Earth AI, Legacy Minerals make first greenfield palladium discovery using artificial intelligence
The companies announced the verified discovery of one of the largest palladium mineral systems in Australia.
By Henry Bonner
In his recent market commentary, Chairman of Sprott Global Resource Investments Ltd. Rick Rule warned that the current upswing in commodities and precious metals could be overheating.
Over the last three months, precious metals and natural resources have edged higher. As of March 3rd, gold was up 9% over three months.1 Commodities rose by a similar number, as per the Dow Jones-UBS Commodity Index.2 The AMEX Gold Bugs Index, which tracks gold companies, is up 23% over that period.3
Investors are piling in as a result. Bloomberg reports4: “Hedge funds raised bullish gold wagers to the highest in more than 14 months amid mounting concern that the U.S. economic recovery is weakening.”
Rick believes the rally will face difficult times, testing the courage of investors currently entering the market. “These double-digit gains in many stocks over a couple of months are not sustainable,” he believes. “This recovery will need to consolidate in order to push further, so prepare for the stocks to come down in the near term, yielding attractive entry points in the summer.”
Some stocks are temporarily selling 30 or 40% higher simply because of the excitement brought on by a couple of good months in the sector, says Rick. Some investors may want to use this opportunity to take some gains, especially if you have ‘mistakes’ in your portfolio that you want to get rid of.
He explained his take further during an interview at the recent PDAC convention: “I suspect that the rally we are in now is a false rally,” he said, explaining that we will see more of a drawn-out ‘bottoming’ process than a swift bounce off of a bottom.
This bottoming process could last at least through the summer, he said. Many of the issuers could be ‘challenged’ during that period.
“The lower end of the market is still headed to its intrinsic value, which is, of course, zero,” he explained.
These companies going ‘extinct’ would be very healthy for the market, he says. It would be similar to what occurred in the late 90’s, which eventually set the stage for the bull market for precious metals and natural resources that ensued.
Today, we are still waiting for such an event in natural resources to occur. “Probably 60 percent of [mining] companies on the exchange are trying to stay alive – doing financings to pay the rent and pay salaries – which is not the way to grow,” says Rick.
These companies are able to keep going now because the market has relaxed, Rick believes, but that is unlikely to continue as this intermediate rally dies down.
Investors are mistaking this short move up as a broad bull market for natural resources and precious metals, becoming “too bullish too soon,” says Rick. “The recovery is here… but it’s going to take much longer to take off than people think it is.”
P.S.: Are we in a new bull market for gold? Hear Rick Rule and Eric Sprott respond live on March 4th at 2:00 PM Eastern. Click here to register for this free event sponsored by Sprott Asset Management LP.
Rick Rule is the Chairman and Founder of Sprott Global Resource Investments Ltd., a full-service brokerage firm located in Carlsbad, CA. Sprott Global is an affiliate of Sprott Inc., a public company based in Toronto, Canada. Mr. Rule leads a team of earth science and finance professionals who form an intellectual pool for resource investment management. He and his team have experience in many resource sectors including mining, oil and gas, water, agriculture, forestry, and alternative energy.
2 https://www.google.com/finance?q=INDEXDJX:DJUBS
3 http://finance.yahoo.com/q/cp?s=%5EHUI
