Cursed Gold – Thursday Short Report: 1/18

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Markets started out 2018 with almost unbelievable heat, accelerating even after a record 2017. This morning, investors appear to be taking some profits, driving markets down broadly at the time of this writing. Momentum is sagging across the board, with decliners exceeding gainers almost 2:1.

While News Quantified did manage to find some profitable long plays on the day, today’s profit taking environment provides a great opportunity to take a look at our Top Short of the session.

US Gold Corporation (USAU): down sharply after announcing a new stock issue.

This morning, US Gold Corporation, long one of the “gold standard” mining stocks for US investors, announced a new round of stock issues. These equities will be sold directly to investors, without the use of a broker or investment bank. USAU expects to net around $4.9 million from the $5.0 million sale.

Investors cringed at the move, selling off the stock and driving it to losses just under 20% at the time of this writing (after recovering slightly from -30%). USAU expects to use the cash for working capital.

Stock issues, of course, are not inherently negative events. So why did investors head for the gates? In the current market environment, even with valuations relatively high, we’re seeing most companies engage in buybacks—using retained earnings to bet on the future of their own company. USAU’s decision to issue stock may suggest it views its own stock as adequately valued (or even over-valued).

The gold market—traditionally a safe haven for investors—has suffered over the past year as economic optimism became baked into equity valuations. Furthermore, cryptocurrencies seem to be taking the place of gold as an inflation hedge in some investors’ portfolios. With some commodity prices beginning to show signs of appreciation, however, there’s some genuine hope for a rally in gold this year.

In the coming year, we’ll be keeping an eye on the relative performance of stocks representing the “old gold” and the “new crypto.”

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