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December 9, 2019

7 @ 7:00

Visit the BMR comments section throughout the day for updates and helpful information!

1. Gold has traded between $1,460 and $1,466 so far today…as of 7:00 am Pacific, the yellow metal is up $3 an ounce at $1,462Goldman Sachs says the “strategic case is still strong” for investing in Gold and has reiterated its call for the precious metal to rise to $1,600 an ounce next year…“Overall, while we acknowledge the risks related to still-high Gold positions, we believe the strategic case is still strong, particularly for investors with long-term horizons.  This is based on a deteriorated attractiveness of long term DM [developed-market] bonds as portfolio diversifiers and real return generation instruments, exposure to growing EM [emerging-market] wealth, limited mine supply growth, elevated political risks and a potential increase in debasement concerns sparked by rising airtime of Modern Monetary Theory”…Silver is 4 cents higher at $16.60Copper has added 3 pennies to $2.72…China’s imports of Copper in November rose 12.1% on the previous month as an improvement in the manufacturing sector stoked higher demand for the red metal…Nickel remains under pressure (see below), off 8 cents at $5.98, while Zinc and Cobalt are both flat at $1.02 and $15.88, respectively…Crude Oil has backed off 37 cents to $58.83 after surging 7% last week on fresh OPEC-led production cuts…the Dollar Index has retreated one-tenth of a point to 97.59…Paul Volcker, the Federal Reserve Board chairman who vanquished the inflationary upsurge that sapped America’s global prestige and power in the 1970’s and early 1980’s, has died at the age of 92

2. Saudi Arabia spearheaded a deal on Friday that will see OPEC and other allied producers (OPEC+) commit to some of the sector’s deepest output cuts in a decade (the U.S. comes out the big winner, plus Aramco investors – the largest of which is Saudi Arabia)…the Saudis, together with Russia, backed a plan that could see cuts of as much as 2.1 million barrels a day…the figures include an extra 500,000 b/d in cuts to take the OPEC+ target to 1.7 million b/d, or 1.7% of global demand, plus Saudi Arabia will continue to cut 400,000 b/d more than its quota…OPEC+, which includes more than 20 producers, pumps more than 40% of the world’s Oil…the group is taking action ahead of expected output increases next year by countries not participating in the cuts led by new top producer the United States…OPEC+ will meet again in early March to decide its next move…meanwhile, Prince Abdulaziz predicts that Saudi Aramco’s $1.7-trillion IPO valuation would soon soar above the level long coveted by his brother, Crown Prince Mohammed Bin Salman…Aramco will be higher than the $2 trillion, and they can bet that this will happen,” Prince Abdulaziz said…the state-controlled company would reach that valuation “in a few months” after its shares start trading later this week, he added…

3. Investors are anxiously waiting to see whether a new round of tariffs on Chinese consumer goods takes effect next week, one of the few remaining hurdles for the broader equity markets in 2019…chances are the Trump administration’s December 15 deadline for new tariffs on China will be delayed while talks continue between the U.S. and China…despite fears that trade uncertainty would continue denting the world economy, activity picked up in the global manufacturing and services sectors last month, purchasing managers’ indexes show…many central banks have also slashed borrowing costs to support growth, and inflation is nowhere in sight thanks in part to continued low Oil prices…in the U.S., employers continue to hire at a steady pace (November was a banner month), bucking the mainstream view that tariffs would cause a sharp slowdown in the labor market…American consumers account for more than two-thirds of economic output and have shown few signs of limiting spending…

4. China’s exports in November shrank for the 4th consecutive month, underscoring persistent pressures on manufacturers from the Sino-U.S. trade battle, but growth in imports may be a sign that Beijing’s stimulus steps are helping to stoke demand…imports unexpectedly rose 0.3% from a year earlier, according to fresh data released yesterday, marking the first year-on-year growth since April and compared with a 1.8% decline forecast by economists…China’s trade surplus for November stood at $38.73 billion, compared with an expected $46.30 billion surplus in the poll and a $42.81 billion surplus recorded in October…meanwhile, China’s official factory activity gauge returned to growth for the first time in 7 months in November, with a private survey showing activity expanding at the quickest pace in almost 3 years…falling industrial profits and factory prices remain a concern, however…

5. Nickel is most of the way through a 4th major correction since a new bull market started in early 2019…$5.50 to $6.00 is the bottoming area based on our latest charts…the metal is once again being pulled in 2 different directions…a weak stainless steel market has been pushing Nickel prices down at the same time as increasing EV demand empties LME warehousesa sharp fall in LME inventory threatens a repeat of the time-spread turbulence that rocked the London market during Q3…headline exchange inventory has fallen to 68,922 tonnes from 152,604 tonnes…moreover, 42% of that is awaiting physical load-out leaving a mere 39,588 tonnes of what the LME terms “live” tonnage…while Nickel may be on the electric vehicle investment grid because of its widespread use in Lithium-ion batteries (Nickel demand for EV batteries will ramp up significantly next decade), an old driver is reasserting itself – namely the state of the stainless steel market…demand for stainless steel, which accounts for most of the world’s Nickel usage, has been “depressing” everywhere but China, according to analysts at JP Morgan (“Metals Quarterly” Nov. 22, 2019)…the bank is forecasting that stainless steel production in the rest of the world will fall 1.7 million tonnes this year, a contraction of 7% and the sharpest year-on-year decline since 2009…production in China, however, continues to grow (12.6% in the first 9 months of 2019), and it’s outpacing demand growth at the moment…as a result, stainless steel stocks are building at China’s exchanges and along the broader supply chain, and prices have been falling…since launching in late September the Shanghai Futures Exchange stainless steel contract has dropped from 15,575 yuan per tonne to today’s just below 14,000…Chinese production margins have been negative almost the entire year, according to Goldman Sachs, but producers are caught in a “prisoner’s dilemma” and aren’t cutting production to balance the market because each fears losing market share if others don’t join in (“Metals: The ‘Prisoner’s Dilemma’ of China’s Stainless Steel Industry,” Dec. 4, 2019)…capacity utilization therefore remains high, as does demand for Nickel units, a big factor in its outperformance this year relative to its base metal peers…JP Morgan thinks the Chinese stainless steel stand-off is unsustainable and expects mills to start curtailing production into 2020, while Goldman Sachs is not so sure, arguing that only small high-cost producers will be washed out of the market…

6. The Dow is 35 points lower through the first 30 minutes of trading after strong gains to finish last week…in Toronto, the TSX is flat while the Venture – up in 10 out of the last 13 sessions – has added another 2 points to 540…the Index will accelerate to the upside on a breakout through 540Kirkland Lake Gold (KL, TSX, NYSE) has acquired a 9.9% interest in Wallbridge Mining (WM, TSX), pursuant to WM’s mysterious $42 million private placement announced (and closed) on November 29…in addition, KL President and CEO Tony Makuch has joined WM’s board of directors…“We are excited to have Kirkland Lake as a strategic shareholder and we welcome Tony Makuch to the team as a member of the Board of Directors,” stated Wallbridge Chair Alar Soever…“Tony’s extensive experience in operations, resource development, capital markets and M&A will be very beneficial to all shareholders as we advance Fenelon toward production”WM has pushed to a new high, up 6.5 cents at 85 cents as of 7:00 am PacificWallbridge neighbor Balmoral Resources (BAR, TSX) has added a penny-and-half to 32.5 cents…Canada Cobalt (CCW, TSX-V), on the cusp of a potentially significant new high-grade Silver discovery in Northern Ontario, is up a penny at 42.5 cents near a fresh 9-month high…Gran Colombia Gold (GCM, TSX) has produced a new monthly record of 21,835 ounces of Gold in November, surpassing its previous best month in February earlier this year…this brings the total for the first 11 months of 2019 to 217,600 ounces, up 9% over the first 11 months of 2018…CEO Lombardo Paredes stated, “We are on track to finish the year in the upper end of our production guidance range of 225,000 to 240,000 ounces of Gold.  Our mining operations at Segovia continue to deliver on expectations and, for the 2nd consecutive month, we have realized an improvement in the head grades at Marmato, setting us up nicely as we proceed with the spin-out of the mine to Caldas Gold as part of our initiative to unlock value in our Zona Baja mining assets at Marmato”

7. Canopy Growth (WEED, TSX; CGC, NYSE) is pushing higher in early trading after news that Constellation Brands’ (STZ, NYSE) Chief Financial Officer David Klein has been appointed the new CEO of Canopy, approximately 6 months after former co-CEO and founder Bruce Linton was ousted from his role…Klein will take over from interim CEO and co-founder Mark Zekulin, who will be stepping down from his position effective December 20, according to this morning’s statement…“It has been an incredible 6 years at Canopy Growth, and I have witnessed the team and company grow from 5 people in an abandoned chocolate factory, to thousands of people across 5 continents,” said Zekulin…Klein stated, Canopy Growth sits at the forefront of one of the most exciting new market opportunities in our lifetime.  Thanks to the efforts of Mark and the entire team at Canopy Growth, no company is better positioned to win in the emerging cannabis market.  I look forward to working with the team to build on the foundation that has been laid, to develop brands that strongly resonate with consumers, and to capture the market opportunity before us.  Together we will drive sustainable, industry-leading growth that benefits employees, shareholders and the communities in which we operate”

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  1. Re:ESK halt last week. My feeling was that it was a heads up as to what is coming in 2020. Dig a little deeper Jon and your “beyond strange” opinion will change. New coverage/material is always interesting especially in this area of the Golden Triangle which needs a spark as BMR original reccomends have been languishing all year.

    Comment by Murray — December 9, 2019 @ 11:38 am

  2. Do you expect CCW to post any pictures of newly drilled core from their latest drill hole some time this week potentially? Can we hope to see some assay numbers announced before year end? Seems like this has taken forever, with much of this year being written off…

    Comment by Phil — December 9, 2019 @ 12:25 pm

  3. Sure, Murray, a “heads up” is fine but you do not halt a stock for that – plain and simple.

    Comment by Jon - BMR — December 9, 2019 @ 7:05 pm

  4. Without a doubt it’s nice to see ESK step up and try to get their property noticed. If that PP was for $10 mm and out of the blue, then ya, do a halt. But it’s enough to keep the geos at work in the office and a wee bit on the ground. To make ESK start ripping QH needs some cash and or the one or two JVs for some of their properties and then we can really see Sparks.

    Comment by david — December 9, 2019 @ 8:09 pm

  5. Jon,
    Thanks for your insight as of why nickel has been through such a severe correction. Despite the demand for steel receeding this year, because of the critically low level of nickel remaining in the total inventory, what’s your take on the overall price of nickel for 2020? Do you think we’ll remain at those levels for a while or where do you see the price of nickel, say, around mid june and why?

    Comment by Metal express — December 9, 2019 @ 9:12 pm

  6. With Nickel since early 2016, Metal express, we’ve seen a series of higher highs and higher lows, this being the 4th correction which the charts a couple months ago were suggesting would occur…therefore, I’d look for a continuation of this trend and new highs in 2020…we laid out the possibilities in the Sunday report…

    Comment by Jon - BMR — December 10, 2019 @ 1:39 am

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