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1 day ago
AMERICAS GOLD AND SILVER TO CONSOLIDATE THE GALENA COMPLEX IN TRANSACTION WITH ERIC SPROTT;PAUL ANDRE HUET TO BE APPOINTED CHAIRMAN AND CHIEF EXECUTIVE OFFICER
October 09 2024 - 7:12AM
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/FOR DISTRIBUTION IN THE UNITED STATES/
TORONTO, Oct. 9, 2024 /PRNewswire/ - Americas Gold and Silver Corporation (TSX: USA) (NYSE American: USAS) ("Americas" or the "Company") is pleased to announce that it has entered into a binding agreement (the "Definitive Agreement") with an affiliate of Eric Sprott ("Sprott") and Paul Andre Huet under which Americas will acquire the remaining 40% interest in the Galena Complex ("Galena") in Idaho, USA to consolidate the current Galena joint venture (the "Acquisition").
Upon the closing of the Acquisition, Paul Andre Huet will be appointed Chairman and Chief Executive Officer of the Company. Darren Blasutti will remain as President.
The Company also announces that it has entered into an agreement to complete a bought deal private placement financing of subscription receipts of the Company (the "Subscription Receipts") to raise gross proceeds of approximately C$40 million at an issue price of C$0.40 per Subscription Receipt (the "Concurrent Financing").
The Company is also in advanced discussions with numerous lenders with respect to a debt financing to restructure Americas balance sheet and is in the process of evaluating indicative terms received. It is anticipated that the Company will enter into exclusive negotiations in the near-term with the intention of replacing existing debt facilities.
Key Transaction Highlights:
Consolidation of Galena: Galena is located within the prolific Silver Valley in Idaho and is one of the largest underground, high-grade, operating silver mines in North America, having produced over 240 million ounces of silver with peak production in excess of five million ounces of silver per annum in the early 2000s. Consolidation of the joint venture will streamline operational and financial decision making, providing for a focused vision at Galena centered around optimizing and expanding the operation through the utilization of existing infrastructure. Galena is expected to be a long-term cornerstone asset supported by a robust reserve and resource base, excess mill capacity, and opportunity to grow through future exploration success both underground and potentially at surface where limited exploration drilling has been completed.
Improved balance sheet: Proceeds from the Concurrent Financing and anticipated debt refinancing are expected to be utilized to deleverage the Company's balance sheet, replace higher cost debt instruments, improve the Company's overall cost of capital, cover transaction expenses, and importantly, advance a fully-funded plan to optimize and expand the Galena mining operations.
Expanded leadership: Paul Andre Huet will be appointed Chief Executive Officer and Chairman of the Company following the close of the Acquisition. Mr. Huet has a proven track record, particularly in optimizing underground mines, and was most recently Chair and Chief Executive Officer of Karora Resources Inc. ("Karora") prior to its business combination with Westgold Resources Limited, which valued Karora at over A$1.3 billion. Prior to Karora, he transformed Klondex Mines Ltd. ("Klondex") from a single asset producer with no milling infrastructure to a multi-mine, multi-mill producer which was eventually sold to Hecla Mining Company for over C$600 million.
Enhanced leverage to silver: With the recently announced project funding for the EC120 Project at the Cosalá Operations in Mexico and the consolidation of Galena, the Company's production, operating margins and near-term growth potential are expected to steadily increase. Americas anticipates that approximately 80% of its revenue will be generated from silver starting in the second half of 2025, providing investors with an attractive North American-focused silver investment vehicle with leading exposure to silver.
Eric Sprott to become cornerstone investor: Eric Sprott will become the largest shareholder of the Company, continuing his long-term support and endorsement of the substantial value potential of Galena. Eric Sprott was a cornerstone investor in Karora during the successful turnaround of operations by Mr. Huet through to the eventual sale of the Company.
Attractive value proposition: Future execution related to the operational improvement and expansion at Galena as well as the development of EC120 at the Cosalá Operations are expected to enhance the value proposition of the Company and support a future re-rating of its shares.
"I am excited to consolidate the Galena Complex and want to thank Mr. Eric Sprott for his partnership in growing Galena to one of the largest, high-grade, silver mines in North America," stated Darren Blasutti, Americas' President and CEO. "I believe Paul Huet is the perfect executive to lead the Company during the exciting phase of growth. Mr. Huet has a proven track record as a mining executive having successfully delivered considerable shareholder value in his previous roles at both Karora and Klondex."
"Americas represents a tremendous opportunity based on its impressive portfolio of assets in North America and I am excited for the opportunity to optimize these assets and deliver meaningful value to Americas shareholders," stated Paul Andre Huet. "For the past nine months, I have acted as Sprott's technical representative for the Galena JV and have witnessed firsthand both a tremendous team and resource base that has been undercapitalized due to a difficult silver price environment. I am confident that based on my team's track record of unlocking the full potential of mining operations, we can accomplish this again and deliver significant value to Americas' shareholders. I look forward to working with the Americas team to continue to build the Company into a leading North American-focused primary silver producer."
"I remain confident in the value of the Galena Complex and look forward to continued exposure to this tremendous asset through my equity ownership in Americas Gold and Silver," stated Eric Sprott. "I see substantial potential at the Galena Complex, particularly given the robust reserve and resource base, established infrastructure, and embedded growth potential. I have a long-standing respect and high regard for Paul, who has represented my interests in the Galena JV for the previous nine months. I believe Mr. Huet's mining acumen and expertise in underground operations makes him the perfect leader to surface the inherent value of the Galena Complex, Cosalá Operations and other assets for the shareholders of Americas."
Transaction Details
Under the terms of the Definitive Agreement, the owners of Sprott will receive 170 million common shares of Americas (the "Americas Shares") (the "Share Consideration") and US$10 million in cash (the "Cash Consideration") on closing of the Acquisition. Based on the price of the Subscription Receipts (as defined below) of C$0.40, the Share Consideration represents C$68 million. In addition, Americas will provide owners of Sprott with monthly silver deliveries of 18,500 ounces for a period of 36 months starting in or around January 2026.
Americas also intends to issue up to C$4,000,000 of Americas Shares at a price of C$0.40 per Americas Share, on a non-brokered private placement basis, to one or more of the vendors in the Acquisition in conjunction with the Concurrent Financing and the Acquisition for bridge financing purposes (the "Concurrent Private Placement"). Closing of the Concurrent Private Placement is not conditional on closing of the Concurrent Financing or the Acquisition and closing of the Concurrent Financing or the Acquisition is not conditional on closing of the Concurrent Private Placement.
The Acquisition and the Concurrent Financing will be subject to the approval by a simple majority of the votes cast by shareholders of the Company. The Acquisition and the Concurrent Financing will also be subject to applicable regulatory approvals, including approvals from the Toronto Stock Exchange and NYSE American Exchange.
Upon completion of the Acquisition and the Concurrent Financing, existing Americas shareholders will own approximately 53% of the shares outstanding, Eric Sprott will own approximately 22%, Concurrent Financing participants will own approximately 19% and management and directors will own approximately 6%.
The Company expects to call a shareholder meeting in October/November for a meeting in December 2024.
Closing of the Acquisition is currently expected to occur prior to the end of the year.
Leadership and Governance
Capabilities of the key senior management team and Board of Directors of Americas will be enhanced by the addition of new members from the previous Karora senior executive team and Board of Directors, who have significant capabilities in underground mining operations and a proven track record of shareholder value creation. The new Board of Directors of the Company will consist of 50% new directors and 50% existing directors of Americas.
Board of Directors' Recommendation and Voting Support
The Acquisition has been unanimously approved by the Board of Directors of Americas upon the recommendation of special committee of independent directors. The Board of Directors of Americas has recommended that shareholders of the Company vote in favour of the Acquisition. TD Securities Inc. ("TD Securities") has provided an opinion to the Board of Directors of Americas, stating that, as of the date of its opinion, and based upon and subject to the assumptions, limitations and qualifications stated in such opinion, the consideration to be paid under the Acquisition is fair, from a financial point of view, to Americas.
Directors and senior officers of Americas have entered into voting support agreements pursuant to which they have agreed, among other things, to vote their Americas Shares in favour of the Acquisition. Voting support agreements have also been received from several key Americas shareholders. These support agreements represent over 13% of the outstanding shares of the Company.
Concurrent Financing
Americas has entered into an agreement with a syndicate of underwriters (collectively, the "Underwriters"), in connection with a bought deal private placement offering of 100,000,000 Subscription Receipts at a price of C$0.40 per Subscription Receipt (the "Issue Price") for gross proceeds to the Company of C$40 million. Americas has also granted the Underwriters an option to purchase up to an additional 10,000,000 Subscription Receipts at the Issue Price for additional gross proceeds of up to C$4 million (the "Option") which will be exercisable, in whole or in part, at any time prior to closing of the Concurrent Financing. If the Option is exercised in full, the total gross proceeds of the Concurrent Financing will be C$44 million.
Each Subscription Receipt shall entitle the holder thereof to receive, upon satisfaction or waiver of the Escrow Release Conditions (as defined below), without payment of additional consideration, one Americas Share, subject to adjustments and in accordance with the terms and conditions of a subscription receipt agreement to be entered into upon closing of the Concurrent Financing (the "Subscription Receipt Agreement"). For the purposes of the Concurrent Financing and pursuant to the Subscription Receipt Agreement, the escrow release conditions include: (a) the satisfaction or waiver of all conditions precedent to the completion of the Acquisition in accordance with the Definitive Agreement, other than the issuance of the Share Consideration and the Cash Consideration; and (b) the receipt of all required board, shareholder, regulatory and exchange approvals in connection with the Concurrent Financing and Acquisition (the "Escrow Release Conditions").
The gross proceeds from the sale of the Subscription Receipts, less certain expenses and fees of the Underwriters, will be deposited and held in escrow pending the satisfaction or waiver of the Escrow Release Conditions by the Company's escrow agent, as subscription receipt and escrow agent under the Subscription Receipt Agreement.
If a Termination Event (as defined below) occurs, the escrowed proceeds of the Concurrent Financing will be returned on a pro rata basis to the holders of Subscription Receipts, together with the interest earned thereon, and the Subscription Receipts will be cancelled and have no further force and effect, all in accordance with the terms of the Subscription Receipt Agreement. For the purposes of the Concurrent Financing and pursuant to the Subscription Receipt Agreement, a "Termination Event" includes: (a) the Escrow Release Conditions having not been satisfied or waived prior to 5:00 p.m. (Toronto time) on February 27, 2025; and (b) the termination of the Definitive Agreement in accordance with its terms.
The Concurrent Financing is currently expected to close on or about October 30, 2024 and is subject to TSX, NYSE American and other necessary regulatory approvals. Following completion of the Acquisition, the net proceeds from the Concurrent Financing are expected to be used for growth initiatives at the Galena Complex, the payment of the Cash Consideration to Sprott, the repayment of certain of the Company's existing indebtedness, the payment of transaction expenses and for working capital and general corporate purposes.
The Subscription Receipts will be offered by way of: (a) private placement in each of the provinces of Canada pursuant to applicable prospectus exemptions under applicable Canadian securities laws; (b) in the United States or to, or for the account or benefit of U.S. persons, by way of private placement pursuant to the exemptions from registration provided for under Rule 506(b) and/or Section 4(a)(2) of the U.S. Securities Act; and (c) in jurisdictions outside of Canada and the United States as are agreed to by Americas and the Underwriters on a private placement or equivalent basis.
This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the United States, Canada or in any other jurisdiction where such offer, solicitation or sale is unlawful. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), or under any securities laws of any state of the United States, and may not be offered or sold, directly or indirectly, or delivered within the United States or to, or for the account or benefit of, a U.S. person or person in the United States, except in certain transactions exempt from the registration requirements of the U.S. Securities Act and any applicable securities laws of any state of the United States. "United States" and "U.S. person" are as defined in Regulation S under the U.S. Securities Act.
Advisors
Edgehill Advisory Ltd. and TD Securities Inc. are acting as financial advisors to Americas, and Torys LLP is acting as legal counsel to Americas in connection with the Acquisition.
Cormark Securities Inc. is acting as financial advisor to Sprott, and Bennett Jones LLP is acting as legal counsel to Sprott in connection with the Acquisition.
Conference Call and Webcast
Americas will host a conference call and webcast on Wednesday October 9, 2024 at 10:00 am EDT.
Conference Dail-in:
Toll-Free: 1-888-788-0099;
International: +1 (647) 374-4685
Meeting ID: 889 7906 0120
Audio webcast:
https://us02web.zoom.us/webinar/register/WN_8E6MYENAQlO5N7V6u1De_g
About Americas Gold and Silver Corporation
Americas Gold and Silver Corporation is a high-growth precious metals mining company with multiple assets in North America. The Company owns and operates the Cosalá Operations in Sinaloa, Mexico, manages the 60%-owned Galena Complex in Idaho, USA, and is re-evaluating the Relief Canyon mine in Nevada, USA. The Company also owns the San Felipe development project in Sonora, Mexico. For further information, please see SEDAR+ or www.americas-gold.com.
DiscoverGold
2 days ago
Gold Markets Continue to Look Strong Long Term
By: Christopher Lewis | October 9, 2024
• The gold market pulled back just a bit in the early hours of Wednesday, as the market continues to see a lot of support near the $2600 level, and this is also an area where people will continue to try to defend the trend from what I see.
Gold Markets Technical Analysis
The gold market drifted a little bit lower in the early hours on Wednesday, but quite frankly, I think we continue to see a lot of support in the $2,600 region. And the fact that we have bounced from there, not only on Tuesday but now on Wednesday in the early hours does suggest that there are buyers out there willing to get involved.
The market rallying from here does make quite a bit of sense because quite frankly there are a whole plethora of reasons for gold to go higher. The first one of course is central banks around the world cutting rates, which means lower interest rates, which means you don’t get paid as much to hold paper and therefore paying for storage of precious metals isn’t quite as unattractive.
Furthermore, you have geopolitical issues. And with that being said, the geopolitics that come into the situation, essentially, we have nothing good going on right now around the world. So, it’s a certain amount of safety trading that will go into the gold market. India, China, Russia, and I believe Indonesia, although I might be remiss, are all buying gold. So that puts a little bit of a bid into the market anyway.
And then finally, the US dollar with the Federal Reserve cutting rates, it is a bit of an inflation play as well. Overall, you have the technical analysis looking strong and you have plenty of fundamental reasons to believe that the gold market will go higher. So, with that, I am a buyer of dips.
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DiscoverGold
6 days ago
Gold Selloff Risk High
By: Adam Hamilton | October 4, 2024
After surging dramatically in the last couple months, gold’s selloff risk is high. Massive recent buying not only catapulted gold deep into extremely-overbought territory, it exhausted gold-futures speculators’ likely capital firepower for buying. Couple that with October’s normal seasonal pullback, an oversold US dollar, and excessively-dovish Fed-rate-cut expectations, and gold is staring down a large pullback if not a correction.
Market trends are rarely linear for long, they naturally flow and ebb. Prices surge in bull-market uplegs, generating increasing popular greed. That soon sucks in all available near-term buyers, stalling upside progress. Then selling flares, forcing prices back down and rebalancing sentiment. Even the strongest uplegs are punctuated affairs, advancing two steps forward before stumbling one step back. Gold is no exception.
Over this past year gold has blasted higher in a monster upleg, soaring 46.8% at best over 11.7 months into late September! This remarkable rally has proven one of gold’s biggest and longest uplegs in decades. Bull uplegs are born after corrections or bear markets, 10%+ and 20%+ declines respectively. Uplegs remain alive as long as their periodic selloffs are sub-10% pullbacks, since larger corrections reset uplegs.
This current unusually-large gold upleg really accelerated since late July, surging 13.1% in 2.1 months. That compressed nearly 3/8ths of this upleg’s entire gains into less than 1/5th of its lifespan! The Fed launching a new rate-cut cycle was the main driver, first on hopes of the FOMC birthing it with a crisis-level 50-basis-point cut and later when that actually came to pass. That blasted gold to 13 nominal record closes!
The faster any upleg rallies and the higher it shoots, the greater the odds a material selloff is imminent. Ironically that’s when most traders least expect one, as bullishness soars with herd greed. The longer and stronger any upleg runs, the more traders assume it will continue indefinitely. So they rush to chase those mounting gains when they should be wary, biding their time and waiting for inevitable selling to buy lower.
Overboughtness indicators measure how fast prices have surged, revealing when they get so stretched technically they are highly likely to mean revert lower soon. One simple gold-overboughtness construct divides gold’s closing price by its trailing 200-day moving average. Charted over time, this Relative Gold indicator tends to carve horizontal trading ranges. Gold just leapt back into extremely-overbought territory!
This chart effectively takes gold’s 200dma and flattens it to horizontal at 1.0x. The Relativity multiples oscillate around that, rendering the size and speed of gold moves in constant-percentage terms. In late September gold blasted up so far so fast that rGold stretched way up to 1.173x. Such rarefied levels are very unusual, and historically big-and-sharp selloffs usually immediately follow extreme overboughtness.
Over the past quarter-century since early 1999 encompassing the entire modern gold era, rGold levels over 1.173x have only been seen on 3.7% of all trading days. They are way rarer in gold’s current secular-bull phase which was born in mid-December 2015. Over the decade or so since, only 30 out of 2,211 trading days have seen 1.173x+ rGold levels making for 1.4%. Gold doesn’t get this overbought very often.
Yet the last time it happened wasn’t long ago in mid-April, when gold rocketed to 1.188x its 200dma on heavy buying from Chinese investors and central banks. Gold emerged from that one pretty unscathed, merely suffering a 4.0% pullback into late April followed by a second 5.7% one into early June. If foreign gold demand remains strong or American stock investors return, we could get lucky again this time around...
* * *
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DiscoverGold
DiscoverGold
6 days ago
NY Gold Futures »» Weekly Summary Analysis
By: Marty Armstrong | October 5, 2024
NY Gold Futures closed today at 26678 and is trading up about 28% for the year from last year's settlement of 20718. Factually, this market has been rising for 11 months going into October suggesting that this has been a bull market trend on the monthly time level which has been confirmed by electing all of our model's long-term Bullish Reversals from the key low.
ECONOMIC CONFIDENCE MODEL CORRELATION
Here in NY Gold Futures, we do find that this particular market has correlated with our Economic Confidence Model in the past. The Last turning point on the ECM cycle low to line up with this market was 2022 and 2015. The Last turning point on the ECM cycle high to line up with this market was 2020 and 2011 and 1996.
MARKET OVERVIEW
NEAR-TERM OUTLOOK
The NY Gold Futures has continued to make new historical highs over the course of the rally from 2015 moving into 2024. However, this last portion of the rally has taken place over 9 years from the last important low formed during 2015. Distinctly, we have elected four Bullish Reversals to date.
This market remains in a positive position on the weekly to yearly levels of our indicating models. Pay attention to the Monthly level for any serious change in long-term trend ahead.
Solely focusing on only the indicating ranges on the Daily level in the NY Gold Futures, this market remains moderately bullish currently with underlying support beginning at 26653 and overhead resistance forming above at 26947. The market is trading closer to the support level at this time. An opening below this level in the next session will imply a decline is unfolding.
On the weekly level, the last important high was established the week of September 23rd at 27087, which was up 16 weeks from the low made back during the week of June 3rd. Afterwards, the market bounced for 16 weeks reaching a high during the week of September 23rd at 26386. Since that high, we have been generally trading down to sideways for the past week, which has been a reasonable move of 2.307% in a reactionary type decline. Nonetheless, the market still has not penetrated that previous low of 23042 as it has fallen back reaching only 26462 which still remains 14.84% above the former low.
When we look deeply into the underlying tone of this immediate market, we see it is currently still in a semi neutral posture despite declining from the previous high at 27087 made 1 week ago. Still, this market is within our trading envelope which spans between 23206 and 27368. The broader perspective, this current rally into the week of September 23rd has exceeded the previous high of 25704 made back during the week of August 19th. This immediate decline has thus far held the previous low formed at 23042 made the week of June 3rd. Only a break of that low would signal a technical reversal of fortune and of course we must watch the Bearish Reversals.
Right now, the market is above momentum on our weekly models hinting this is still bullish for now as well as trend, long-term trend, and cyclical strength. From a pointed viewpoint, this market has been trading down for the past week.
INTERMEDIATE-TERM OUTLOOK
YEARLY MOMENTUM MODEL INDICATOR
Our Momentum Models are declining at this time with the previous high made 2020 while the last low formed on 2023. However, this market has rallied in price with the last cyclical high formed on 2023 and thus we have a divergence warning that this market is starting to run out of strength on the upside.
Interestingly, the NY Gold Futures has been in a bullish phase for the past 22 months since the low established back in November 2022.
Critical support still underlies this market at 23030 and a break of that level on a monthly closing basis would warn that a sustainable decline ahead becomes possible. Immediately, the market is trading within last month's trading range in a neutral position.
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DiscoverGold
7 days ago
Gold Continues to See Buyers
By: Christopher Lewis | October 4, 2024
• The gold market pulled back a bit in the early hours of Friday, as the market continues to pay close attention to the Federal Reserve overall. Also, it is worth noting that this is a market that continues to look for multiple reasons for the markets to rally.
Gold Markets Technical Analysis
Gold markets initially fell during the trading session on Friday, only to turn around and recapture momentum. Quite frankly, this is a market that has been in an uptrend for some time, and I expect that to continue to be the case. So therefore, I don’t find this overly surprising that we have turned things around. There are a whole plethora of reasons out there to think that perhaps this market should continue to find buyers as it has for some time now. Because of this, I think the market will continue to see upward pressure, but not without issues along the way.
After all, geopolitics certainly favor gold at the moment and interest rates being cut, of course, come into the picture as well. With all of that being said, I think this is a market that every time it dips, there will be people willing to get involved as it offers value. And I also believe that we have much further to go to the upside.
We could go looking to the $3,000 level over the longer term. And right now, I believe that the $2,600 level is probably a major floor in the market, assuming we even pull back that far. The initial sell-off might have been exacerbated by jobs coming out hotter than anticipated in America and perhaps stoking fears of people that we would have interest rates stay higher than anticipated, but it’s clear that the market has made up its mind and we are rallying from here.
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DiscoverGold
2 weeks ago
Gold Rally Is Sending a Warning. It Relates to the U.S. Debt.
By: Barron's | September 27, 2024
History doesn’t repeat but often rhymes, as the oft-cited Mark Twain quote goes. But there are classic couplets, as well as what passes for rhymes in popular song lyrics. The latter comparison seems more apt when past market and economic cycles are seen as precedents for the present.
In that regard, the 1990s are viewed as a positive portent of the current decade. In 1994, the Federal Reserve sharply raised its policy interest rate to quash incipient inflation pressures. That Fed, led then by Alan Greenspan, was able to engineer a rarely seen soft landing for the economy. Once it was apparent that short-term rates had peaked (after doubling, to 6% from 3%), the dot-com bull market took off on the promise of the internet, notwithstanding Greenspan’s doubts about irrational exuberance among investors early in the legendary liftoff.
Fast forward to today, and substitute the sharp escalation by the Jerome Powell–chaired central bank in its fed-funds target range, to 5.25% to 5.5%, from near 0%, until the recent half-point cut. Once more, when it was clear the Fed was close to the end of its hiking cycle in 2023, stocks took off. This time the promise of artificial intelligence helped to send the so-called Magnificent Seven tech names sharply higher, lifting the S&P 500 to a record.
But to invoke another cliché, it’s different this time. And what’s most different now is the U.S. fiscal position, with huge deficits likely to continue, in contrast to the steady progress to a budget surplus at the turn of the last century.
One strong hint is the gold market’s performance relative to the stock market. In the 1990s, the yellow metal truly seemed a barbarous relic when the internet’s promise seemed unlimited. Gold slumped to less than one-third of what it was worth at its previous peak above $800 in 1980. In an impeccable example of government market timing, the U.K. dumped more than half of Her Majesty’s gold reserves in the late 1990s, near the low of bullion’s bear market.
But for all the seemingly unlimited potential for AI, gold has more than kept pace with stocks, outperforming the S&P 500 so far in 2024 and in the most recent one- and three-year time spans. To cite relevant exchange-traded funds, the SPDR S&P 500 ETF (ticker: SPY) returned 21.06% for 2024 through Wednesday, 33.67% for the most recent 12 months, and 10.31% per annum for the past three years, according to Morningstar data. For the SPDR Gold Shares (GLD), the corresponding numbers are 28.54%, 38.28%, and 14.59%.
Whatever bullishness the equity returns reflect, gold’s performance suggests expectations that politicians will do whatever it takes to deal with the budget, inflation being the most expedient means by which to reduce the debt burden.
To review, as the 1990s progressed, the federal budget deficit steadily declined and moved into a substantial surplus of more than 2% of gross domestic product by fiscal 2000.
Much of the credit for the turnaround in the nation’s fisc should go to the end of the Cold War and the attendant decline in real (that is, adjusted for inflation) defense spending. Tax increases, which may be equally credited to (or blamed on) the Clinton presidency and the Newt Gringrich–led Congress, also turned the red ink to black. A robust economy mainly filled Uncle Sam’s coffers and freed up capital for the private sector.
The present situation cannot be more different. Even before the steep economic downturn from the Covid pandemic, the federal deficit ran at 4.5% of GDP, a level previously associated with recessions, despite unemployment under 4% and a then-record stock market.
Trillion-dollar deficits loom as far as the eye can see. According to the outlook of the nonpartisan Congressional Budget Office, the deficit is projected to continue to exceed 5% of GDP for the rest of the decade, climbing to 6.1% by 2034.
At that point, the U.S. could hit its sustainable gross debt limit, at over 150% of GDP, according to a new paper by Giorgi Bokhua and Mark Warshawsky published by the American Enterprise Institute, a conservative-leaning think tank. Then the Social Security and Medicare trust funds will be exhausted, which will force the programs to be reformed, likely as part of a larger fiscal consolidation.
They add that the level of sustainable debt may be overestimated, based on their assumption that interest rates won’t be forced up, relative to growth, from the exceptionally low levels of the past decade.
But government interest expenses already exceed defense expenditures, as I and others have pointed out. Moreover, this is an increasingly dangerous geopolitical circumstance, with Russia’s war on Ukraine, China’s aggressive ambitions in the South China Sea, and Israel’s conflict with Iran proxies Hamas and Hezbollah threatening to explode in a wider Middle East conflict. Contrast that with the relative stability of the post-Cold War world before Sept. 11, 2001.
As noted, the most expedient way for a government to deal with debt and defense spending pressures is inflation. Maintaining nominal (current-dollar) GDP—essentially the economy’s top line—generates revenue for taxes to pay debt-service expenses. Suppressing real interest rates further helps make the debt less burdensome. The combination is referred to as financial repression, which is essentially a polite term for screwing bond investors who get stuck with negative returns.
That may be what gold is sussing out. In this highly contentious election campaign, the deficit and debt rank lower than cats and dogs in the political discourse.
Investors should keep that in mind before they think they can party like it’s 1999.
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DiscoverGold
2 weeks ago
Gold Declines After Record High, Bearish Reversal in Process
By: Bruce Powers | September 27, 2024
• After reaching a new high of 2,686, gold faces a bearish reversal, with upcoming support levels critical in determining if the bull rally will continue.
Gold triggered a daily bearish reversal on Friday, following a new record high of 2,686 reached Thursday. There was a confluence of several rising ABCD targets from the 2,660 to 2,675 price zone. Notice that yesterday closed just below the 2,675-level following a breakout above that price level earlier in the session.
The decline today was clear as gold will likely end with a full red candle and daily close near the lows of the session. Moreover, the weekly chart will likely confirm weakness with a weekly close in the lower half of the week’s trading range. The middle of the range is 2,650. This sets up a bearish shooting star candlestick pattern.
Two Key Support Levels at 20-Day and 50-Day MAs
A drop below today’s low of 2,643 currently, will trigger a bearish continuation of today’s decline. Two key levels to help assess the health of the uptrend are identified first by the 20-Day MA, now at 2,568, and then the 50-Day MA, currently at 2,498. In each case, the moving average line has converged with the relative uptrend line, that also marks potential support.
On the way down gold may first encounter support around the 38.2% Fibonacci retracement at 2,633. A sustainable upside reversal from that price level would be a stronger indication of strength than a decline to lower levels. The next lower level to watch for support is the 50% retracement at 2,616, together with this week’s low of 2,614.
Previous High and 61.8% Retracement Point to 2,600
Nonetheless, once a market rises through a breakout level it may eventually pullback to test prior resistance as support. For gold that price level would be the previous trend high of 2,600 combined with potential support of the 61.8% Fibonacci retracement that sits at the same price. Below there is the 20-Day MA and rising trendline.
In addition to today’s bearish price action the relative strength index (RSI) momentum oscillator looks to be recovering from overbought as it is about to fall below the 70 overbought level. This would be supportive of a bearish continuation in the short-term. If gold stays above the 20-Day MA during a retracement, the potential remains for an eventually continuation of the bull rally for gold.
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DiscoverGold
2 weeks ago
NY Gold Futures »» Weekly Summary Analysis
By: Marty Armstrong | September 28, 2024
NY Gold Futures closed today at 26681 and is trading up about 28% for the year from last year's settlement of 20718. Caution is required for this market is starting to suggest it may now decline on the MONTHLY level. Currently, this market has been rising for 10 months going into September suggesting that this has been a bull market trend on the monthly time level which has been confirmed by electing all of our model's long-term Bullish Reversals from the key low. As we stand right now, this market has made a new high exceeding the previous month's high reaching thus far 27087 while it has not broken last month's low so far of 24038. Nevertheless, this market is still trading above last month's high of 25704.
ECONOMIC CONFIDENCE MODEL CORRELATION
Here in NY Gold Futures, we do find that this particular market has correlated with our Economic Confidence Model in the past. The Last turning point on the ECM cycle low to line up with this market was 2022 and 2015. The Last turning point on the ECM cycle high to line up with this market was 2020 and 2011 and 1996.
MARKET OVERVIEW
NEAR-TERM OUTLOOK
The NY Gold Futures has continued to make new historical highs over the course of the rally from 2015 moving into 2024. However, this last portion of the rally has taken place over 9 years from the last important low formed during 2015. Noticeably, we have elected four Bullish Reversals to date.
This market remains in a positive position on the weekly to yearly levels of our indicating models. Pay attention to the Monthly level for any serious change in long-term trend ahead.
From a perspective using the indicating ranges on the Daily level in the NY Gold Futures, this market remains moderately bullish currently with underlying support beginning at 26510 and overhead resistance forming above at 26894. The market is trading closer to the support level at this time.
On the weekly level, the last important high was established the week of September 23rd at 27087, which was up 16 weeks from the low made back during the week of June 3rd. So far, this week is trading within last week's range of 27087 to 26386. Nevertheless, the market is still trading downward more toward support than resistance. A closing beneath last week's low would be a technical signal for a correction to retest support.
When we look deeply into the underlying tone of this immediate market, we see it is currently still in a semi neutral posture despite declining from the previous high at 27087 made 0 week ago. This market has made a new historical high this past week reaching 27087. Here the market is trading weak gravitating more toward support than resistance. We have technical support lying at 26839 which we are currently trading below implying the market is very weak. This infers that this level will now be resistance. Our Major Channel Support lies at 25445 and a break of that level would be a bearish indication for this market.
Right now, the market is above momentum on our weekly models hinting this is still bullish for now as well as trend, long-term trend, and cyclical strength. Looking at this from a wider perspective, this market has been trading up for the past 3 weeks overall.
INTERMEDIATE-TERM OUTLOOK
YEARLY MOMENTUM MODEL INDICATOR
Our Momentum Models are declining at this time with the previous high made 2020 while the last low formed on 2023. However, this market has rallied in price with the last cyclical high formed on 2023 and thus we have a divergence warning that this market is starting to run out of strength on the upside.
Interestingly, the NY Gold Futures has been in a bullish phase for the past 21 months since the low established back in November 2022.
Critical support still underlies this market at 22840 and a break of that level on a monthly closing basis would warn that a sustainable decline ahead becomes possible. Nevertheless, the market is trading above last month's high showing some strength.
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