By Rod Blake
Summing up the performance of last years precious metals prices starting with gold which was off by $76 or 4% from its highs by year end 2021 at US$1,822. Silver and platinum group investors might use the more descriptive ‘damn’ to sum up their year as silver lost 12.5% to US$23. Platinum fell by 10% to US$962 and palladium dropped by almost 18% to US$1,928. And as boring or disappointing as these numbers are they look even worse when compared to their base metal cousins such as copper that gained over 25.5% to US$4.42, nickel up 26% to US$9.47 and zinc that rose by 31.5% to US$1.63. And even these pale when compared to the petroleum sector where crude oil advanced by almost 59% to US$75.21 and natural gas gained 47.5% to US$3.76. Then to really feel bad compare precious metals in 2021 to the electric vehicle battery mineral lithium that rose by 142% to US$77 or its more stable compound lithium carbonate that soared up by 393% to US$16.67.
In early January, I saw that the price of gold, at about US$1,900, was forming a potentially very bullish ‘Flag or Pennant ‘ formation in advance of its usual New Year’s rally. Unfortunately this rally was short-lived and actually failed as gold peaked shortly after at US$1,955 before drifting down to the year’s low of US$1,700 in early March. This was followed by another ‘Dead Cat’ rally in June that saw the yellow metal rise once again to US$1,900. But this rally failed to take out the previous US$1,955 high and the yellow metal quickly settled back down once again to US$1,750. And let me caveat the rest of this column by saying upfront that my outlook on precious metals in 2021 wasn’t quite what I anticipated on its upside performance. Especially for gold which I thought was poised for a very good year. In July I wrote that gold seemed to have formed a base above $1,700 and this base along with the traditional second half of the year rally could push gold to new highs. Unfortunately, the second half rally turned into more of a recovery and gold bullion finished 2021 at the above mentioned US$1,822. For whatever reason – the two strongest seasons for gold bullion failed to materialize in 2021. Meanwhile silver held US$26 – US$28 for the first half of the year but eventually fell along with gold. Platinum/Palladium followed suit but their price drop was accelerated by the chip shortage induced drop in new car sales and by extension demand for new catalytic convertors.
In short, 2021 was a very disappointing year for precious metals and especially gold. And not just because gold lost a nominal 4%. No, the gold market was so disappointing because early in the year gold seemed to have the planets aligned with conditions for a good if not exceptional year ahead. Conditions that could see gold possibly take out the 2020 record high of US$2,075. Record low interest rates and the markets awash in Covid induced government money were the two most obvious conditions and those alone could have propelled gold higher. But this failed to happen. Looking back, it seems the giant NASDAQ and S&P 500 markets, which were continually achieving new record highs, would not let go of their winners and attracted the vast amount of this new money that otherwise might have migrated to gold. Any dips in those markets quickly brought in more investors to ‘Buy the Dips’ and drive those markets higher again. Any seasoned observer of the markets knows that buying begets more buying and these markets had it in spades. Now add to this the money that went into the new crypto currency markets. Much like the high flying cannabis markets of a few years ago, the crypto stocks also rose to new highs in 2021, With these markets reaching higher highs it is not too hard to imagine investors ignoring precious metals that not only couldn’t make new highs but at best could not hold on to previous gains.
Now, against last year’s backdrop, how do I think precious metals will do in 2022? Time is an amazing investing tool. Time gives one the advantage of stepping away from the immediate actions or emotions and let’s one look at the bigger and sometimes clearer picture. Now take gold. And although 2021 was disappointing, the year was still interesting, and taken as whole may have given some insight to the year ahead. If you can, take a look at a 1-year chart of gold bullion. From the early in the year high of US$1,955 and the resulting low of US$1,700, gold has tracked out a wedge pattern of descending highs and more importantly, ascending lows. Currently, as I write this in early January, the overhead resistance has descended to about US$1,825 and the ascending low is risen to about US$1800. If this pattern continues then the rising lows should meet the descending resistance sometime in the near future. From there gold either breaks thru to test the 2021 highs or it fails once again and falls to new lows. Recent monetary events suggest that gold bullion should be going lower. The U.S. Federal Reserve (Fed) has stated that 2022 will see rising interest rates and a tightening of the money supply. This announcement should be detrimental for gold, but gold is holding at or near US$1,800. It is said that a commodity (or stock) that doesn’t go lower in the face of negative events wants to go higher. With this in mind I’m looking for gold to meet and break thru the overhead resistance sometime in the first quarter. And the extended basing pattern suggests the measured move above this resistance could have some strength to it so that the 2021 high of $1,955 could be put to the test once again later in the year.
Silver usually follows gold, but if it starts to outperform gold then we’ll know that a real precious metals bull market has begun. Platinum/Palladium should also follow gold but will also get the benefit of more demand as the auto industry once again gears up with renewed shipments of those all important chips. Based on last year’s disappointments, if gold bullion can take out US$1,955, silver recover to US$28,and Platinum/Palladium get back to US$1,300 & US$3,000 respectively then 2022 will be considered a good year for precious metals.
The above 2022 outlook is based on historic and current market conditions and supported by charts. But then there are the intangibles that ebb and flow and can effect markets during the course of the year. Three of these are the above mentioned NASDAQ, S&P 500 and crypto markets. To me these markets seem very overextended and are supported by the current ‘Buy the Dips’ mindset. Should this change and these markets give up some of their gains and that money comes to the precious metals markets then perhaps a run above the 2021 highs could be in the works. Based on my past forecasting performance, I won’t officially go that far, but I’ll be secretly watching and waiting for it to happen.
Meanwhile, looking forward at producing and early-stage exploration companies, Dynacor Gold Mines Ltd. has been successful at the sustainable development of artisanal mining communities while offering investor an attractive 0.83 cent monthly dividend, up from 0.67 cents and on an annual basis to 10 cents from 8 cents per common share starting in this month.
And Aurwest Resources Corp., a Canadian-based junior resource company focused on the acquisition, exploration, and development of gold properties in Canada.
Dynacor Gold Mines Inc. [DNG-TSX} is an alternative gold company investment with a proven and profitable business model that involves the processing of ore purchased from the ASM (artisanal small-scale mining) industry in Peru.
Dynacor aims to be an environmentally and socially responsible industrial gold ore processor that is committed to shareholder returns through a monthly dividend stream and stock buyback program.
The company has US$17.8 million in cash, is debt free and has guided investors to anticipate $185-$190 million in gold sales for 2021. It recently declared a 25% increase in the monthly dividend payment of $0.83 cents per common share.
Dynacor operates in Peru, where its management and processing teams have decades of experience working with artisanal miners. Through a subsidiary called Veta Dorada, the company buys ore form Artisinal Small Miners who are enlisted in the formalizing process of the Peruvian government. The Veta Dorada Plant has a processing capacity of 340 TM/D and is located in the Chala District, Arequipa, Peru.
The company has implemented a compliance system for money laundering prevention and terrorism financing, focused on risks through which acts of corruption and money laundering are also prevented. “In our production areas, there is no child or forced labour,” Dynacor has said. Gold is exported from Lima airport to Switzerland.
As of June 2021, the company increased its processing capacity to 430 TM/D from 340 TM/D.
In the third quarter ended September, 2021, the company reported a net profit of $3.5million or $0.09 per share, an increase from $1.25 million or $0.03 in the same period last year. Sales of $61.9 million in the third quarter marked an increase from $24 million in the year ago period.
On January 22, 2022, Dynacor shares were trading at $3.04 in a 52-week range of $3.29 and $1.77, leaving the company with a market cap of $118 million, based on almost 39 million shares outstanding.
Aurwest Resources Corp. [AWR-CSE] is a Calgary-based junior exploration company that offers low risk exposure to early stage precious and base metal exploration in Newfoundland and British Columbia.
The company has option agreements, enabling it to earn a 100% interest in the Paradise Lake and Stony Caldera projects, covering a 478 square kilometre package of gold exploration licenses located within the emerging central Newfoundland gold district.
Paradise Lake consists of three separate claim blocks. Collectively the properties cover 45 kilometres of strike length of the regional scale structure hosting Marathon Gold Corp.’s [TSX:MOZ, OTC:MGDPF – Mkt cap C$755M] Valentine Gold Project, New Found Gold Corp’s [TSX:NFG – Mkt cap C$1.28B] Queensway project and Sokoman Minerals Corp.’s [TSX:SIC – Mkt cap C$67.1M] high-grade Moosehead gold discovery.
Aurwest has received government permits to complete a 10,000-metre diamond drilling program at Paradise Lake. The program will consist of two phases, with the first phase consisting of a 3,000-meter program beginning in late January, 2022 (see news release dated January 6, 2022).
The main target is a 3.0-kilometre-long trend of high-grade gold in angular pyritic boulders of quartz breccia.
“We have concluded our preliminary 2021 exploration program at Paradise Lake with several high priority targets being identified,’’ said Aurwest President and CEO Colin Christensen. “This area has had no historical drilling and is situated along the Cape Ray Valentine Lake structure with up to 14.22 g/t gold at surface,’’ he said. “We’re looking forward to joining the few other companies who are currently drilling in the area, and the potential re-valuation of our share price as we move ahead.”
In British Columbia, the company also holds a 100% interest in the 24,533-hectare Stellar copper/gold project, plus an additional 3,761 hectares of contiguous claims in the now 100% owned Stars property, which includes an early-stage porphyry copper-molybdenum discovery. In 2019 the previous operator had drilled 16 holes over 6, 472 meters, with a selected significant drillhole DD18SS004 assaying 0.45% Cu, 0.045g/t Au, and 0.0048% Mo over 204 meters. This district scale play lies on the Nechako Plateau, 25 kilometres southwest of Houston and 58 kilometres north of Imperial Metals Corp.’s (III-TSX) Huckleberry Copper Mine.
On January 18, 2022, Aurwest shares closed at $0.13 and trade in a 52-week range of 22 cents and $0.065 leaving the company with a market cap of just under $12.8 million, based on 98.3 million shares outstanding.