And I think I found a Buy It or Burn It stock that looks to be on the verge of making significant moves soon…

Remember, these are just ideas I’m sharing. You should only enter these trades if you’re comfortable managing the positions on your own. 

Check out this week’s free bonus trade idea below!

Draftkings Inc. (Nasdaq: DKNG)

Draftkings made a $22 billion dollar bid for the British online bookmarker Entain. The stock has since swooned down over 10% in days. I view the move as massively bullish long term and a testament to DKNG’s ambition to run the sports betting world.  This is a great spot for the stock to bounce and I expect it to be back in the $60’s range in short order.

The Yangtze is one of the world’s longest, most powerful rivers.

For more than 2,000 years, it has played a key role in Chinese history as a source of drinking water, a crop irrigator and a transportation network.

Although the Yangtze has supported lives, it has ended many others. In 1931, torrential rains caused its banks to flood.

It wiped out crops and led to the deaths of an estimated 3.7 million people, making it one of the deadliest natural disasters in history.

In 1954, another round of flooding resulted in the deaths of more than 30,000 people.

In the early 1990s, the Chinese decided to harness the Yangtze with a huge dam. At over a mile long and almost 600 feet tall, the Three Gorges Dam is the largest hydroelectric dam on earth. It cost more than $30 billion to build and produces awesome amounts of electric power. It’s also a key part of the Yangtze flood-prevention system.

To this day, the Three Gorges Dam stands as a monument to mankind’s ability to harness powerful forces and direct them towards productive means.  But there are incredible risks with such structures and power.

We’ve harnessed rivers like the Yangtze. We’ve harnessed the power of the atom to produce nuclear energy.

So as an investor, why should you sit in fear of volatility… instead of joining in mankind’s legacy and harnessing its extraordinary power to build wealth?

This Could be a Landmark Moment for You…

To most investors, “volatility” is a bad word. It’s like a habanero pepper in your oatmeal. You don’t want to see it in your sensible, conservative investment mix. The talking heads on financial television bemoan volatility. Mainstream headlines make it sound like a terrible thing.

And this brings up one of the greatest lessons you can ever learn about the financial markets…. one of the true keys to market mastery…

Great investors and speculators treasure volatility.

As a professional investor, I love volatility. I owe much of my success to this “dirty word” of the financial world. In fact, I believe it’s a landmark moment in an investor’s career when he or she realizes that much like a powerful river, volatility can be harnessed, directed and used as a tool.

When that realization happens, a world of huge opportunities opens.

Many of these opportunities will come from the extremely volatile commodities market.

If you know how to harness this market’s volatility and put it to work, you can make extraordinary returns in stocks.

You can make returns in 10 months that most people wait 10 years to make.

Why?

Because more-so than any other asset, commodity prices move up and down in huge boom-and-bust cycles. They exhibit what’s called “extreme cyclicality.” One year, the price of a commodity like oil, silver or copper can skyrocket 75%. The next year, it can fall 50%. In other words, it can be very volatile.

Take Crude Oil for Example…

Below is a chart of crude oil’s price movements over a 20-year period starting in 1997. As you can see, one of the defining traits of this market is extreme volatility — the tendency to boom and bust. Volatility isn’t the exception in this market… it’s the rule. Moves of 40%… 50%… and 60% took place in less than 24 months.

I’m not “cherry-picking” crude oil to show you an unusual example.

Here’s Copper…

During the same period through to its incredible rise in 2021 — more in last week’s missive on copper signals.

And Lumber…

Lumber prices are highly cyclical, with multiple 100% rises coupled with 50% or greater declines. The largest move came recently with a massive 539% spike, since then, prices have cratered over 72%.

Wondering why your cup of coffee has gone up in price? Coffee has had several massive swings over the past 20 years.

Here’s sugar:

And here’s corn:

Hot Commodities

Given their volatile nature, it’s not uncommon for commodity markets to soar hundreds of percent higher in just a few years. Their massive price moves create massive opportunities.

For example, during the 2008 financial crisis, the share price of Canada’s largest diversified miner, Teck Resources Ltd. (NYSE: TECK), plummeted from CAD$50 per share to under CAD$4. It then soared back to CAD$40 per share and beyond within 12 months — a gain of more than 1,400%.

Most financial advisors will urge you to avoid volatile markets like the ones I’ve described. I agree with them. Armchair investors have no business trying to navigate these rapids. These folks are best served by regularly buying shares in low-cost index funds, settling for average returns, and getting on with their lives.

But what if you’re willing to do extra work to earn extra returns? What if you’re interested in being better than average… like 10… 50… 100 times better than average?

Then you might consider learning how to harness the commodity market’s volatility and using its extraordinary power to generate wealth for you.

I could fill a book on how to harness volatility and profit from it, but I believe that ultimately, you need just three key mental assets to make volatility a wellspring of capital gains for the rest of your life.

Asset #1: Learn to Appreciate a Good Crisis

Boom. Bust. Echo. Repeat.

The March 2020 meltdown due to COVID-19 was a prime example.

That’s the nature of a volatile market. And while booms can be great, you must learn to appreciate the busts as well. You need to learn to appreciate a good crisis.

That’s when you sow the seeds of big bull market gains.

As I state in my educational essay “An Investment Secret You Might Not Want To Share With Friends:” Markets are rational most of the time. They price most assets correctly most of the time. But when emotion levels go off the charts — like they do in a market crash — emotion completely overwhelms reason.

During crashes, terrified investors sell assets with no regard for their underlying values or ability to produce cash flow. This creates an environment where the price of assets becomes “unhinged” from the value of assets. This, of course, means you can buy bargains during a crash. If you can keep a level head while others are losing theirs, you can buy at fire-sale prices.

When most investors hear about a crash in a market, their instinct is to sell or completely avoid that market. But if you’re interested in profiting from volatility, you must develop an instinct to buy into those kinds of markets. You must learn to run towards a crisis. A crisis is about the only time you can buy valuable assets at extreme bargain prices.

Asset #2: Ability to Ignore the Desire to be Part of a Crowd

Eighty-thousand years ago, being part of a crowd helped you survive.

Since there is “safety in numbers,” members of prehistoric tribes were less likely to get eaten by predators or killed by rival tribes than those who wandered alone.

Sound familiar today?

To this day, being part of the family and social groups promotes happiness and longevity.

However, in the investment market, your herding instincts work against you. Doing what everyone else does is sure to make you a loser.

Put simply, don’t wait in line to buy assets. You are sure to overpay.

Think of how the public piled into tech stocks right before the 2000 crash… or how the public piled into real estate right before the 2007 crash.

To harness volatility and make it a source of profits, you must learn to ignore your desire to be part of a crowd. After an asset suffers a bust, nobody wants to buy it. The lack of buyers means asset prices get very cheap. You’ll have little competition to buy the assets. The headlines will be terrible. If you tell the average guy what you’re buying, he’ll look at you like you’re crazy. These are all signs you’re doing the right thing.

Buying undervalued, hated assets is a lonely endeavor… but it’s extremely rewarding.

Asset #3: Ability to Sell and Ring the Cash Register

This might be the most difficult mental asset of all to acquire and put into practice.

This is because it’s easy to fall in love with a position that has produced big paper profits for you. Once you learn how to buy extreme bargains during times of crisis, you’re bound to have some massive 100% or more winners in your portfolio.

It’s easy to fall in love with a stock that doubles or triples in value. Seeing it in your portfolio will make you feel good. The winning stock can become like a family pet.

And who wants to sell the family pet?

Trust me… you do — but we are not talking literal family pets, we will leave that to the politicians like Andrew Cuomo.

Extremely cyclical assets like commodities and natural resource stocks should be approached with a “rent, don’t own” mentality. You must be willing to sell these assets after they appreciate in value. It’s only a matter of time before they bust again.

Remember, you don’t make money until you sell. Your “pet” is just a piece of paper. Don’t fall in love with it. It won’t love you back.

To get an idea of what life can be like for a natural resource stock — and why you should take a “rent, don’t own” approach to them — have a look at this chart of Range Resources Corp. (NYSE: RRC) from 2005 to 2017. Range was one of North America’s largest natural gas producers. Range shares boomed 489% from 2005 to 2008… then busted 64%. Range shares boomed again from 2011 to 2014, gaining 185%. After that boom, shares fell 78%. When resource stocks like this boom, speculators can make big money… but only if they sell.

In Summary

If you’re new to the markets, it’s easy to get scared of volatility. The media certainly makes it out to be a bad thing.

But I’ll state again for emphasis:

I believe it’s a landmark moment in an investor’s career when he/she realizes that, much like a powerful river, volatility can be harnessed, directed, and used as a tool. When that realization happens, a world of huge opportunities opens.

Many of these opportunities will be in the volatile commodity markets. If you learn how to harness this volatility and put it to work, you can make it a source of huge capital gains for years to come.

Regards,

Marin Katusa

And for good reason…

A regular gasoline passenger vehicle requires 20 to 50 pounds of copper.

Battery-powered vehicles — like a Tesla — require over 150 pounds of copper.

With news stories about surging Tesla and electric vehicle sales, investors are bidding up the prices of the best copper companies.

One such stock many of our subscribers own, which we were first to publish in our premium newsletter — the KRO (Katusa Resource Opportunities).

It’s a copper spinout company that rocketed to a $1.5 billion market cap from the day it went public…

Giving shareholders well over 1,000% returns in a year.

So if you like ten-baggers, then pay attention.

Another copper producer I was a founding director of — and remained on the board for more than 12 years for — has risen over 800% from last spring’s market panic selloff. And twice now it’s produced 1,000% gains for investors.

Copper Isn’t as Sexy as Bitcoin or Even Gold…

In the Olympics, you get a “mainly” copper medal for placing third — a bronze medal is 93% copper and 7% zinc.

But the returns can be incredible — certainly better than a third place — if you understand the market, know what to buy, and when.

I’ll share a funny — and real — story about copper miners in the past cycle…

When the copper company I was on the board of was trying to raise $500 million to build our mine, investors in the mining sector only cared about gold and silver at the time.

So I showed the spreadsheets of how the silver byproduct from our copper mine would pay for all offsite costs — shipping and smelting — to these investors and then broke down the cash flow as a percentage of gold.

Even though the mine only produced about 12% precious metal byproducts, the cash flow from precious metals was about 25% of the total at the time.

Investors loved it…

The stock went up 20-fold and became Canada’s third largest copper producing mine.

In the last 15 years, the copper developer — with a PFS — and mid-tier producer sector went from over 100 companies to less than a dozen. Another interesting stat for those who care about the facts.

A Copper Price Surge

After nearly a decade of weakness, copper prices have regained their footing and now remain well above the elusive $4 per pound mark.

This can partially be attributed to a small supply deficit in the first quarter, which resulted in an acceleration in inventory level declines.

The bigger picture is that global economic growth expectations have ramped up, and this is driving copper higher.

The Exchanges and Days of Supply

There are three main exchanges for copper:

• London

• Chicago

• Shanghai

Each exchange reports its inventory level, which indicates copper available for delivery. Below is a chart that shows the total amount of copper held in global exchange inventories.

It’s important to not just look at the inventory levels as a gross number but to compare it against current consumption as well.

The metric used is “days of supply,” which is global inventory levels divided by global consumption. The chart below shows days of supply for copper over the last decade.

If you were to draw a basic trendline from 2009 to today, it would be downward sloping — indicating that copper’s days of supply are consistently headed lower. I would argue that this is due in part to improvements within the global supply chain.

These improvements minimize the need for consumers to hold physical copper.

Holding inventory has a cost, so if downstream consumers of copper can minimize holding times, they will.

Declining inventories may be a factor in short-term pricing, but the long-term expectations for copper are driven by demand growth.

Copper Demand Has Been a Proxy for Economic Growth…

Expanding nations need copper for infrastructure, household appliances and construction projects.

Historically, copper demand growth has averaged between 1% and 3% per year. It’s hard to get excited about 1- to 3- percent growth.

However, I believe the main driver for copper right now is the green future demand outlook. Political goals of “net zero emissions” require vast amounts of copper to electrify everything from power grids to vehicles. These goals have the potential to unlock considerable new demand for copper.

Below is a chart that shows projected copper demand through 2030.

By 2030, my current forecasts indicate upwards of 30 million metric tonnes of annual copper demand. This assumes that the world does in fact head in the direction of net-zero emissions.

The major growth comes from electric vehicles, smart HVAC systems and new-build renewable power.

In total, this brings in over five million tonnes of new demand, which represents a potential increase of 25% over this year’s total copper demand.

Billionaire Mining Corp.

Many years ago, a billionaire tech executive asked me why I was in mining.

He suggested that with my skill set, I should be in the tech sector and that I was wasting my talents in mining.

I emailed this individual the announcement of Bill Gates, Jeff Bezos and others who were making a splash into mining.

But these billionaires are going to learn a very hard lesson in mining:

“God may have created the metal, but the Devil spread it around for his own amusement, and amusement he will have in the coming years.”

A Delicate Balancing Act. Global Supply vs. Global Demand

For years, the copper supply has kept pace with demand. As the world electrifies, however, more copper will be required.

It’s possible that by the end of the decade, we will be in a real deficit. This creates the opportunity for sustainable long-term copper prices.

The chart below compiles the supply and demand analysis from the previous pages into one basic line chart. As you will see, copper is showing signs of outpacing supply by 2030.

Of course, a lot can change over a decade, but this provides a clear picture of what the roadmap could look like.

The key takeaway is that by the late 2020s, we’re going to need more copper production.

Strong Prices Equal Stronger Governments

While I sound like a bit of a broken record, I’ll say it again…

As metal prices go higher, governments are going to want to increase their take. And they will.

The nationalization of resources will continue to play a central role for investors and governments.

This is precisely what’s happening in the world’s largest copper-producing region in Chile, as a new royalty system is coming down the pipe.

Recently a congressional mining committee approved a version of a bill that would charge higher rates during times of high prices.

The original royalty agreements had a flat 3% tax on sales.

The new version adds marginal rates starting at 15% on sales derived from copper prices of between $2 and $2.50 a pound. These rates go up to as much as 75% on sales generated from prices above $4 per pound. At current prices, the effective tax rate would be 21.5%.

I believe we’ll see more of this type of activity in Peru and other South American nations, Southeast Asia and even in the new mining paradise of Greenland where the billionaire technocrats are going.

These regions all contain major copper producers and governments who want to “cash in” on the copper price surge.

Below is a chart which shows current copper production and estimated copper production through 2026. I have separated it into +SWAP and -SWAP line nations to show the considerable reliance upon -SWAP line nations for copper.

For an introduction to SWAP lines — click here.

Katusa’s Copper Outlook

I have no doubt that there’s much potential for serious economic headwinds which could slow global growth and subsequently copper demand in the near term.

Yet, copper prices and copper-focused equity share prices remain strong. The long-term thesis for copper is very bullish, and so the outlook remains bullish.

Electric vehicles, infrastructure, technology — there are a LOT of uses we know of that need a lot of copper.

I’m just also cautious with regards to the potential risks still present in the current macro global economy, and the high valuations many base metal companies are already getting.

You can minimize your risk and amplify your upside when markets work in your favor.

There are many ways to get great upside in copper without paying premium prices. I am personally doing it right now myself, alongside my KRO subscribers.

If you don’t have the time to check for yourself which companies can offer this in the resource sector, don’t worry.

Consider becoming a subscriber of Katusa’s Resource Opportunities, and you’ll be able to follow exactly what I’m doing.

Regards,

Marin

Within minutes, I sent an email to my team at Katusa Research to standby on alert.

Gold bullion cratered in overnight trading on Sunday, falling over $60 per ounce in a matter of minutes, breaching $1,700 per ounce.

Some are blaming it on thin overnight trading due to the Asian holiday, while others are justifying it with recent economic data.

Regardless, watching gold and gold stocks fall while the rest of the market roars higher is an uncomfortable feeling for gold bugs…

Many of you have seen this song and dance before. Trudged through trenches and held on through bleak times.

A large number of investors are new to the sector…

And it’s the first time you’ve got that white towel firmly in your grips.

This investor was drawn in by last summer’s rapid gold price ascent and the incredible gains gold stocks returned in that rally.

That Was Then. This Is Now…

While it can change in the blink of an eye, out of all the major asset classes, as many bitcoin enthusiasts will remind you, gold is the worst year-to-date performer.

Weak: What is Causing the Gold Price Decline?

One major seller in thin holiday trading aside…

The real driver of gold prices right now is the state of the U.S. economy and the outlook for growth and inflation.

Strong U.S. employment data released Friday played a pivotal role in the recent price action for gold.

• The labour statistics point to improving conditions, which indicate a stronger and healthier economy.

In theory, a stronger economy should require less financial heroism — meaning less stimulus and money printing from the government and central bank.

For the record, I don’t think the Fed intends on changing its key accommodative policy stance anytime soon.

However, as an economy strengthens, it incentivizes investors to buy growth over protection.

Eventually a stronger economy could provide a catalyst for real interest rates to move closer to 0%, rather than down 1.15% today.

If you’re in the camp that one should earn a positive rate of return after inflation on bond investments or at least break even, then you’d be hard pressed to think gold is undervalued at these prices.

It’s Not What You Might Want to Hear…

But the numbers speak for themselves.

The chart below shows every weekly gold price relative to U.S. bond yields adjusted for inflation (Real Yields) since 2006.

By this metric, even if you wanted to break even on your debt investments and earn a 0% rate of return after inflation, gold is overvalued by over $200 per ounce.

How Well Does This Gold Price vs. Real Yields Model Work?

Very well…

For the mathletes, an R2 of 0.86 indicates strong explanatory power between gold and real yields. Below is a chart which shows actual weekly gold prices since 2008 and the predicted price from the model.

I received a lot of hate from the Twitter crowd a few weeks ago when I said we may not like the current price action in gold, but we must respect it. As it looked like it would go lower from our analysis.

That was exactly what happened.

The gold market is a multi-trillion dollar a year industry. One seller for a few billion dollars on a Sunday is not going to make or break the sector in the long term.

But, the fact that one seller can significantly influence the price is a sign of short-term weakness.

Again, respect the price action and use the information the price action provides to make investment decisions.

Comparing Gold’s Biggest Corrections

While the recent price action doesn’t look promising, these drops don’t even make the top 20 worst monthly declines for gold.

Below is a table which shows the largest monthly declines for gold, and the subsequent returns three and 12 months later.

Back in June, gold retreated 7.7% for the month when it fell from $1906 to $1770 per ounce.

It was the worst performing month since November 2016.

Given the current price action, buying the dip in June likely won’t prove to be a winning strategy over the short run. Meanwhile, if August continues its trajectory, it’s shaping up to be just as bad as June or worse.

That’s definitely not a stat gold bugs will want to brag about. But the scabs, cuts and open wounds are starting to pour some blood into the streets.

Buy the Dip in Silver?

Silver prices have struggled as well, down 11% on the year and so far 9% for the month.

Again, similar to gold, silver’s worst months trounce the current price action.

In the next table, you’ll see the top 20 month over month declines, and the “buy the dip” model results for three- and 12-month returns.

In the short run…

Like Birds of a Feather: August and Gold

From Nixon closing the gold window on Aug. 15, 1971 to the Fed injecting billions to plug the sub-prime crisis on Aug. 9, 2007; decisions by the U.S. Fed in the month of August have had profound effects on gold.

A town with a population of 10,500 holds the keys to gold’s future success or failure…

In late August the annual Federal Reserve Jackson Hole symposium will take place.

It is often the place of major policy discussions and unquestionably the hot topic will be how to keep the economy running without sending it into an inflationary crisis.

With the coronavirus recession behind us, it’s hard to see nominal policy rates getting more accommodative rather than less.

Gold Stocks

A simple indicator I like to use is to see how many precious metal stocks above a $100 million market cap with over $5 million in cash are at 52-week lows versus how many are at 52-week highs — and the ones in neither category.

You can see that there the percentage of companies within 10% of their 52-week lows is rocketing higher.

And that’s where alligators start to come out of hibernation…

I’m happy if gold goes down because it means I get to increase my positions in my favorite gold stocks at half NAV. That’s smart investing.

To give yourself the most upside with least risk, you have to be a contrarian. Sell when others are manic buying.

And buy when others are heading for the exits and throwing in the towel.

I took cash off the table late in the summer and fall last year. I took a lot of flack for it because “gold was going to the moon”.

The hate doesn’t bother me and neither does the confirmation bias. Cash is king and my subscribers and I are cashed up now and can buy when others who are overleveraged are forced to sell.

Subscribers and I recently began nibbling on my favorite gold stocks again…

Slowly and methodically, we’re building positions over weeks and months. And that is the key in this marathon to building wealth.

It’s all detailed in my premium research service — Katusa’s Resource Opportunities.

In fact, there are three gold positions at my buy target price right now. How long they’ll stay at these price levels is anyone’s guess.

But I’m buying using my tranche strategy — and you can learn it too.

Going all in and buying your entire position on the first dip is a recipe for disaster and financial ruin.

It may not be as exciting as going all in, but it sure allows you to sleep better at night.

Regards,

Marin Katusa

What is quantum economics?

It’s the new world we live in. Negative interest rates, high bond prices, a strong U.S. dollar and a stronger gold price.

When I was on a panel at a large resource conference five years ago, I stated that in the coming years we would have further negative interest rates and higher bond prices. The other panelists and “gurus” stated that was “metaphysically impossible”.

Well, that’s exactly what happened and now we’re here.

Be careful of following a dated “framework” by a dated guru.

For example, did you know that if you bought a French or German 10-year bond, you’d lose money?

Yes, yields on those 10-year government bonds are negative.

Let’s turn to their neighbor, Switzerland. It’s a pretty safe country so you’d think it would be hard to lose money there right?

Wrong. Lock your money up for 30 years and earn -0.192%.

And yes, you’re reading that right…

You give the Swiss Central Bank your cash for 30 years, and in 30 years they give you back less than you started with.

The chart below shows the current yields for bonds in France, Germany and Switzerland. Everything short- and medium-term duration is below zero.

By keeping interest rates negative, the central banks are trying to create an environment that encourages consumer spending.

Or at least that’s the hope. Given that E.U. inflation can barely get above 2% — which would be considered healthy in a normal market — things are not even close to back to normal across the pond.

Financially Transmitted Diseases (FTDs)

The United States has kept with its Zero Interest Rate Policy (ZIRP), even in the face of skyrocketing monthly inflationary numbers.

What was once perceived as an ultra-loose monetary stance is now a disciplined approach compared to Japan and the E.U. And ZIRP and NIRP are critical to keeping the economy going.

Big fiscal stimulus packages and ultra-low interest rates are the new normal both in the U.S. and abroad.

The combination of ultra-low interest rates and inflation leads to negative real interest rates. It is simply the yield on a non-inflation-indexed bond minus the inflation rate.

As you might guess, in today’s world of zero or negative interest rates, once you subtract inflation, you are left with a negative “real” rate of return.

Incredibly there is over $16 trillion in negative-yielding debt these days. The number is almost unfathomable. But that number will increase.

As inflationary pressures on certain sectors of the economy pick up, more and more debt will go negative yield.

In this situation, investors are incentivized to either

1. Spend the cash immediately, so it doesn’t lose value.

2. Buy physical assets which are stores of value (like real estate, art and gold).

Gold Price vs. Real Yields

The next chart paints a very clear picture of the relationship between “real” interest rates and the gold price. This data goes back to 2006, where each dot represents the weekly gold price and associated real interest rate.

While this is only one metric, the relationship is starkly clear… If negative real rates continue, it is likely supportive of strong gold prices.

It’s not just gold that is doing well these days. The commodities boom is at full throttle, recently taking out the old five-year high in the Bloomberg Commodities Index.

Where it gets exciting is when you take a longer-term view…

Here is the same index back to 2000. As you can see, we are still miles away from old highs.

In fact, the index would need to rise by nearly 150% to get back to the old highs.

Commodities investing requires a contrarian strategy. It’s one reason why many on Wall Street shun the sector. Jumping on the meme FOMO bandwagon is a lot easier. These days, commodities, relative to stocks, have never been cheaper.

The Chart 60 Years in the Making…

Below is a chart which shows the ratio of the Bloomberg Commodities Index vs. the S&P 500 on a total return basis.

It’s a ratio that illustrates the incredible cyclicality of the commodity space. When it’s on, you better be involved. When it’s off, it’s best to keep the powder dry.

I’ve dedicated my entire 20-year career as a professional fund manager to the commodities space, traveling the globe multiple times over. All while building one of the best Rolodexes in the game.

The natural resource sector is as much an investment into the people running the company as it is a bet on the commodity.

I don’t take finders fees, kickbacks, or stock options, and no company can pay to be in my portfolio.

My subscribers and I just started loading up on several of my favorite gold stocks.

Subscribers to Katusa’s Resource Opportunities get to find out exactly what prices I’m willing to buy and sell at before the trades occur.

If you want to give your portfolio an edge, consider becoming a member and giving it a try for yourself.

Regards,

Marin Katusa

Let’s just hope the delta variant doesn’t shut things down in the fall again.

We’re going to look at some current data on everyone’s favorite debate: inflation. And then talk about what it means for gold.

I get a kick out of experts, fund managers, talking heads and nearly everyone I meet arguing, debating and trying to convince others on their views of inflation, stagflation, transitory inflation, deflation and everything in between.

I bet that “transitory” is the most searched economic term of 2021.

Hell, even doctors are using “transitory” now to explain lingering side effects from the different vaccines.

Most of what you’re watching and reading is verbal diarrhea.

Always question what you’re watching and reading with this simple filter: “What kind of skin in the game does this person have.”

If you don’t have your own money on your thesis, then chances are you’re going to lose my interest quickly.

Now let’s get to it…

Cross-flation

Around the world, inflation is the key focus. With enormous amounts of stimulus and a red-hot economy, inflation in many parts of the economy will happen. I coined the phrase in my book, “cross-flation”.

In the U.S, there are two core measures of inflation.

1. The Consumer Price Index (CPI) and

2. The Core Personal Consumption Expenditure.

You can argue that both methods are rather outdated, but they are bell-weather metrics that politicians and the U.S. Federal Reserve use to help in their decisions.

By either measure, inflation is evident as shown in the dramatic spike over the past two months…

However, one should tread carefully because the baseline is data from shortly after the pandemic when economic activity was very low.

So, it is easy to juice these numbers and expect inflation to be worse than it appears.

The true test of how inflationary things are will come later this year when the data from September through December of this year is compared to the same data in 2020.

In Europe, the CPI shows a similar spike, though the 2% range would be considered healthy under normal economic conditions.

Looking at sources of alternative measures, such as the IMF World Food Price Index, shows major increases in the global price levels of food.

In the real world, you’re seeing everything from gas prices to luxury purses increase in price.

In short, there are certainly inflationary pressures.

But at this point, nothing that requires central banks to alter their course of stimulus packages and interest rate policy.

Golden Hedge for Inflation

Gold has long been argued as an inflation hedge.

Dramatic inflationary conditions can lead to a loss of confidence in the nation which can cause a currency death spiral.

This leads to a very weak domestic currency, while real assets such as gold, art and real estate will appreciate.

However, a little inflation is bad for gold. The reason is that inflation is mainly controlled through interest rate policy.

To curb inflation, central banks raise interest rates.

Higher interest rates incentivize domestic and international investors to buy domestic bonds. This increases the demand for the domestic currency, leading to a higher valued currency relative to its peer nations.

In this case, if the Fed were to raise rates, the U.S. Dollar would rise and because gold is priced in U.S. Dollars, it would fall.

Do I think the Federal Reserve fears inflation and will raise rates in a big way this year?

No, I don’t. For several reasons:

First, we are not back to full employment. The economy can continue to expand at an above-average pace so long as the country is below full employment.

Second, the era of double-digit interest rates or even 5% money is a long way away.

We are in the realm of low-interest rates — and NIRP — and these policy stances are not going away.

Raising rates to 5% would cause enormous stress on the system and likely lead to catastrophic failure locally and financial contagion.

Will History Repeat Itself?

For the last 20 years, relative to its peer nations, the U.S. economy has emerged stronger from economic collapses.

This can be measured in many ways, such as GDP growth. And another very useful, but not so often mentioned tool is interest rate determination.

Central banks raise interest rates when economic conditions are strong and cut interest rates when conditions are weak.

As you’ll see in the next chart, through the tech bubble, the global financial crisis and the Coronavirus pandemic, the United States consistently had the highest interest rates compared to its peers.

This is especially evident since 2008 when after a brief stint, the E.U. was forced to cut its interest rates to zero, while the U.S. raised rates a handful of times.

As we look at the global economy, most nations are worse off today than they were pre-pandemic.

For example…

• Japan cannot change from the zero-interest-rate policy it struggled with over the last two decades. The E.U. has negative interest rates, a struggling banking system and many highly indebted member nations. It’s hard to see them as a pillar of economic strength right now.

• Canada is a major trading partner of the United States, it will try to closely mimic its interest rate policy. Being a commodity-driven nation, high commodity prices will also justify higher rates in Canada. Given the economic outlook abroad, it is hard to see any developed economy strengthening relative to the United States.

• The BRICs (Brazil, Russia, India, China) will show strong economic growth, but none have shown themselves capable of being a responsible global leader when it comes to trade or central banking activity.

U.S. Dollar Importance

On a global basis, I remain firm in my position on the U.S. dollar.

There is a lot of negativity surrounding the demise of the dollar, the death of the dollar, the destruction of the dollar and all other fear-driven narratives. I’m not in that camp.

As I’ve said many times before: The dollar only has to be the strongest currency relative to its peers.

I see no reason for the U.S. Dollar to lose its reserve currency status. Below is a chart which shows the dollar versus a basket of global currencies.

Gold and Potential Headwinds

Gold has struggled for most of the year as investors have bought risky assets and sold safe-haven assets.

This past June was the worst-performing month for gold since November 2016.

While we may not always like it, we must respect the price action in gold.

Inflationary conditions are not rampant and U.S. bond prices have weakened — sending yields higher. This puts pressure on the gold price.

Below is a chart which shows the gold price versus the real return of the U.S. 10-year bond. You will see that as real yields bottom, gold has a tendency to peak.

At this time a year ago, I was pitched more gold deals, financings and projects than in the previous three years combined.

When you start to see the “rounders” coming back into gold after being in crypto and cannabis, still flogging the same exploration moose pasture…

You know it’s starting to get a little overheated.

That — along with many other underlying factors — led me to take Katusa free rides and profits off many gold positions and rotate into other opportunities with more upside in mid to late 2020.

It wasn’t a popular move, which made me all the more confident about it.

I like to make moves well in advance of others, to take advantage of liquidity, sell into periods of relative strength and buy in periods of relative weakness.

I anticipated a correction, which now allows me to scoop up shares at a massive discount to last summer’s prices.

While gold was — and still is to some degree — retreating and consolidating, many of my subscribers to Katusa’s Resource Opportunities and I still made money on our gold picks.

One such company is up nearly five times our money in just over 12 months.

And now the Way of the Alligator is working in real time and I’m methodically buying new tranches in my favorite gold stocks.

If the gold stocks correct further, I am ready, like an alligator to attack. My subscribers who followed my guidance are now strongly positioned with lots of attack capital.

My long-term bullish view of gold is intact. But I’ll use any weakness in the short term to build my positions.

You can read the exact moves I’m making by becoming a member of my premium research letter — Katusa’s Resource Opportunities.

I hope you’ll join me and all the other alligators.

Regards,

Marin Katusa

Or what about Leonardo DiCaprio, President Biden… and JetBlue?

They’re all among the companies, celebrities, cities and countries that have made commitments to curb their contributions to climate change.

Or eliminate them entirely.

And they’re all using the exact same tactic to do so.

It’s one you’ve probably never heard of…

In fact, it’s a commodity so new that it doesn’t even have an official market yet.

There are no quotes or tickers on Yahoo! Finance, Financial Post or Google Finance… Pricing is almost impossible to find.

But it’s on the verge of erupting onto the world stage.

In a few years, even your Uber driver will know everything about it.

I’m Talking About Carbon Credits

From here on out, the carbon credit news cycle will accelerate.

And it’s going to happen at a breakneck pace.

The tidal wave of government and corporate money that will create this change will put NASA and every other government body to shame.

It’s going to create enormous, long-lasting change in how investing works.

This is the type of opportunity that comes along once in a generation.

You are getting a front-row seat to one of the most incredible emerging opportunities you will ever see.

Once you’re up to speed on how the largest entities in the world plan on fighting global warming…

You’ll be set to profit from them in a big way.

So, let’s get you up to speed on the basics.

I guarantee you will be smarter than any of your friends and colleagues by the end of this missive.

How are Carbon Credits Created?

Carbon credits are generated through emission reduction or direct emission removal.

For example: carbon credits can be earned for a renewable power plant that is used to displace coal fired electricity generation. For each tonne of CO2 which is displaced, a credit is earned.

Carbon credits can also be generated through removal of greenhouse gases.

This is known as carbon sequestration.

Carbon removal comes from projects such as forest restoration and avoided deforestation. These are grouped as “nature-based solutions.”

Or credits are created through the physical removal of carbon from the atmosphere using  technology known as:

• Carbon Capture & Store.

• Bioenergy combined with Carbon Capture Store (known as “negative emission technologies”).

Carbon offset projects which sequester carbon (such as reforestation or avoided deforestation) are a function of opportunity cost.

This means the alternative use for the land is what partially drives the value of the offset.

Land which could be used for agriculture or livestock is therefore a function of crop and livestock prices.

The Trove Intelligence Global Carbon Credit Supply Model indicates that prices in the voluntary market will need to rise by an order of several magnitudes in order to continue to incentivize carbon project developers.

Book a Flight

If you try to look at pricing of flights on google or any online portal, under the price of the flight you will now see the amount of carbon emissions that your one seat is responsible for.

This is done for two reasons…

First, to start making customers aware of the amount of carbon emissions they are responsible for their flight.

Second, it’s to condition customers such that when there is a cost now to negate those emissions, the customers know the reason for the cost.

Carbon Credits are an Emerging International Marketplace

The beauty about the carbon market is that it is global.

Greenhouse gases migrate — emissions from one nation end up in the skies of another.

It requires global acceptance and adoption to solve the problem.

In the Voluntary Carbon credit Market (VCM), a credit produced in one country can be applied against emissions of a company located in another part of the world.

For example, the Bonobo Peace Forest in the Democratic Republic of Congo is one of the largest reforestation projects in the world.

Credits earned from this project can be applied against emissions of a company domiciled in Europe or North America.

This creates an incredible opportunity for an international marketplace for credits.

Below is a table which shows the total value of transactions by offset type in the Voluntary market for the past four years.

Total transaction volume in 2020 is estimated to be over three times the volume it was in 2017…

This Is Exactly What Makes it Such an Exciting Place to Invest…

All of this is building up a pressure chamber of demand in the VCM that has not yet reached a tipping point.

When it does, there’s a lot of upside to be had.

Because It’s the perfect setup for a long squeeze in the VCM:

1. Rising emissions from a growing population.

2. Tightening government mandates on carbon emissions.

3. Increasing consumer demand for environmental responsibility.

4. More transparency in emissions reporting.

5. Corporate buy-in at every level, even from non-emitting companies.

All together, this is going to result in a desperate scramble for high-quality carbon offsets, of which there are few.

If you thought the rise in the price of lumber was crazy in early 2021…

Just wait until you see the VCM market in five years.

Voluntary Carbon Market Pricing

The bad news is that since VCM is such an undeveloped market, pricing information is hard to obtain.

In fact, the term “voluntary carbon market” is somewhat inaccurate. The market itself is purely ad hoc.

This is such a new commodity that there is no real, actively traded market.

And that’s great news.

Because it means very few people are actually investing in the market right now.

This isn’t even hitting a blip compared to Gold or Bitcoin on Google Trends…

• As an investor, you know that the time to make your bets is when NO ONE else is looking at a sector.

To start shedding light on what carbon offsets could be worth, let’s start by looking at the price floor.

Carbon offsets produced through means such as reforestation have an opportunity cost.

Breakneck Price Acceleration

Based on this, the Trove Intelligence Global Carbon Credit Supply Model indicates that prices in the Voluntary Carbon Market (VCM) will need to rise to continue to incentivize carbon project developers.

Furthermore, how credits are produced gives them different base values.

The table below shows the variation in global carbon credit pricing across different types of carbon offsets in the voluntary market for 2017–2019.

In 2021, prices in the voluntary market have been hot.

Prices have regularly been quoted above $7.50 per tonne and as high as $15 per tonne for high-quality credits.

Catalysts & Opportunities in the Carbon Markets

They key catalysts for the carbon market are…

1. Government-led initiatives to promote the carbon marketplace.

These include establishing a global carbon price floor, heavily enforcing the achievement of NDCs, and regulating investment in carbon removal technology.

All of these are heavily bullish for carbon offset prices.

2. Corporate-led net neutral and net zero pledges.

Expect to see corporations race to become net zero so that they can remain competitive in the marketplace.

And then watch for additional demand from erasing historical emissions.

3. Demand-driven development of reporting and exchanges.

As outlined, this will include Scopes 1, 2 and 3 emissions. In the near future, it will also require highly liquid, transparent exchanges for both the compliance and VCM.

This has always been the trajectory of any new commodity.

Only this time, you know about it before it has achieved anything close to equilibrium.

The Carbon Market is an Incredible Asymmetric Bet

There’s so little downside — climate change isn’t going anywhere — and incredible upside.

Early adopters, project generators and holders of carbon credits and offsets can earn substantial returns over the coming years.

Very few people know about this brand-new commodity sector… yet.

But everyone understands it immediately once exposed.

And everyone who understands will invest, because it makes sense and it’s cheap to do so now.

Of course, you can stay on the sidelines if you want. But before you make that decision, recall one of Warren Buffett’s most famous quotes.

It goes like this:

Those trees are (literally) being planted today — all across the world.

And I’m here to help you make a profit from it.

To find the companies best positioned to make money from the hundred-trillion-dollar war, you’ll want to become a member of Katusa’s Resource Opportunities.

In my monthly newsletter, I’ll be publishing the best carbon investments that come across my desk.

If you want to be among the first — and only — to know, sign up today.

Regards,

Marin Katusa