Gold and marijuana stocks went ballistic Friday. With the curve flattening in most countries and unimaginable monetary stimulus and government support, equities and confidence is stabilizing. The largest benefactor to date is gold and gold equities, which are in an indisputable bull market with both trading at multi-year highs. From the GDX which hit a new seven-year high of $36.68, to the GDXJ which is now flirting with $46, valuations in gold stocks is soaring. While I will go into more detail on the gold equities in a moment, we have to recognize the flood of capital back into weed stocks.
The Canadian Marijuana Index was up an astounding 27% on Friday alone.
Canadian Marijuana Index – 3 Month Chart
Aurora Cannabis led all issuers Friday, rising an absurd 64% to over $11 per share. The firm, which is one of Canada’s largest growers, saw its market cap climb back above 1 billion to about $1.14 billion at the close. Rising marijuana stocks is good news for the CSE, which was up over 7% at the close Friday. The Canadian Securities Exchange has by far the most leverage to marijuana, whereas the TSX Venture is far more leveraged to gold equities. We are witnessing truly huge moves as sentiment reverses and money flows back into these cannabis-related issuers.
CSE – 1 Year Chart
Back to Gold and Gold Equities
Thorsten Polleit is the chief economist at Degussa, Europe’s largest precious metals trading firm. He sheds light on the current situation, explaining,
“If there is one economic law out there, it is this: if you increase the stock of money in an economy and at the same time production declines, I think this is the recipe for higher price inflation going forward. Be that higher consumer prices and or asset prices.”
“I think this will be the consequence, the ultimate consequence of this so-called bailout policy.”
In Your Money Will Never Be The Same, a Weekly Intelligence Newsletter from last week, we explain the “The Four Horsemen of Inflation,” writing,
“There are four leading causes of inflation that investors should be aware of:
- cost-push inflation
- demand-pull inflation
- an increase in the money supply
- a decrease in the demand for money”
Polleit’s Final Thesis on Gold
Thorsten Polleit’s thesis on gold is that:
“It’s basically perfect money.”
“Gold is a competitor to the US Dollar, to the euro, to the Japanese Yen, to the Chinese renminbi. And gold is sound money. Gold cannot be devalued by central banks running the printing press. And, at the same time, gold does not have a default risk.”
Thorsten explains that inflation is evil and creates winners and losers. He then goes on to recommend silver as he believes its price will soon rally.
With central banks all in on monetary stimulus, debt monetization and currency depreciation, precious metals are benefiting. We are in the early stages of an emerging bull market in gold stocks. Rising gold stocks are benefiting the TSX Venture, which is up over 40% from its low in March. With the central banks nowhere near reversing course, the ongoing bull run in gold may be just getting started.
As a final note, greed is creeping back into the market for gold issuers as bought deals abound and financings oversubscribe. Finally, I can say from my own experience speaking with brokers, family offices, hedge fund managers and the like that big money is beginning to flow into gold and gold equities. Institutional money is clamouring for the next gold deal with upside as the metal continues to be hoarded and bought by central banks and investors around the world.
Have a great weekend,