.

Exploring for copper and gold

So to the crux of today’s piece.

I have stumbled across what I think is a nice opportunity - and I mean stumbled. I ran into the Vancouver-based geologist in, of all places, London SE4. But I’ve since been buying shares.

Exploration is about the hardest game there is. You venture into the wild with a couple of picks, a beard and a shovel, find something interesting, drill a couple of holes, and hope you hit something. Most of the time you don’t.

Many geologists go their entire careers without making a meaningful discovery. But those who do can turn scrubland into anasset worth hundreds of millions.

There is an art – or a science – to it. Geological mapping, surveys, samples and clever pattern recognition all help. But even then, most prospects fail. And drilling is expensive, which is why majors slash exploration budgets at the first whiff of a downturn.

Still, the dangling carrot of the potential motherlode keeps some geologists at it for life.

At present, despite $3,500 gold, most explorers are struggling to raise finance. The money prefers development plays with proven ounces. Safer. (When a plethora of explorers start raising large sums at silly valuations, that’s usually a sign the bull market is peaking. We’re not there yet.)

So if you can find a well-financed explorer, you’re already ahead. There is the famous burning match analogy: you light the match, the explorer has to find something before the flame/capital runs low and burns your fingers.

Add a proven geologist with an edge and a safe jurisdiction where your discovery won’t get sequestered or its development torpedoed by anti-mining lobbies – now you’ve got something.

By Jove, I think I’ve found one.

Its market cap is C$24 million. With C$20 million in cash - enough for three to five years of drilling - and shares worth almost C$1 million, it is trading a little more than its cash value.

The CEO has discovered some 8 million gold ounces, most of them below surface, using a unique methodology.

The company has at least 20 different properties in what is currently one of the best jurisdictions in the world for mining. The geology of his properties now is similar to where he discovered those ounces.

One discovery drill hole - and it has four years, 6 drill rigs and 20 properties to make it - will transform everything.

Let’s find out more.