Published on September 15 2018

A Commodities Boom for the Ages Starts Now

Justin’s note: Last week, I showed you why commodity expert Dave Forest says it’s time to get ready for the “strongest commodities bull market of all time.”

As Dave says, we won’t just see a rally in gold—the whole commodities sector is set to run higher. Today, Dave shares even more proof…


By Dave Forest, editor, International Speculator

I just secured $5 million of financing for a gold project in Brazil.

It’s a good project—a redevelopment of a famous mine, with significant high-grade mineralization remaining.

And funding it has been a telling experience. One that’s led me to a raft of research showing that another major commodities boom could be starting as soon as this autumn.

Let me start from the beginning.

I secured the Brazilian mine through a complex bankruptcy purchase. It took nearly a year of working with insolvency lawyers and industry specialists to design a strategy for salvaging the asset.

When that got done early in 2018, I started looking for financing.

And it was a tough slog.

At the time, gold was bouncing between $1,300 and $1,350 per ounce. That was a little higher than the average price we saw during 2017—so I figured financing interest in gold projects would be strong.

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But visiting the offices of the “usual suspects”—stock brokers, mining funds, high-net-worth people with a history of natural resource investment—I found little interest. What money they had for mining investments, they were deploying into timely stories like battery metals.

Then in April, disaster struck.

Or at least, it seemed like disaster. The gold price began a decline that saw it break below $1,300. After battling at that level through May and June, it broke lower again—to below $1,250 in July.

At the time, I thought any existing interest in financing gold projects—especially a private company like mine, not yet trading on stock exchanges and offering liquidity to investors—would be vaporized.

But here’s the funny thing…

The opposite happened.

It’s true that many traditional brokers and funds basically turned out the lights and closed the door on gold over the last few months. But the decline has actually increased investment interest in some corners of the financial world.

It didn’t take long until we found a group that was very happy to commit $5 million to the Brazil project. At the time they said, “We really like gold. It’s so unpopular right now.”

This is of course exactly the way contrarian investors like Doug Casey, myself, and others have made fortunes throughout the years. When everyone else gives up on a sector, valuations and entry prices are usually at their optimum, ripe for major profits when someone—anyone—returns to the play.

That was exactly the case with the investors in the Brazil project: they actually seemed to be encouraged by the recent price declines in gold.

And they’re not the only ones. Over the last few months, I’ve been hearing more and more about gold financings quietly getting done—on a significant scale.

One private company I know just raised $8 million for a slate of gold projects in Africa. The assets are in the exploration stage, and the company isn’t trading yet.

Seeing that kind of enthusiasm amongst the industry’s inner circle—at a time when general sentiment is so low—is a critical sign.

And it’s not just in gold, but all across the commodities complex.

Let me explain…

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I opened my email inbox—and was deluged with news stories about bearish sentiment for gold. Here’s an example headline:

This is extremely interesting. Public sentiment is horrible at a time when insider deals in the gold sector are running hot.

Could such strong insider interest be a leading indicator of a rising market? My research team and I decided to run the numbers.

Below, we plotted “money flows” into the mining sector since 1990. Each blue bar represents the total amount of cash that flowed into mining investments each year—through equity financings as well as industry mergers and acquisitions.

The yellow line shows the CRB (Commodity Research Bureau) Index, a benchmark for measuring commodity price movement.

As you can see, money inflows fell steadily between 2011 and 2015. But—critically—that trend reversed in 2016, with cash inflows steadily rising (like in 2001 and 2002, just before the gold price took off). In 2017 it held steady, and it looks like money flows will tick even higher in 2018, based on activity so far this year.

A similar uptick in money flows took place in mining during 2001 and 2002. You can see how cash coming into mining increased, even as the commodities markets were falling.

For two years, insiders increased their purchases of mining investments. Then—bang—in 2003, commodities markets came to life. By 2008, the CRB Index was up 250% from its 2002 low.

Are we seeing a similar indicator flash today? My anecdotal experience the last few months says “yes”—and the data my team and I have compiled back it up…

The Coming “Business Inversion” Will Be Great for Commodities

As I mentioned earlier, it’s not just the market action in gold financings telling me commodities are set to take off.

We compiled a unique indicator: comparing dividends paid by the stocks making up the S&P 500 to the value of commodities, as measured by the CRB Index.

The idea is simple: when business cycles are expanding, corporate profits rise and dividends grow. Commodities tend to suffer in these periods, so my ratio declines. I call this my “business inversion” indicator, and it shows we’re positioned for a major run in commodities.

You can clearly see the declining pattern during business expansion periods (white bars) in the chart below, labeled with red arrows.

During each of the last four business expansion cycles, the ratio of commodities to dividends dropped—showing that as dividends were rising, commodities were also falling.

But… once the business cycle ends and stocks start to suffer, commodities take off—you can see how rising commodities lifted my ratio during each of the commodities booms (blue bars) that followed periods of business expansion.

I call this point the “business inversion.” And it may be the most profitable pivot you can make in your portfolio this decade.

If you’re not yet invested in commodities, now’s the time. A resurgence is underway… and it’s shaping up to be the biggest bull market I’ve seen in my career.

Regards,

signature

David Forest
Editor, International Speculator

Justin’s note: And make sure to check out Dave’s brand-new video presentation right here to learn about another major story he uncovered…

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P.S. Dave will share even more details about the coming commodities boom—and most importantly, what to buy now—in his upcoming presentation at our Legacy Investment Summit in Bermuda next month.

And you’re invited.

This is your chance to meet Doug Casey and all of our Casey gurus. If that’s not enough, the location is a true vacation destination with every amenity at your fingertips. We hope you’ll join us next month. If you’re interested, just click here to get all the details.


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