We are currently in the final throws of a correction in the market, albeit a shallow correction, which has helped reset some of the technical oscillators. The US election has created uncertainty and delayed the expected stimulus package and we suspect that the November 3rd election date will mark the turning point as new policies will be moved forward and stimulus will be enacted. Along with the election noise, COVID cases have been ticking up in the western world, causing investors to worry about further economic damage. However, governments seem better prepared for this latest “wave” and are implementing “targeted” shutdowns with corresponding fiscal stimulus to support the underlying economy. With all global central banks keeping monetary policy loose, the US Fed has raised their current inflation target. This policy of keeping real rates low while allowing inflation to rise should continue to be very supportive to the gold trade and will keep a lid on the US dollar.

The chart above, highlights the new target zone for US inflation. We continue to maintain the portfolio’s overweight in gold stocks with a good mix of both production, development, and exploration. K92 continues to be our favorite producer with a good compliment of other gold companies including Calibre, Roxgold, Dundee Precious, Eldorado and Equinox.

The global economic recovery appears to be continuing with China again leading global growth. China’s GDP is forecast to grow +2% this year and over +8% in 2021. While US GDP is expected to shrink by -4% this year, it is forecast to bounce back +3.8% next year, led by business inventory restocking (see chart below).


Demand for materials continues unabated and the supply concerns continue to heighten. Deeper mines and production issues due to COVID-19, strike action by many South American mines weigh further on supply, not to mention the underinvestment that occurred in the last decade. For example, at Tesla’s recent Electric Vehicle Day, the company highlighted the limited supply of battery grade nickel needed for their giga factory. The portfolio holds many base metal positions that should benefit from stronger base metal prices like Capstone, Hudbay, ERO, Horizonte, Sherritt and Talon. We are also looking for new opportunities in base metal exploration names and are analyzing several new companies like Miramaca and Atico.

The portfolio is also well represented in the health care and technology sectors with just over 23% of the portfolio invested in the two sectors. While we have trimmed some of our technology positions due to the strong price appreciation, we have added some new names like MediaValet and Converge.

Energy, although at historic low valuations, is still perplexing in terms of the outlook. Further government stimulus should provide a positive backdrop for the global recovery and energy demand. However, the sector could not be more out of favour (hence the low valuations) with oversupply concerns and a growing trend in ESG investing. The price band for oil, appears to be in the $40 to $50 dollar range. This price level does not provide much excitement in terms of production growth in the E&P sector. There will likely be increased corporate activity as strong companies look to merge with companies with good assets but challenged balance sheets. However, a cap on oil prices will likely provide a good backdrop for natural gas weighted names due to the lack of associated gas production. While the portfolio is close to the benchmark weight in energy, it is more heavily weighted to the gas sector with companies like Tourmaline, Storm and Birchcliff.

We continue to avoid the hospitality sectors and the REITS due to weakening fundamental business dynamics and balance sheet concerns.

While we believe we are currently in a holding pattern in the market, we ultimately anticipate that we will have a strong move up towards the end of the year as the election noise dissipates. Monitoring this balance will be important, as one should not be complacent with respect to the ebb and flow of the economy, especially as we move to the winter months and the virus continues to wreak havoc on the economy and our lives!

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