Resource World Magazine

78 www.resourceworld.com D E C E M B E R / J A N U A R Y 2 0 1 9 Epilogue by David Duval D espite the generally apocalyptic view of the Trump administration across much of the political spec- trum, his popularity remains higher than former president Obama's. In addition, the US economy is booming – despite tariff wars with key trading partners including China – and, in fact, is actually overheat- ing, forcing interest rates higher and the gold price lower. After posting recent electoral gains in the Senate but losing the House of Representatives to the Democrats in the mid-term election, Trump is facing politi- cal gridlock as he tries to push through his agenda in an increasingly hostile and com- plex political environment. His trade war with China in particular has cost US farmers dearly, the very people who helped propel him into the White House. Wheat farmers, soybean growers and pork producers confront a growing trade war that is forcing them to re-evalu- ate their ties to the President's Republican Party and openly question whether his mantra to "Make America Great Again" came at the expense of voters like them. Trump's tri-lateral free trade agreement with Canada and Mexico is also at risk; and the recent decision by an Obama- appointed judge to delay the Trans Canada pipeline yet again has served to exacerbate the increasingly doomsday outlook for the Canadian petroleum sector which is sell- ing much of its production at well below global prices. Could it get any worse? As anyone who plays the market knows, just when you think a stock can't go any lower the flood gates open and down it goes. The chronic optimists among us sometimes call it a "buying opportunity" while the pessimists see it as a good tax loss and, in some cases, a means to offset the tax consequences of capital gains achieved elsewhere in their portfolio. What's perhaps surprising about all this political turmoil is the fact it's had virtu- ally no positive impact on gold. In actual fact, the US dollar has been the biggest beneficiary in 2018. Last year was the worst period for the US dollar since 2003, with the greenback falling almost 10% against a basket of currencies of major trading partners. Analysts had expected the decline in the dollar to continue this year but the exact opposite has happened, pummeling the gold price and gold equi- ties in the process. Gold prices are currently at their lowest levels since January 2017, with analysts suggesting the yellow metal has lost its allure as a safe haven. Other precious met- als, particularly silver, haven't done very well either. In the first half of 2018, global gold demand was its weakest since 2009, according to the World Gold Council, largely because of US dollar strength which makes the metal more expensive in currencies that have depreciated heavily against the greenback. With all the uncertainty in the gold market, investors are asking themselves if there's a reason to invest in the gold sector, both in the physical metal and in equities. Will the renewal of the safe haven of gold drive prices upward again and what will trigger that change in sentiment? The safest bet is that the hawkish US Federal Reserve will continue to raise interest rates, derailing the US and global economies in the process. Count on the Bank of Canada to follow suit. One of the obvious casualties of this policy will be the housing market which is already showing signs of weakness in major centres includ- ing New York, Toronto, Vancouver and many international cities with hyper real estate markets such as Sydney, Australia. You can imagine the impact of higher interest rates on home owners who are slated to reset their mortgages over the next few years – often at rates that are higher by 50% or greater. Many Canadian home owners have borrowed money for renovations and other expenditures, using the depreciating value of their homes as collateral. With a real estate crisis on the horizon, a financial crisis seems inevitable. And when political risks escalate gold should remain a crucial component of diversified portfo- lios as a hedge against potential corrections across asset classes. Whether or not the US dollar constitutes a safe haven under such circumstances remains to be seen. In the meantime, it's likely the gold mar- ket will continue to languish, possibly with limited upside (baring any 'black swan' event) for a year or more. That's going to make financing difficult for juniors in par- ticular and also heavily dilutive given their depressed stock prices. When the market does turnaround, there's going to be a lot of stock looking for buyers which, in my opinion, could extend the recovery period for the junior miners even more. Something that would provide support for the market and the broader economy in Canada would be the removal of the capital gains tax which, undoubtedly, would never happen under a Liberal government. n Negative events and circumstances still dog mining sector

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