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SX Gold & Metals Advisor
Profitable Investing in Mineral Resources

July 20, 2021

As we discussed last week, the latest surge in U.S. Covid cases is increasingly likely to be the “fear catalyst” that gold desperately needs to attract the attention of safety-conscious investors. August gold was up $5 an ounce last week which, while not much, adds to the metal’s gains in the last couple of weeks and is another step in the right direction (especially in the wake of last month’s sharp decline). And importantly from a technical perspective, gold managed to close the latest week above its key 25-day moving average for the first time in over a month.

Fear’s Return Boosts Gold’s Safety Demand As we discussed last week, the latest surge in U.S. Covid cases is increasingly likely to be the “fear catalyst” that gold desperately needs to attract the attention of safety-conscious investors. August gold was up $5 an ounce last week which, while not much, adds to the metal’s gains in the last couple of weeks and is another step in the right direction (especially in the wake of last month’s sharp decline). And importantly from a technical perspective, gold managed to close the latest week above its key 25-day moving average for the first time in over a month. But while gold had a fairly good week, other metals weren’t so fortunate. Silver encountered strong resistance at its 25-day line and ran into selling pressure on Friday, falling 2% for the session and closing lower for the week. Steel and aluminum were down by comparable amounts, and while benchmark copper prices were mostly unchanged, the Global X Copper Mines ETF (COPX) was down 4%. A key reason for the latest weakness in the industrial metals is the recent strength in the U.S. dollar. Shown here is the Invesco DB U.S. Dollar Index Bullish Fund (UUP), my favorite dollar index proxy. As you can see, it’s above both its rising 25-day and 50-day lines and hasn’t surrendered any ground since the dollar’s “short-covering rally” began in June. What began as a technically oversold, short-covering affair in the currency market has morphed into a search for safety, with the greenback leading gold in terms of desirability among global investors. As Covid makes a comeback in news headlines (L.A. County and other locales have just resumed indoor mask mandates) and some of this year’s biggest economic re-opening plays fizzle (e.g. cruise line, airline and hotel stocks), participants in the process of liquidating economically-sensitive equities are increasingly moving into cash, providing further support for the dollar. So why has gold been relatively immune to the dollar’s strength while other metals have succumbed to it? As I explained in a recent article, there have been many times in the past when gold and the dollar rose simultaneously. In fact, gold is less inversely correlated to the dollar than other commodities, so it’s not unusual to see safety demand for greenbacks overlap safety demand for bullion. What’s more, if fear-related liquidation accelerates in the coming weeks, it wouldn’t be unusual to see silver and the other major metals—including possibly gold—fall victim to the selling pressure in the rush to raise cash. That said, if gold hasn’t already seen its intermediate-term low, I expect it to be confirmed soon. Historically, whenever fear makes its presence felt in the financial market and assets are sold off (including gold), once the fear-related selling pressure ends, the yellow metal always rebounds strongly in the months that follow. Indeed, gold’s strongest performance typically occurs in the aftermath of a general stock and commodity market decline when investors look to insure against future shocks by owning the metal. Right now, though, the broad metals market looks a bit shaky in the wake of the dollar’s strength. Below is the SPDR S&P Metals & Mining ETF (XME), which has recently shown abnormal weakness. Until it confirms a short-term bottom, I suggest holding off on initiating new long positions in the base and precious metals while tightening stops in existing positions. New Recommendations/ Updates After taking partial profit following its rally earlier this month, last week I recommended that investors raise the stop-loss on the remainder of the trading position in Cleveland-Cliffs (CLF) to slightly under the 21.25 level on a closing basis (where the 50-day moving average comes into play). This level was taken out on July 16, which means we’re now completely out of this stock. I recommend no further purchases in CLF or other iron- and steel-related stocks until our indicators tell us the recent selling pressure has been exhausted. SOLD Last month, I recommended that we buy into the Global X Lithium & Battery Tech ETF (LIT) on weakness. This ETF is what I view as a nice fit with our somewhat related positions in the cobalt (via Wheaton Precious Metals) and neodymium-Praseodymium (via MP Materials) spaces. As the world moves toward “cleaner and greener” sources of energy, as well as the electrification of vehicles and alternative forms of energy storage, lithium will play an increasingly pivotal role. That’s the conclusion of a recent forecast report by data analytics firm Fitch Solutions. The lithium market is controlled by a relatively small number of producers, but Fitch foresees that more opportunities will open up and expand growth opportunities for new entrants around the world. Fitch predicts that global lithium production will more than triple, from 442,000 tons of lithium carbonate-equivalent (LCE) last year, to 1.5 million tons by 2030. Investors who haven’t already done so should book some profit in our conservative trading position in LIT after its recent rally to well above 10% from our initial entry point (per the rules of our technical trading discipline). I also suggest raising the stop-loss on the remainder of our position in LIT to slightly under 70 (halfway between where the 25-day and 50-day moving average come into play). HOLD After gold closed decisively back above its key 25-day moving average, I recently recommended that speculative traders begin nibbling on our gold-tracking ETF, especially on pullbacks. (Conservative investors may wish to wait for silver to join in and strengthen before buying gold again, however.) On July 14, traders purchased a small position in the GraniteShares Gold Trust (BAR), which is a low-cost way to track price movements in the physical gold price. I suggest using a tight stop-loss at this time for BAR since gold isn’t completely in the clear yet (with regard to silver’s lack of confirmation). Accordingly, I suggest exiting long positions in BAR if the 17.66 level is decisively violated on an intraday basis. BUY A HALF Informed investors are waking up to the potential of this metal, as evidenced by the turnaround in nickel prices in recent months. After topping out at just under $19,700 per ton in February, the LME nickel price fell to $16,000 before reversing in April and recently hitting $18,540 (up 16%). Aside from the recent uptick of interest among institutional investors for nickel, the metal—along with other battery minerals—is benefiting from the White House’s interest in obtaining rare earth minerals from sources outside of China. On June 8, the White House stated: “The government, working with private sector and non-governmental stakeholders, should encourage the development and adoption of comprehensive sustainability standards for essential minerals, such as lithium, cobalt, nickel, copper, rare earth elements, and other materials.” The White House further announced the Department of Defense has invested “in the expansion of the largest rare earth element mining and processing company outside of China” for environmental reasons. Investors interpreted the statement as being beneficial for nickel prices, and the metal’s performance to date has justified the sanguine outlook. To that end, we recently added the iPath Series B Bloomberg Nickel Subindex Total Return ETN (JJN) to our portfolio as a recommended buy. Keep in mind this is an exchange-traded note (ETN), not a traditional ETF, which is an unsecured debt note that trades more like a bond than a stock. That said, I’m recommending only a small, conservative position in this nickel-tracking vehicle. I’m suggesting an initial stop-loss slightly under the 22.27 level (nearly pivotal low from June 18) on a closing basis. BUY A HALF I previously recommended that participants take partial profits in MP Materials (MP) after its 19% rally from our initial entry point. I further suggested raising the stop to slightly under the 33.25 level on a closing basis (under the 25-day line). That stop-loss was violated on July 16 when MP closed at 33.09. No new trading positions are currently recommended in this stock for now as we await the next confirmed bottom and re-entry signal based on our indicators. SOLD Lithium investors with a speculative bent may want to take a closer look at Sigma Lithium Resources (SGMLF on the OTC, or SGMA on the Canadian TSX exchange). The company’s stated goal is to “enable EV industry growth by becoming one of the world’s largest, lowest cost producers of high-purity, environmentally sustainable lithium products” and is developing a world-class lithium hard rock deposit with exceptional mineralogy at its Grota do Cirilo property in Brazil. On June 2, the company announced “exceptional” preliminary economic assessment results that support doubling a planned production capacity to 440,000 tons per annum (66,000 in lithium carbonate equivalent). Phase 2 production highlights include “near-term production capacity of battery grade high-purity green lithium [that] will be potentially doubled.” Financial highlights of the property include “the potential to more than double total NPV of the Project to US$844 million.” Located close to Atlantic emerging supply chain for electric vehicles in North America and Europe, Phase 2 would enable Sigma to continue to be among the lowest cost producers in the industry, according to the company’s latest statement. Speculators interested in initiating a conservative position in SGMA can use weakness to nibble down to around the 5.50 level (stop) in the TSX symbol and down to around 4.50 (stop) in the OTC symbol. (Caveat: Unlike most recommendations made in this report, this is a fairly illiquid stock.) BUY A HALF ON WEAKNESS While copper futures prices remain firm, copper ETFs have come under renewed selling pressure lately, thanks in part to persistent strength in the U.S. dollar and in spite of widespread hopes of additional monetary easing measures in China. After an attempt at closing above the 25-day moving average, the Global X Copper Mines ETF (COPX) pulled back 3% on July 16 as many leading copper stocks broke below near-term supports and have shown abnormal weakness. The relative weakness has been especially hard on Taseko Mines (TGB), our sole exposure to copper in recent weeks. TGB has underperformed the industry and based on its recent action, I recommended selling our existing long position in TGB in a trade alert on July 16. Until we see renewed strength in copper and the leading copper stocks, I’m recommending no new trading positions in this industry group. SOLD Wheaton Precious Metals (WPM) is a world-class precious metal streaming company, featuring a high-quality portfolio of long-life, low-cost assets. (Streaming companies make an upfront payment, plus a fixed payment per ounce of metal—often 20% of spot price—giving them the right to a percentage of a mine’s future production and allowing them to leverage rising metal prices.) As the world’s largest silver streaming company, with 14 silver purchase agreements, as well as gold and palladium agreements, Wheaton focuses mainly on high-quality, high-margin operations with a goal of returning a minimum of 30% of cash flow to its shareholders, with the remainder used to grow the company. Aside from precious metals, one of the main drivers behind Wheaton’s stock price right now is the company’s growing exposure to the valuable cobalt market (cobalt prices are up 45% from a year ago). Last year, Wheaton closed a cobalt streaming agreement for the Vale-owned Voisey’s Bay Mine for $390 million and will make ongoing payments of 18% of the cobalt spot price per cobalt pound delivered until the delivery of 31 million pounds of cobalt and 21.2% of cobalt production thereafter for the life of mine. (Wheaton recently reported the first production of cobalt from the Voisey’s Bay mine.) I recommend holding WPM down to slightly under the 42.50 level (stop). HOLD Portfolio

Stock Price Bought Date Bought Price on 7/20/21 Profit Rating
Cleveland-Cliffs (CLF) - - - - Sold
Global X Lithium & Battery ETF (LIT) 69 6/10/21 77 12% Hold
GraniteShares Gold Trust (BAR) 18 7/16/21 18 1% Buy a Half
iPath Bloomberg Nickel Subindex ETN 24 7/9/21 24 -1% Buy a Half
MP Materials (MP) - - - - Sold
Sigma Lithium Resources (SGMLF) 5.17 6/29/21 5.25 2% Buy a Half
Taseko Mines (TGB) - - - - Sold
Wheaton Precious Metals (WPM) 48 6/2/21 44 -9% Hold

Sell means to liquidate the entire (or remaining) position. Sell a Quarter/Half means take partial profits, either 25% or 50%. Buy means purchase a position at or around current prices. Buy a Quarter/Half means allocate less of your portfolio to a position than you normally would (due to risk factors). Hold means maintain existing position; don’t add to it by buying more, but don’t sell.