Junior Miner Junky David Erfle Talks Gold Bull Market, Uranium, Copper & Offers a Diverse Group of Mining Stock Picks
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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the Founder of Junior Miner Junky, Mr. David Erfle. David, how are you today?
David Erfle: Great, man. How are you, Gerardo? Nice to talk to you.
Gerardo Del Real: Good, good. We were talking off the record a little bit. Your Dodgers are dominating, you're in first place. Let's see if it holds. My Cubs are battling it out with both the Brewers and the Cardinals, so it should be a fun fall. Nobody is probably listening to us to hear our take about baseball. I think people want to talk gold and the junior space and, man, what a difference a year and a half makes.
You and I last spoke I believe in January of 2018, and gold couldn't get out of its own way. It couldn't break $1,300, it couldn't hold it, and here we are in August of 2019 with a very, very boring $1,500 gold price. I'd love to get your thoughts on the difference between then and now, and how you're approaching the summer doldrums and a host of other things. So let's start there.
David Erfle: Sure. Well, the biggest difference is we've broken out of a 6-year base below $1,375 in the gold price. Now we've got a bull flag at the $1,500 mark, even though the sector is extreme overbought, everyone and his brother, including me, are expecting a sustained correction to begin any time here, but yesterday's action kind of changed my mind. I think now we just might see one more blast before we finally get a sustained correction.
I think depending on what Powell has to say at Jackson Hole on Friday, I think that's going to be a big catalyst as the gold price is flagging into that speech. Depending on the market's reaction to what he says, we could easily see gold run to the top of the channel here at $1,585 before we finally get a sustained correction. We should see some more volatile action here in the next couple of days.
Gerardo Del Real: I like it, I like it. I think we're both in agreement. I think we've got $1,545 or so here on the weekly. If we can beat that, then I think a run at that $1,585-level is absolutely in the cards, and then I think the second half of September we're going to get one of those, "Let's shake out the weak hands and let the institutions, which come back from vacation, position themselves." I think it's going to scare the wits out of people, so it'll be interesting to play this back in a month or so.
David Erfle: I've been building up some cash the past few weeks in anticipation of that myself. Also, I've heard some interesting scuttlebutt on the street that the reason the capital markets really haven't opened up yet, the debt and equity markets really haven't opened up yet even though the gold price has been well over $1,400 for a few months now, a lot of these institutions were burned during 2016 and that big run up where they got too aggressive and they made all these financings. Now, they're being a little more apprehensive, so the word on the street is they're going to wait for two quarters of gold sustaining $1,400 and then if that happens, then look for the capital markets to really improve in January of next year.
Gerardo Del Real: That makes my contrarian heart smile because I have a list of companies that I continue to add to. And if they're going to give me until January to do so, this bull cycle is going to be epic. Obviously, you have your newsletter. I would love your take on how long – and I know this is some crystal ball stuff, but this is what we do for a living – how long and how different this gold bull cycle will be from past cycles?
The reason I ask is because the bottoming process on this bear market was absolutely painful and brutal and as bad as many, many people, I'm talking my mentors' mentors, have ever seen. I'd love your take on if you believe that will translate into a longer bull cycle.
David Erfle: Well, absolutely. Just take a look at the HUI to gold ratio. That thing has been hammered down to ridiculous levels to where in 2016 you had probably the buying opportunity of the century. Then in August/September of last year, you had another fantastic buying opportunity and now the GDX has gone up about 75% since that bottom in like 11 months. Yeah, I absolutely agree that this move should at least mirror the move we saw from 2001 to 2011 where the gold price went from $250 to $1,900. That's not completely off the table in the next decade for sure.
Gerardo Del Real: You definitely see new real-time highs?
David Erfle: Oh yeah, absolutely. But as an investor in these things, I'm just happy to see a solid floor above $1,400. As long as I see that here by the end of the year, I'm really happy with that. The last thing I want to see is a surging gold price to these predictions of $10,000 an ounce. That's not going to benefit anybody. I hate to see what stocks will do if gold runs to $10,000 an ounce in a year. I think I'm going to be worried about a lot more things than what my gold stocks are doing.
Gerardo Del Real: I was going to comment that if that were to happen, there would be a lot more serious things to deal with than that. My two cents, I think this gold bull cycle is going to be one of those 4- to 7-year cycles that ultimately sees gold hitting anywhere between $3,000 and $5,000. And I know that sounds a little bit alarmist, and I'm far from a gold bug per se, but I'm definitely a gold bull.
When I look geopolitically at everything going on in the European bond markets, the bond markets overseas in Japan, our bond market here in the U.S., I've been of the opinion that the only way this gold rally will be sustainable is if it rises alongside the dollar, at least for the next year and a half or two while the dominoes crumble elsewhere. Do you share that sentiment? Or are you on the other side of that, David?
David Erfle: No, absolutely. I've been saying that for the last few years, that when the gold market finally takes off, it's going to take the dollar with it because all you have to do is just take a look at the Deutsche Bank chart. That's the scariest chart on the planet right there that nobody is really talking about. Germany just came out, they admitted that they're in recession now, and Draghi looks like he's going to get out by the skin of his teeth after destroying the bond market in the past 10 years and just pretty much ruining the pensions of the elderly. They've got no savings. There is no interest rate. Now they're going to have a lawyer at the head of the IMF, so it's really scary what's going on over there.
So I see nowhere but up for the dollar and gold will absolutely go with it. I'll also throw this in that after the U.S. market has a decent correction – it's not going to crash, I don't see what it's going to crash against –
Gerardo Del Real: Agreed.
David Erfle: The dollar and gold and U.S. stocks will all three be safe havens at the same time.
Gerardo Del Real: Hey, I see we're on the choir together. You mentioned the incoming lawyer to head the ECB. Of course, we're talking about Ms. Christine Lagarde, who just coincidentally happened to oversee the bailouts of both Greece and Argentina. I don't believe those were the last bailouts she will oversee, and I actually think the implosion of the European bond market will have to happen on her watch. But fear not, David, because I heard this week Mr. Draghi say he's got a big bazooka for us in September. You ready for the big bazooka?
David Erfle: Yeah, exactly. If I'm a European investor, blue chip stocks that pay a healthy dividend are looking pretty good to me right now.
Gerardo Del Real: I tell people this all the time. If you can find a blue chip stock that pays you 2, 2.5, 3%, and you contrast that with a bond that's returning you less than what you put up, it's a no-brainer to me. Despite that, again, there's still these “death of the dollar in the next six months” people out there and I don't know. I don't consider myself a very sophisticated individual. I like to think of myself as a pretty simple guy. I have a calculator. It's on my iPhone. I do math sometimes and just numbers, right? It's just math. It is what it is.
Let me switch gears a little bit. Let's talk uranium, and then I want to talk copper with you a little bit, because those are two markets that, like gold a few months ago and the juniors specifically, seem to be setting up for a slingshot effect here if they can close the year out in convincing fashion. Of course, that's going to depend in the copper space on these trade tariffs coming to pass. If that indeed is the case, and I think it will be because it doesn't make sense during an election year for Mr. Trump. Then the uranium space, of course, the can got kicked down the road and we're waiting now for the Nuclear Working Group to come out with recommendations I believe in early-to-mid October. Thoughts on both?
David Erfle: Well, I'll tackle uranium first. Uranium stocks have a tendency to bottom in November and that works out to really close to that decision you just mentioned. A lot of these things have been obliterated again. How many false bottoms have we had in uranium? I lost count.
Gerardo Del Real: It's made fools of some very smart people, for sure.
David Erfle: Exactly, and all the while these poor juniors that just keep building up the shares. The ones that have hung around since the last boom in 2006 – and that was a lot of fun, that was really, really profitable for me and a lot of people during that last boom – but these juniors that have hung around since then, they've got really bloated share structures. However, there are a few that are attractive to me, but I might dip my toe in around October/November into one or two, but definitely not now.
As far as copper is concerned, and you can throw zinc in there also, both of those charts have a pretty ugly head and shoulders topping pattern on them, and it's due of course to the after effects of this trade war, which has slowed down the global economy.
I'm very skeptical of copper plays and zinc plays here. If you take a look at the charts of these juniors that deal in both of those commodities, they don't look very good, but I think tax-loss selling season might be a good chance to nab a couple of those because some of these ridiculous valuations might get even more ridiculous if copper loses $2.50, because there's not a lot of support for copper down to $2.20 or even $2, if it loses $2.50. I'm not saying that's going to happen, but who knows how long this trade war is going to last and how bad it's going to heat up.
Gerardo Del Real: Agreed. So on your order of things to do, you would definitely be buying and adding to your favorite gold juniors right now. You would then dip your toe into the uranium waters maybe around October time in anticipation of a bottom. That will coincide obviously with the Working Group's recommendations, which are hopefully bullish, because it's an industry that needs renewing obviously, and then you would wait. You would wait in the short to midterm on the base metals. Is that accurate?
David Erfle: Absolutely. But as far as juniors are concerned, the sector is extremely overbought. I think the GDX has a shot of blasting 34 on a blowoff move, on this huge move that it's had, but I'll be building up probably a little more cash on that move if it happens. I've already built up some and there is a really good chance now of $1,585 getting hit, and if that does get hit, I expect to see 34 on the GDX. That will probably be where the sustained correction begins, but how sharp and how fast it happens, I have no clue because now we're totally in uncharted waters here. We can now throw away our bear market hats and we have to have our bull market hats on now. Core positions need to be held. Under all circumstances your core positions need to be held, but taking some profits along the way is always a good idea.
Gerardo Del Real: I know it's a cliché, but nobody ever goes broke taking profits. Right?
David Erfle: That's right.
Gerardo Del Real: Excellent. David, you and I met on a site visit. Let's talk some specific names. What do you like out there right now? I know, of course, that you have your weekly piece that you write for Kitco. You can go to kitco.com for that. The website I believe is juniorminerjunky.com. Is that accurate?
David Erfle: Yes it is, and that's Junky with a Y.
Gerardo Del Real: Got it. Perfect, so people can go there, subscribe, get your thoughts, get your ideas, all your research. Can you share a couple of names of companies that in this new gold bull market you look at with rose-colored glasses?
David Erfle: Sure. I could give you a growth-oriented producer, a developer/explorer, and then an early-stage exploration play. My favorite growth-oriented producer has been Wesdome Mines (TSX: WDO). I took some profit recently on it, but I still maintain a core position, I really like that one. My developer/explorer is Marathon Gold (TSX: MOZ). That's another one that I've held for quite a while and it's trading at all-time highs now. It has a very good large deposit in Labrador. My early-stage exploration play would be Sun Metals (TSX-V: SUNM).
Gerardo Del Real: Sun Metals. I am very biased towards the early-stage exploration plays, which of course, are the highest-risk, highest-reward plays. They also tend to see the price action happen after those producers get the benefit of the higher real price, right? It's interesting to me, Sun Metals is a company that I follow. Complete transparency, they're a sponsor on Resource Stock Digest. Talented team.
They had, I believe, the best copper hit last year, copper equivalent hit in all of Canada last year. I think it was something like 100 meters of 5% copper equivalent or something along those lines. I know that they are in the midst of a drill program right now with assays pending. That's definitely an interesting speculation that I think everybody should take a peek at.
David, it's been fun as always. I'm looking forward to seeing you at The Beaver Creek Precious Metals Summit. I will be there as well. Obviously, I'm looking forward to talking with you there. Is there anything else that you want to add before I let you go?
David Erfle: No. I think we've covered it all, and I appreciate you having me on the show and it's always great to talk to you.
Gerardo Del Real: I love your feedback. It's always well thought out and some actionable names and items and to-do lists of stuff for the rest of the year, so couldn't thank you enough. Thank you so much, David.
David Erfle: Thank you.
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