Bag of Announcements, page-39

Some of you have not taken my comments the right way. I am not talking down the prospects for DEG, I am all in in this company myself and I view it as being the foundation of a personal fortune in the near future. But nothing ever goes up in a straight line nor does it go down in a straight line. We are a hostage to the global economy just as much as any other industry and we will see the share price fluctuate up and down. Fortunately for DEG there will be much more up than down. Right now it looks like we are in for a bit of the down before the next leg of up. If you are not psychologically prepared for these fluctuations it is very likely that you are going to make the wrong strategic moves - panicking and selling when you should be buying and buying when you should be selling. I might add that I am not a trader, I have not sold down any shares with a view to buying them back cheaper.

The fortunes of DEG are intertwined with the price of gold in ways that many seem to be overlooking. Just as the price of gold ebbs and flows so will the price of the shares of DEG ebb and flow too. It will be even more pronounced until DEG becomes a producer of the yellow metal. So, first of all you have to have a good understanding of what gold actually is. A very smart man named Luke Groman defined gold succinctly - "Gold is a zero coupon bond of infinite duration and finite issuance, the price of which can go up". So, why would someone buy a zero coupon bond? They will buy it because real interest rates are actually negative and likely to stay negative for quite some time. Real interest rates are the nominal interest rate minus the inflation rate. There would be an even bigger rush into gold should nominal interest rates go negative as well (something that is already happening in Europe and Japan). In other words the bull market in gold is set to run for a very long time and the price of gold will go very much higher than it is today. That makes DEG a screaming buy in the long term. But in the short term we are subject to the forces of nature as is everything else.

I follow a number of analysts - some technical and some macro. The technical guys and gals are good for looking at the short term fluctuation in the price of gold (and that influences the share price of the explorers and the producers) while the macro guys and gals are the ones who are good for predicting the long term future of the price of gold (and that influences the share price for the explorers and the producers). Right now the technical analysts have a short term target for gold in the US$1,788 range, some US$70 below where we are now. That is going to influence the share price for DEG in the short term and it is going to create buying opportunities for those who are not already in the game or investors who want to increase their holding in DEG. It is also going to scare a lot of investors out of their positions as the share price goes down.

When I look at the possibility of the share price going down I have to ask myself how far down could it go. To get an answer to that I look at the charts and the gaps in the charts are telling me that there are potential targets for a floor. Some people do Fibonacci analysis on where a pull back might find a floor but I have not done so. Maybe someone here with the charting tools will do it to help us out. I am fairly comfortable with the gaps being filled as an indication of the possible bottom for this consolidation in the share price because when the bottom is in the price will be going up again. Meanwhile, the big players will be looking to accumulate as many shares as possible during the contraction in the share price - done at the expense of shareholders who are either unable to hold on because their finances are thin or because they are scared out of holding their shares. In the ocean big fish eat little fish and it is the same in the share market too.

Meanwhile the macro guys and gals are painting a very positive long term picture for the price of gold. Bank of America has a projection of US$3,000 per ounce for October 2021 and with all of the deficits being run by governments in this post-covid world that estimate may be conservative. The Europeans are losing confidence in their banking system and moving their money into foreign banking institutions. Some of it is even going into Australian banks. The Europeans are imposing negative nominal interest rates sending their real interest rates exceeding low. All nations are devaluing their currency against gold as they print more and more money. Institutional demand for gold is beginning to grow. The Ohio Police and Fireman's Superannuation fund has just moved 5% of their assets into gold. They have a total of US$18 billion of assets so they just moved US$900 million into gold. This move was pushed by Wiltshire Associates who advises the fund. Wiltshire Associates advises over US$170 billion of funds so many more will be moving up to 5% of their assets into gold too. Historically funds had maybe 4% to 5% of their funds in gold. Two years ago it was just one half of one percent invested in gold (0.005%) and now it is estimated that collectively funds have just three quarters of one percent invested in gold (0.0075%). If funds revert to the historical norm then the price of gold is going to need another digit in front of it and the price of the gold miners and explorers with large ore bodies will be very much higher than it is now.

The long and the short of it is that this sort of thing is to be expected. It is a white knuckle ride and if you are not paying attention to what is happening or if you do not have the background in what drives markets then you may very well be shaken out of your position. If you find that you have sold out of a winning position because you suddenly lost confidence in the company only to see it go up afterwards you have nobody to blame but yourself. The market is never wrong but it may do things that you do not expect. For myself DEG is a buy. When I bought in to DEG the price dropped and I kept buying all the way down. I will not advise anyone to do any different. You will need deeper pockets to do it these days but that is how you get rich - you find something that is undervalued and buy as much of it as you can buy.