John Feneck, founder of Feneck Consulting, discusses with David Lin, anchor for Kitco News, the outlook for the gold sector.
is the mining sector headed for a stock market crash? Well, that's what we'll be discussing along with the outlook on several different commodities with John Fenack president of Fenech consulting. John has spent several years working in the past at JP Morgan BlackRock, and finally at spot selling commodities products to various investors within the space.
John, it's a pleasure to have you on. Thanks so much, David pleasure. So, like I mentioned before you started your own consulting firm, you have spent several years, several decades actually, of your career working at a top institutional investment firms, uh, selling commodities products. Well, what are we talking about your experience and, uh, and some of the sentiment, uh, in the space currently and the lessons you've learned in the past and how you're applying them today.
But first let's talk about the gold mining sectors. The GDX J can we pull it? But GDX J this is the, uh, Vanek junior gold mining index. It's had a nice one up last year, and then it's fallen down. You're telling me offline that we're posed for potential market correction. And that's several people you've talked to in this industry are getting a little worried.
Why are they getting worried, John? Well, as you can see from this chart, David, you know, this is a five-year run on GDX J and, uh, You know, the, the, the high of 2016 was 52 50 a share. You can see from this chart where at 46 and change right now. And that means that after five years you've made absolutely no money.
Um, and that's not acceptable in this market, right? Because the broad market is up significantly over the last five years. And this is one of the reasons to, um, address what you were saying earlier that financial advisors, you know, hedge funds, private equity, and the kind of people that I've associated with throughout my career, I've sort of avoided this space because they see this kind of a chart and say, that's not very interesting.
Right. Um, but you know, our performance. Um, at Fenton consulting has been way better than this because we're active managers. So I've been very vocal throughout my career here. Uh, taking a stance against many newsletter writers, in fact that buy and hold simply doesn't work in junior mining. You've gotta be on top of it.
You've got to do the homework. You've got to talk to CEOs and it's very labor intensive, right? So I've talked to 22 CEOs this week. And, um, to your point, the sentiment is not good right now because junior miners continually have to raise capital. It's a fact, and they're doing that at bargain basement prices.
So we're looking at that as you know, a real disconnect here between. The price of say a junior mining stock and the price of gold gold is held in quite well here over 1800 announced as we speak. And that is not being felt by a lot of the CEOs I talked to in the gold, um, junior mining space. So I think it's just one of those times, as I've said recently, that you have to hold your nose and buy and really do the homework to make sure that your entry points are decent.
Um, we. I was just going to say, I mean, you're right. The, uh, the gold price has been holding steady around $1,800, but if you go back to that chart, GDX J it does look like there's a very close correlation between, I mean, the gold miners index and well, at least the juniors and the gold price, it's just, we've had, we've had a bit of a rally up until the last month and then it's fallen down a bit.
It just looks like the move here for the GDX J is a little more, um, accentuated because of the higher. So, uh, yeah, it goes moved down a little bit, but not as much. The juniors are just a little more sensitive, I would say. Yeah, the beta on GDX J is not low. I mean, you know, this is a high beta product, as you can see from the, the, uh, glow there of $22 and the high of $61, uh, just within less than a year period.
Right. There's a lot of torque in this. So, you know, there's a lot of upside in something like this, but you have to be able to sell. And that's one of the things that we teach our investors. About trimming gains, not getting greedy and, you know, knowing when to fold them so to speak. Because you know, you can see right here at five years holding and buying and crossing your fingers.
It's not a strategy. I think this downturn we've seen the GDX J was solely caused by the downturn in the gold price. In other words, suppose gold would recover $2,000. Can we potentially see a disconnect between the gold price and the gold miners index where the gold price rises back up. But the gold mine has continued to rise.
Perhaps even further from current levels, is that possible? It's possible, but I don't think likely. I mean, there's a great piece that my former firm sprawl put out this week, uh, by John Hathaway and he referenced Paul Wong, one of my former teammates, um, who put out some great data about the disconnect we're seeing right now, uh, in junior and senior miners, uh, relative to history.
Right? So like we're seeing very good valuations. Uh, we're seeing low net to daddy, but we're seeing good free cash flow. We're seeing a lot of positive things. It's just not reflected in prices yet. So we've been encouraging clients to trim where they need to, but really, you know, not abandoned this space, uh, that that's very important.
Okay. Well, like you said, you've, uh, you've, you've had to deal with clients who potentially were not potential, but let's put it this way. They weren't the biggest fans of the PM space and, uh, let's role play. Let's do some role play here. Imagine that this were an investor lunch. Now we're a potential investor and I'm sending him, Joe.
Well, look, gold has not performed very well in the last, uh, several months. We've had a bit of a run-up last year and that's it. And it's come back down. It's. Almost odds games, not quite, uh, the junior miner index is down. What, 30% since the highs, the GDX J itself. Why should I be interested in the space right now?
When the equities are still climbed to all time highs? What's the, what's the, what's the plan. So I would, I would say to that person, what are you doing to hedge in your portfolio? How are you creating any type of protection in your portfolio when you're fully exposed to technology and hydrogen and all these things that are super hot right now?
Right? Like, I mean, that's. That's the client that comes to us. A lot of times they will come to us with momentum money. And we're not interested in working with those people because we're value investors. Right. You know, we're, we're, we're looking for value or deep value in everything that we do. So I'm never going to chase a mining stock.
I'm never going to chase a tech stock. Like I'm not a chaser, right. I'm very patient. I sit out there with stink beds all day long, and I just wait for things to come to me now. Occasionally, if I'm, you know, Uh, if I think there's a news item that's upcoming on a stock, um, that they've telegraphed publicly, then I'll hit the ask.
No problem, but we're going to be very patient versus the average portfolio management group that you're going to talk to. Um, so I answered it really is along those lines, David, but also, um, you know, gold and silver are completely under owned by investors as well as portfolio managers and, and. And the financial advisor community.
I mean, it's, it's a fraction of what it was at the peak in 2011. Right. So if we even return back to that level, we're going to see like prices like last summer in the minors, but even better. And I think that's going to be running. I think that's going to be predicated by a market sell off. Right? So we look at things like the IWM, which is the ETF for the Russell 2000.
And it's starting to show some weakness here over the last two weeks. It's not crashing by any stretch of the imagination, but that has led us down. In previous corrections, if you look at September of 18 Russell, 2000, let us down. If you look at row February of 2020, same thing. So we watched that as a barometer for how is, you know, the small cap market doing, um, because these things are very illiquid and when they start to sell off, it can cause a lot of other problems.
Okay. All right. So, uh, to answer your question, what am I doing right now to hedge? So, you know, Continuing on this role-playing example while I'm in, I'm in, I'm in cash right now. Got a little bit of crypto on the side, too. Uh, but there's bigger ones, Bitcoin, Ethereum. That's what I'm doing a hedge. So should I be telling you I should be going into gold to hedge too?
And if so, how much gold should I be buying? First of all, why is gold a good hedge against what exactly? So it's, you know, as Rick roll taught me, uh, and I sit on your show and other shows, you know, it's portfolio insurance, right? So like, You know, wealthy people need to insure their portfolios. And they do that through ownership than something like gold or silver Bitcoin, Ethereum, you know, other things like that.
We have a zero position there because you know, they're unregulated markets, right? I'd be much more interested in, in looking at crypto when it becomes regulated, which I know is not a popular opinion. You know, we've we had dinners with some very intelligent people on road shows in may of this year at, you know, 65,000 or 60,000 Bitcoin who were saying this isn't all a moment.
And then it went to 30,000 or 35,000. Right? So it's like, you can lose half of your value in a month or two, not interested. Right. So, um, I feel like we've missed some of that upside in crypto, but you know, that is not a hedge, a traditional hedge going back thousands of years is precious, man. And that is gold and silver and related.
So, um, if you're referring to the hedge against, uh, are you referring to a hedge against equity volatility? Because remember back in the back last year when we had the correction in March, uh, went down initially as well. Gold miners just got hit, especially hard, uh, gold miner stock as well. So, um, how, how is it, uh, how is it that it could be used as a hedge instrument if they move in the same direction downward.
Very large correction. Right? So that correction, I think, is sort of having these seven asterisks next to it in the sense that everything went down at once, that was a liquidity event, as we say, so gold, so minors, they all got taken down. Um, as chartists as technicians, we don't look at that as like, oh my gosh, you know, everything's broken.
Like that was looking at every chart. I mean, looking at retail stocks, look at tech stocks, everything went down in tandem, right? It was just a very fast V-shaped recovery. So we think that, um, this time around gold and silver and related have proven themselves since the March, 2020 correction to where we're not going to get that same type of magnitude of a sell off again, we would make what we call a hierarchy.
So, I'm not saying you wouldn't see a New Jersey knee-jerk reaction down to certain retracement levels, but, um, I think the recovery would be very fast and we would, you know, encourage people to get fully invested. If you get another buying opportunity, anything close to like last March or, or of 2020. All right.
Fair enough. So I'm a high net worth individual. I've got about a million dollars in my portfolio. How much of that million should be a gold as a hedge?
Five to 10% in the physical metal. Okay. And what other instruments could I buy besides the physical? Let's say, I don't want to go to a bank or a bullying dealer and buy physical. And I want to, I don't want to deal with storage costs. What else can I do? So when we worked at Sprott, I mean, P S L V is a physical silver product that we, uh, marketed as well as P H Y S, which is a physical gold product.
Um, they, you know, have a better backing, uh, you know, for investors that want, you know, to buy something and not buy the direct bullet. Um, because they can offer physical delivery of that. Now, again, physical delivery of any metal requires a lot of money, a lot of headache, and it's not for everyone. So, um, you know, we, we think that you should own some of that through a products like PSLV or P H Y S but then compliment your positions with mining stocks, because you're going to get absolutely good leverage to those underlying metals.
When we have a rally, um, by owning the mining stocks, Okay. So again, me as a skeptical investor, not used to the space, shall we say in this example, what's your outlook for the metal sector now we've had a nice, a run-up last year. Then again, we fall in, uh, are you expecting more of a correction? What's the, uh, what's what, what what's what's the play going forward, John?
Sure. So I think June 16th was a very destructive day for metals and mining more so for the miners, because the fed really came out right. Um, was perceived to be, uh, quite hawkish. Uh, we take the other side of that trade and say that, you know, this is just job owning by the fed here. Um, yelling did some more of that, uh, this week.
Um, what's interesting is that, you know, Powell kind of backpedaled a little bit and then, you know, testified this week and in his testimony was not, uh, hawkish in my view at all. I think it's quite dovish. In fact, we're just not seeing follow through in terms of. Because it's the summer doldrums and, you know, volumes are quite low.
So we lose these opportunities, these disconnects as buying opportunities. And we're not saying go all in here, we're saying dollar cost average. So if you bought stuff higher, you still have conviction at it, buy some more, you know, just don't buy a ton. You know, you want to get, you want to get, um, Do you want to, you want to have more conviction when you go heavier into this sector.
And by that we mean August 26th to 28th is through the 28th is when Tal and company will meet in Jackson hole. Wyoming. We think that meeting is going to be very relevant. And you heard that after the fed minutes on CNBC recently, two of the three guests were saying exactly the same thing. So they're waiting for confirmation from the fed that things are going to be okay, going forward.
And, um, that's why we're, we're building positions in anticipation of that David going forward because you know, the broad markets is selling off a little bit here and that's healthy going into August because if we were to ride high, going into that money, right. Real estate is crazy. The NASDAQ's cranking.
I'd be more worried about the fed, getting hawkish just to cool things down. Now, if we go in kind of after a little bit of a, of a respite here in a Breezer, I think it's very constructive and the fed is just going to play ball. What's going to happen with China last week, you know, they're, they're, they're cutting rates there.
So we think that that's very positive. Go forward. Perfect. Okay. So just to sum up here, we're still waiting for signals for a market move until then you're waiting for Jackson hole. Uh, let me, let me ask you this question. Just, just to rephrase more simply the, the, the, the GDX J the gold market has crashed.
I would say over the last couple of months, it's just crash over.
I think GDX day will hold that major support level, which is 40 to $41 a share. Right. So I think that we're good there. Um, and you know, this, this is barring another, you know, pandemic related thing that I can't foresee. Right. Because that would take all bets off the table. But I think that we're out of the woods.
Um, I think that 40 or 41 will hold on. GDX J and I think that 29, 50 to 30 level on ADX will hold. So, you know, we're still invested in. We just have smaller positions in those, and we choose to buy, uh, some names, you know, where we have more conviction by talking to those CEOs and getting a feel for, you know, what's happening.
Okay. All right. And John, uh, tell us about some stocks within your portfolio that you do like that have done very well for you. Sure you don't have to go through all of them. Just maybe your top one or two top silver holding is golden minerals, which is a U M N. Um, we think that there's tremendous value here at 53 cents.
Um, there was a newsletter writer out there at 71 cents here recently who had, uh, you know, sold his entire position, caused a lot of all in the product volatility. Um, had never even talked to the CEO once. Um, and those are the kinds of, uh, you know, really. Um, I'll be careful in what way, what I say here, but I think that, you know, it's not very prudent to be doing that and having thousands of people follow you, if you don't take five minutes and actually talked to the company and I get an idea of what's actually happening, right.
So rodeo is in production. Uh, gardenias close by. They're going to share a mill. Um, if you look at the analyst reports, which I would think are way more relevant than our newsletter writers, you know, feelings about something, um, the analyst had just came out this week or at a dollar 10 at a dollar, a share us stocks is 53 cents.
Um, that would be HC, Wainwright, and AGP. Um, another one that we like in gold is USA. You, uh, that's called U S gold. All four of their projects are in the U S. Um, I just visited the copper king mine in Wyoming last month, did a tour. Uh, I think they have a tremendous amount of aggregate that the market doesn't even aware of that could help fund a lot of their operations going forward.
And there's going to be probably some news flow around that in the coming weeks. Um, but it's a NASDAQ listed stock with 7 million shares outstanding. And I can account for where 4 million of their shares are. So when you have a float of roughly 3 million shares, um, very tightly held, um, other names in palladium, we like DC NNF, which is Canadian palladium.
Uh, Wayne Teasdale was the CEO there, uh, was responsible for the rainy river build-out, which is now new Gold's, uh, top mine, um, straining at nine and a half cents. Us. I think it's got tremendous value. If you look at the main news there, very good drill results that have been kind of blown off here. And, um, they're in a great jurisdiction.
Um, another name in silver and that we like is fabled F B S G F. Um, fabled is right now, if you buy a fable up until mid August, roughly. For every five shares you buy of that stock. You're going to get one share of fabled copper, uh, if the spinoff is approved. And so we've been loading up on that stock because we believe in copper as well.
Right. So Peter Holly, there has been there 35 years in mining. Uh, very good to geo background. And, uh, we, yeah, we like that stock here at a 10.50 cents. Perfect. And other metals that you do, like John. Besides gold. We like, uh, silver to some stint. I mean, uh, we like copper. Um, we're playing copper through copper juniors, like copper bank and a few other names that we own.
Um, we think there's tremendous value there. If you look at, uh, the cop X, which is the large cap, uh, copper plays, uh, David has done extremely well. Um, but the juniors have not necessarily followed suit yet. Copper has broken through all resistance levels. So. When I'm talking to people at the exchanges, there seems to be a shortage of copper out there.
And, um, there's no shortage of building. Right. And there's no shortage of industrial demand. Uh, you know, I, I think that copper is going to extreme do extremely well this year into next year. Okay. And finally, you mentioned that you are an active fund picker or active stock picker rather. So how has your fund performed so far this year?
Yeah. So through June 30, we're up just under 15%. Um, that is, uh, on our website under the performance tab. So, you know, last year we were up 87% and we were able to post our five-year number, uh, in January of this year, which we're very proud of. So we're top decile ranked, um, through five years, all time periods, one, three and five years ended June 30th and the 15% is from year to date.
Yeah. Do you want a name where a 15%? I think the GDX J's down a 14, so we're about 29% at ATD. Yeah, actually, I think it's down more than that. It's it's like, uh, the GDX J is a 40, 44 bucks today. The high was 60 open. That was last year. That was last year. Right. So yeah, it's definitely a high last year.
Yeah. Wow. Yeah. Fantastic outperformance, John. I want to thank you so much for your time today and I look forward to catching up the next time. We'll delve deeper into your strategies. Thank you. And thank you for watching Kiko news. I'm David Lynn, stay tuned for more.
Yeah.