Gold Searches for a Directional Catalyst After declining 6% in June, gold enters what is historically one of its most lackadaisical months from a seasonal standpoint. In most years, gold typically follows the trend established in the previous 2-3 months during July. That is, a weak gold market typically continues to be weak in July, while a strong one often sees higher prices during the month (including last year’s July). The exception seems to be that if gold enters the first full month of summer in a technically “oversold” condition (as it did in 2012 and 2013), July can be a turnaround month. That gold became oversold in June is unquestionable, yet we still don’t have a confirmed bottom from our indicators. The August gold futures price remains under its key short-term moving averages and is still under the 25-day line on a weekly closing basis. While a turnaround is possible in the coming day, the indicators suggest that sellers still enjoy a short-term advantage. From a sentiment perspective, gold is in need of a directional catalyst to give buyers the rationale they need to assert their dominance over the sellers. This could take the form of the currency factor (such as a sudden plunge in the U.S. dollar index), the fear factor (such as a geopolitical event or even the greed factor (namely the return of institutional buyers). Until one of those factors returns to the forefront of the market, gold is likely to remain subdued within its recently established trading range between roughly the $1,700 and $1,900 levels. However, there are a couple of factors which should lend the gold market some support this summer as it attempts to establish an intermediate-term bottom. 
On the economic front, for instance, the latest U.S. nonfarm payrolls report rose by 850,000—well above the consensus estimate of 680,000. Since the report revealed some indications of a softer labor market (namely in the form of a higher unemployment rate, at nearly 6%), gold traders took heart. Hourly earnings also increased less than expected, the average workweek decreased, and the labor force participation rate was unchanged at 62%. This was all the market needed to hear, however, and investors were largely encouraged by the report as it was spun as an excuse for the Federal Reserve to remain accommodative since the report wasn’t as robust as expected. The news had a stimulative effect on bond prices and a correspondingly depressive impact on Treasury yields, which is generally beneficial for non-yielding gold (since it makes the metal look more attractive among safety-conscious investors by comparison). Moreover, after the last few weeks of participants being too bullish on gold, the ardor of retail traders toward the yellow metal has decidedly cooled off. According to DailyFX, IG Client sentiment toward gold has turned from net bullish to net bearish, with long positions increasing only 8%, compared with a 22% increase in short positions. While this doesn’t confirm the bottom for gold prices, it does suggest (from a contrarian perspective) that the sentiment backdrop is suitable for a bottoming process to begin. Gold mining stocks, meanwhile, haven’t yet confirmed a bottom—although a few leading senior and mid-tier miners are trying establish one. However, my favorite indicator for the group—the 4-week momentum of the new highs and lows of the 50 most actively traded North American gold stocks—hasn’t reversed its declining trend yet. I want to see this indicator turn up before recommending any new gold stock long positions. 
On the lithium front, it’s worth mentioning that the industry received a shock last Friday when it was announced that General Motors has made an investment in a lithium project that could become the largest in the U.S. by 2024. The project would make GM one of the first companies “to develop its own source of a battery metal crucial for the electrification of cars and trucks,” in the words of a Reuters report. Per the report: “Detroit-based GM said it will make a ‘multimillion-dollar investment’ in and help develop Controlled Thermal Resources (CTR) Ltd’s Hell’s Kitchen geothermal brine project near California’s Salton Sea, roughly 160 miles (258 km) southeast of Los Angeles.” CTR’s Hell’s Kitchen is the largest U.S. lithium producer, and it’s believes the project could produce 60,000 tons of the white metal, which in turn could be used in around six million EVs by mid-2024, according CTR’s chief executive. The company expects to obtain federal environmental permits by the end of 2022. It’s further expected by industry analysts that GM’s move could serve as a catalyst for rival automakers to also secure lithium partnerships. (Demand for the metal is expected to outstrip supply by 20% within four years, according to Benchmark Mineral Intelligence.) From a short-to-intermediate-term standpoint, the news provides a potentially bullish fundamental backdrop for lithium stocks (see Recommendations section below). New Recommendations/ Updates Iron and steel stocks have shown relative strength during the recent correction in the broad metals market, with the NYSE American Steel Index down just 6% from its May peak. Last week also saw a technical bounce for iron ore and steel companies like Cleveland-Cliffs (CLF), one of North America’s largest integrated steel makers and a member of our metals portfolio. The stock found support at its 25-day trend line and was up as much as 10% on an intraweek basis. Iron ore prices were on the rise last week against a backdrop of higher demand at mills as well as supply tightness, which likely contributed to the rally (at least in part). Moreover, according to Fitch Solutions, “Iron ore and steel prices are once again rising higher … amid strong demand from the Chinese steel industry and supply issues from the largest global producers.” Hot-rolled coil prices have more than tripled over the past year to reach a record high of $1,800 per short ton last Monday in New York, after the White House announced a $579 billion infrastructure spending deal (which is expected to benefit iron and steel producers). In the latest industry news, China Baowu Group, the world’s top steelmaker, recently said it would join forces with Vale (VALE)—one of the world’s largest iron ore and nickel miners, and Shandong Xinhai Technology to make stainless steel raw material nickel pig iron (NPI) in Indonesia (which likely accounted for the recent strength in Vale’s stock price, as well as accounting for residual strength in Cleveland-Cliffs). 
The most important reason for our continued holding of CLF is based on encouraging financial results in recent quarters, including adjusted EBITDA of $513 million in the first quarter, compared to $23 million in the year-ago quarter. Management also expects Q2 EBITDA of $1.2 billion, as higher prices and production volumes will allow the company to generate “record levels” of free cash flow and pay down a “substantial amount of debt.” After taking partial profit following its rally earlier this month, I recommended that investors raise the stop-loss on the remainder of the trading position to slightly under the 21.25 level on a closing basis (where the 50-day moving average comes into play). Q2 earnings are due out July 22. HOLD 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. Driving the acceleration of alternative energy storage, according to Fitch, will be the growing demand for rechargeable lithium-ion batteries for the electric vehicle (EV) market, accounting for around 80% of total lithium demand by 2030, from 40% today. Lithium consumption could grow as much as seven times over the next 10 years, based on a projected EV annual sales growth from 3 million today to 21 million units by 2030. Benchmark lithium carbonate prices are currently near the 3-year high of 90,000 yuan per ton, driven by rising global demand for EVs. Global supplies, meanwhile, remain tight. Lithium prices, moreover, are projected to rise significantly in the coming year based on industry analyst estimates. In view of the lithium market’s strong fundamental backdrop, investors who haven’t already done so can buy a conservative position in LIT on weakness down to around 67.60 (halfway between where the 25-day and 50-day moving average come into play). BUY A HALF ON WEAKNESS 
MP Materials (MP) is regarded as one of the biggest (if not the biggest) rare earths producers in the Western Hemisphere, currently accounting for around 15% of total global supply and with most of its production taking place at its Mountain Pass, California mining site. It’s also the only rare earth mining and processing facility in North America. Most of the resulting rare earth concentrates MP produces are eventually sold to China through an intermediary (where those concentrates are processed). However, the company is working towards completing a Stage II optimization project next year that would allow the firm to bypass the middleman by fully processing the materials and selling rare earths straight to end-users. Upon completion, Stage II is expected to produce around 20,000 metric tons of separated rare earth oxides annually, including over 6,000 metric tons per year of Neodymium-Praseodymium, which in turn will be used primarily to make magnets for the EV market, as well as for wind turbines, drones and robots. MP Materials also boasts strong balance sheet with cash and equivalents of $1.2 billion (including $672 million in net proceeds raised through a convertible “green bond” offering—the largest in the country, according to MP). Its liquidity position was further increased by $21 million in free cash flow during the quarter. Looking ahead, analysts expect the company to grow the full-year 2021 top and bottom lines by 77% and 93%, respectively, with continued double-digit earnings and revenue growth in the next two years. Moreover, the global rare earth elements market is expected to increase by around 12% annually through 2026. Assuming this forecast materializes, MP Materials is likely to experience strong growth for Nd and Pr to be used in EV motors. In the latest news, MP was just added to the Russell 3000 Index during its annual rebalancing, giving it some added visibility and prestige among investors. I previously instated a buy recommendation on MP and reiterate that investors can purchase a half position in the stock on weakness, using a level slightly under the pivotal 25 level as the initial stop-loss on a closing basis. I now recommend taking partial profits in MP after its 19% rally from our initial entry point. I further suggest raising the stop to slightly under the 33.25 level on a closing basis (under the 25-day line). HOLD 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 the Atlantic’s 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 emptor: unlike most recommendations made in this report, this is a fairly illiquid stock.] BUY A HALF ON WEAKNESS We recently initiated coverage of Taseko Mines (TGB), which I view as an ideal vehicle for gaining some exposure to the strong molybdenum market. Canada-based Taseko is known mainly for being a mid-tier copper miner that operates the Gibraltar Mine, Canada’s second largest open-pit copper mine. Taseko’s Gibraltar mine boasts proven reserves of 53 million pounds of molybdenum. (On the news front, the company was recently granted a permit that will allow it to continue its 2021 mining plan at Gibraltar without disruption.) Total molybdenum production for the company in the first quarter of 2021, meanwhile, was 530 thousand pounds, up 29% from a year ago. Taseko reported that molybdenum prices strengthened in Q1 and averaged $11.32 per pound (26% higher sequentially). Analysts expect sales and earnings to improve moving further into this year, in part due to improving copper conditions (management also said it expects higher EBITDA this year). In view of the supply shortages and increased industrial demand for steel (of which molybdenum is a key component to increase hardness, electrical conductivity and corrosion resistance), Taseko is a solid story. Long-term-oriented investors can accordingly do some nibbling on pullbacks down to around 1.90 (stop). BUY A HALF ON WEAKNESS 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 7/6/21 | Profit | Rating |
| Cleveland-Cliffs (CLF) | 20 | 5/11/21 | 21 | 6% | Hold |
| Global X Lithium & Battery ETF (LIT) | 69 | 6/10/21 | 72 | 5% | Buy a Half |
| MP Materials (MP) | 32 | 6/8/21 | 38 | 22% | Hold |
| Sigma Lithium Resources (SGMLF) | 5.17 | 6/29/21 | 5.36 | 4% | Buy a Half |
| Taseko Mines (TGB) | 2.25 | 5/24/21 | 1.96 | -13% | Buy a Half |
| Wheaton Precious Metals (WPM) | 48 | 6/2/21 | 44 | -7% | Hold |
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. Sell means to liquidate the entire (or remaining) position.