Today is the second day of the 2019 Prospectors and Developers Association of Canada (PDAC) Annual Conference. This is the biggest mineral exploration show of the year. For me as a researcher, it’s 10-bagger hunting ground.
But all the hoopla I’m seeing online makes me think this is a good time to remind investors of the so-called PDAC curse. The notion is that resource shares often peak in March, then go into a slump throughout the summer. Since the PDAC convention is in early March, the post-conference decline is seen as a curse.
While this pattern doesn’t always hold true, it does happen—and there are several reasons why it should:
All true, but the last point bears further examination. The conventional wisdom is that gold tends to rally in the first quarter of any given year, then slump in the summer, and rally again in the fall. This pattern is visible in long-term data on monthly gold price changes.
In looking at this chart, however, I notice that it has changed over the years. The pattern isn’t as clear. Things are different now, so this is no great surprise. But it did make me wonder how different the charts might look before and after gold went into correction seven years ago.
Here’s the “before” chart…
Note how much stronger the seasonality is. This implies a less-happy picture since gold’s late 2011 peak—and that’s just what we see in the “after” chart.
What does this tell us? Well, I’d first caution that it’s dangerous to drive forward while looking backward. The past is important as a teacher and a guide, but it’s not a source of certainty on what will be.
That said, if gold doesn’t break out of the range that has constrained it in recent years, its seasonality says it likely to underperform until later this year.
And what if it does break out? Well, during the last bull market, April and May were good months for gold.
Which way will it go? I don’t know. And I wouldn’t believe anyone who told me they did.
Fortunately, I’ve found ways to profit with or without gold—or any other commodity—heading higher.
One way is to speculate on visible exploration success.
By this, I do not mean potential success. I mean success in progress. An example would be SilverCrest—my first big win last year. Waiting for success in progress does mean missing out on bigger gains from getting in early—but the risk is vastly reduced. That’s how I booked a win on SilverCrest before gold and silver turned upward in late 2018. Note also that I bought my shares of SilverCrest just after PDAC last year, and that worked out just fine, despite the curse.
Another way is to speculate on the pre-production sweet spot (PPSS).
I’ll have more to say on this soon, as I’ve now redone and expanded my past research in this area. For now, I’ll just summarize, saying that the data still show better than 90% odds of success in the PPSS, and average gains of just over 100% in just under two years. And—most critical to my caution about the potential of a PDAC curse this year—the average gain is still a positive 23% in bear markets, while the average in bull markets is 135%.
This makes PPSS plays both defensive positions in case the market goes against us and terrific growth positions in case the market turns positive.
I do still expect that, by the way, despite last week’s slump in gold prices. The fundamentals haven changed—but the buying opportunities have improved.
These are not foolproof strategies, of course. Not all PPSS plays deliver. The above figures are averages. And “success in progress” may not be equally clear to all. So, picking the best stocks still matters… which is what I help subscribers to The Independent Speculator with.
But in terms of general guidance, now you know how I plan to beat the PDAC curse this year.
Monday, March 4, 9:30am, EDT, 2019