Investors should buckle up because big inflation is coming and that will certainly be bullish for gold and silver.

Yes, Inflation Is Coming
May 20 (King World News) – Peter Boockvar:  You don’t need central bank induced negative rates to have negative rates. The UK sold 3 yr gilts totaling 3.75b pounds at a yield of .003%. Now we can call that a ‘technical’ difference and that it is still essentially zero. BoE Governor Andrew Bailey does speak today and I do expect him again to downplay the implementation of negative rates. After the experience seen in Europe and Japan with NIRP, it is completely beyond me why it is even being debated. 

The CPI in the UK in April came in about as expected with a headline gain of .8% y/o/y and a core rise of 1.4%. Producer prices saw sharp declines unsurprisingly. There remains this amazing obsession with avoiding deflation, nonsensically I believe, but prices are going to go where they are going to go in response to supply and demand. Either way, the only focus of central bankers right now is buying time to better economic growth. The pound is little changed as are gilt yields and the FTSE 100…

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As for my belief that inflation does follow this current period, here are the reasons:

1) The cost of doing business is going higher as companies implement multiple steps to be covid ‘compliant’. ‘Compliant’ will entail all the steps needed to stay clean and safe.

2) Productivity numbers will go down as we spend more time and money on this ‘compliance.’ Think about all the actual compliance people in the banking system post financial crisis that produce nothing but make sure regulatory rules are being followed.

3) The cost of labor can thus go higher and more money might have to be paid to employees in certain ‘higher risk’ industries. Also, if generous unemployment benefits get extended past July 31st, it will take higher pay to entice many workers off the sidelines.

4) The supply of things will take time to adjust to the rise in demand. As an example, according to Sea Intelligence Consulting, spot container rates are higher by 25-40% y/o/y because of capacity cuts in the shipping sector. 

5) You can be sure that the Fed and other central banks will way overstay their welcome with all this money raining from the sky.

After hearing from Jay Powell yesterday and multiple Fed members over the past few weeks, today’s FOMC minutes from the meeting three weeks ago will be uneventful.

Bullish sentiment according to II continued its ascent higher with Bulls up for the 7th week in the past 8. Bulls rose to 49 from 47.1 with anything above 50 beginning the process of getting extended. Bears fell for an 8th straight week falling to 24.1 from 26 last week. Bottom line, the sentiment gauges really have been all over the place. We have bullishness within this data point and the Citi Panic/Euphoria index but bearishness seen in last weeks AAII and a neutral read in the CNN Fear/Greed. I do believe that the AAII read on individual sentiment is capturing people’s economic mood more so than chasing stocks higher like the II gauge is likely doing. 

Thanks to low rates and maybe the greater desire for suburban living, purchase applications to buy a home rose 6.4% w/o/w and is now down just 1.5% y/o/y. This is the 5th straight week of gains. Refi’s though fell another 6.3% w/o/w and I think are still getting caught up in the growing forbearance challenges. They do though remain up by 160%.

Also of importance…

One Of The Best Performing Stocks In The World
John Lewins, CEO:  “Today we delivered a resource of just under 5 million ounces with a grade of 9.5 grams per tonne.  Measured and Indicated is almost three-times what it was previously and it is even higher at 10.5 grams per tonne.”

Eric King:  “John, your company has been one of the best performing stocks in the world.  I understand that companies, including yours, are no longer issuing forecasts due to the uncertainties associated with the virus shutdowns, but your people voluntarily chose to keep working the entire time and have clearly delivered in a huge way.  For 2021-2023, what are you looking for in terms of production and cash flow?”

$140 Million Of Cash Flow…
John Lewins:  “As you said, Eric, operations are continuing and we have also continued to produce and create very large cash flow.  For next year, 2021, we are looking at our full expansion operating for the entire year.  That means we will see 140,000 ounces of gold equivalent production.  Our cash costs will be around $600 and all-in sustaining costs will be in the mid-$700s.  With the gold price where it is today, we are talking about $1,000 an ounce as a margin.  That would give us $140 million of cash flow for next year.

…Growing To $250-$300 Million Of Cash Flow
In 2023, we expect to commission the next phase of our expansion.  Our PEA study, which is being worked on as we speak, is looking like it will ramp up production to 1,000,000 tonnes per annum.  That will mean that our gold production will increase to 250,000-300,000 ounces per year, and with cash costs around $600 and all-in sustaining costs in the mid-$700s.  That would dramatically increase our cash flow to a staggering $250-300 million per annum.

Dramatically Expanding Resource And High-Grade Production
We currently have 3 underground drill rigs that are going to continue drilling all of this year and next year.  But we just acquired a 4th rig, which means starting in June we will have 4 drills turning.  And we are going to restart drilling on surface very soon, which means that we will have an additional 2 drill rigs on surface for a total of 6 rigs drilling the property full time.  That will mean we are potentially doubling the strike length of the resource.  And quite frankly we don’t know how deep it goes because every hole that we’ve drilled at depth has come up with more mineralization.  What we do know is that we are open at depth and to the side and we’ve got the rigs to keep drilling, so we will be dramatically expanding the resource and production as those drill rigs continue hitting high-grade gold mineralization.” K92, symbol KNT in Canada and KNTNF in the US.

Look At This Carnage
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***To listen to Alasdair Macleod’s powerful KWN audio interview discussing what to expect in the back half of 2020 and well as in the gold and silver markets click here or on the image below.

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