Chart - TA, page-3852

I was asked what is happening with DEG and why it isn’t going up. I had to think about this for a minute and it occurred to me that that might not be the best question to ask. A more pertinent question might be “Why isn’t DEG going down?” I am nogt being flippant here. There is a lot of negativity about the gold mining sector at the moment yet DEG seems to have shrugged off much of that negativity. Mind you, DEG has not avoided all of that begativity by any means. This is unusual. The share price for other gold miners has been given a serious shellacking and the gold indexes are down in a big way. But is this justified? The answer is, as always, both yes and no.

As Dorothy observed, “We are not in Kansas anymore” and the rules of the investing game have changed. This is because we have had a secular change in the markets though few have realised it. Even fewer have realised the importance of this change. This means that both great danger in the markets as well as great opportunity for those who have anticipated the disruption caused by the transition to the new paradigm and invest in assets likely to survive the transition to the new paradigm and retain a quality of moneyness. As always, some assets will make the transition better than other assets.

The essence of that change has been the secular bottom in interest rates. In 2020 the all-time low in interest rates was put in and the reversal to rising interest rates set in motion a chain of events that cannot be stopped. Whether it was just a mistake is something that will be determined by inquiring minds in the future but the fastest and (proportionally) the largest series of interest rate hikes ever by the US Fed going from half a percent to 5.25% in less than a year has had devastating and disruptive consequences. These consequences are going to be reverberating in the financial system for quite some time as various instruments of financial mass destruction blow up and cause the insolvency of banks and institutions.

But what does that have to do with the price of the shares of the gold miners in general and the price of the shares of Dr Grey in particular? It may not be obvious but most junior miners and explorers are down significantly, many down as much as 80% from their highs in 2022. There are two reasons for this and they reflect upon different planes. In the microeconomic plane this is causing a lot of investors to dump the shares of explorers and junior miners that will need to raise capital in the near future. That is because the cost of that capital is going to be much higher and that means that if the company can secure that operating capital it is going to be far more dilutive on the value of the shares already held by investors.

On the macroeconomic plane we have a different problem. Capital is leaving Australia at a significant rate. I have no access to any studies on it at the micro level to say which investors are pulling out but watching which assets are being sold off I suspect that offshore investors - and Chinese investors in particular - are dumping all but their best investments to take money home. If this is the Chinese then this could be a worrying trend as it may not be confined to equities alone. If it should also manifest in our real estate markets there could be big trouble ahead. However, the effect that this is having on the share price for explorers and junior miners is significant.

This has had flow on effects for DEG because DEG is also a part of this market. While DEG has a full dance card worth of willing funders it does not make it immune to price speculation as big players take positions and leave positions on the share register. The simple fact is that gold miners are about the most unloved asset in the investment universe at the moment, right up there with the TLT. Despite the sound of it, this is actually good news. If there is a market correction coming – and many think that it is unavoidable – then much of the froth that will be dissipated is already taken out of the gold mining sector and any correction here should be mild by comparison to other sectors that are very frothy. On this point we can only wait and see.


But if the higher price of gold should make the gold miners profitable then buying the shares of gold miners is investing and not speculation. This is important because it will mean that fund managers will see this also and if the gold miners are one of the only profitable sectors on the bourse then the fund managers will be buying in and lifting the share price - and that will attract more fund managers into the sector. This adds some potentially speculative froth to a serious investment that may benefit those of us who are already in the sector.


DEG is one of the more exciting plays in a sector that could see serious growth in the next few years but it will be a wild ride with ups and downs along the way. Hold on for as long as you can because the fair value of the share price is going to go up as the price of gold goes up.