Sprott is a Toronto-headquartered asset manager specializing in precious metals and critical materials (NYSE/TSX: SII), tracing its roots to Sprott Securities founded by Eric Sprott in 1981 and now led by CEO Whitney George. It runs physical gold, silver and uranium trusts, ETFs, active strategies and resource lending, with about $65bn in AUM. The Insights column carries monthly commentaries and white papers on uranium, gold, silver, copper and critical materials by Paul Wong, Jacob White and John Hathaway (ex-Tocqueville gold manager) — note the house's structurally bullish commodity stance, as it sells the corresponding trusts and ETFs.
This report looks at gold and mining stocks in October 2022. Gold prices fell for seven straight months, but the report says gold mining stocks are now a good deal. Mining companies have lower costs and better production outlooks. Also, many traders are betting against gold (short selling), so if the Fed slows down rate hikes, gold prices could jump quickly. The report also warns that U.S. Treasury market liquidity (how easily you can buy or sell) is as bad as during the 2020 crisis, which could cause bigger problems. For regular investors, this means gold-related assets might be worth watching, but be ready for market ups and downs.
Sprott's October 2022 report indicates that most precious metals faced pressure, but uranium and energy transition metals performed strongly, with its uranium oxide spot portfolio rising 24.12% year-to-date. In comparison, gold fell 10.70%, silver dropped 17.78%, gold mining stocks declined 21.54%,
This chapter focuses on the precious metals market performance in October 2022, noting that most asset classes continued to face pressure, with uranium and energy transition metals being exceptions. The report highlights that gold fell for the seventh consecutive month, suppressed by a strong US dollar and interest rate hikes, but long-term investors took advantage of low prices to build positions, and gold demand has recovered to pre-pandemic levels.
The author's core investment thesis is: Gold mining stocks have entered an attractive valuation range, with a significantly improved risk-reward ratio. Despite the decline in gold prices, mining companies are experiencing easing cost pressures, stronger production expectations, and healthy balance sheets. Contrarian judgments include: Short positions in gold are excessively crowded, and any signal of slowing rate hikes could trigger a short squeeze rebound; The UK pension crisis is a warning of systemic risk, not an isolated event, and may foreshadow more financial landmines about to detonate.
Comparison Data Table (Key Asset Performance in October 2022):
| Indicator | 10/31/2022 Close | 9/30/2022 Close | Monthly Change | Monthly % Change | YTD % Change |
|---|---|---|---|---|---|
| Spot Gold | $1,633.56 | $1,660.61 | -$27.05 | -1.63% | -10.70% |
| Spot Silver | $19.16 | $19.03 | +$0.14 | +0.72% | -17.78% |
| Gold Mining Stocks (SOLGMCFT) | 96.79 | 97.17 | -0.38 | -0.39% | -21.54% |
| S&P 500 Index | 3,871.98 | 3,585.62 | +286.36 | +7.99% | -18.76% |
| US Dollar Index (DXY) | 111.53 | 112.12 | -0.59 | -0.53% | +16.57% |
| 10-Year US Treasury Yield | 4.05% | 3.83% | +0.22% | +22 BPS | +254 BPS |
This chapter discusses the deterioration of U.S. Treasury market liquidity to levels seen during the March 2020 crisis and the systemic risks arising from it. The report notes that despite the recent rebound in risk assets, market fragility has increased significantly, leaving the Federal Reserve in a dilemma between fighting inflation and maintaining financial stability.
The author’s core judgment is that U.S. Treasury market liquidity has approached March 2020 crisis levels, and a shock event could trigger a global credit crisis. Counterintuitive views include: 1) Current market depth is worse than in March 2020, yet risk assets are rebounding; 2) Institutional investors have devolved into "day traders," with approximately 50% of options trades having maturities of 24 hours or less; 3) The Federal Reserve may be forced to restart "temporary QE" to sustain market functioning, even if inflation remains uncontrolled.
Comparative Data Table:
| Indicator | Current Level | March 2020 Level | Normal Level |
|---|---|---|---|
| Treasury Liquidity Index | Matches/exceeds | Crisis peak | Significantly lower |
| MOVE Index | Exceeds | Crisis peak | 50 (Controllable) |
| Options Volume (vs 2019) | More than doubled | — | — |
| SKEW Index 10-Year Percentile | 0.2% | — | 50% |
1. Beware of Liquidity Shocks: The U.S. Treasury market is the cornerstone of the financial system; its failure could trigger a global credit crisis. Investors should reduce exposure to highly leveraged, low-liquidity assets.
2. Monitor Fed Policy Shifts: If market functioning deteriorates, the Fed may be forced to pause QT or even restart QE, which would benefit gold and safe-haven assets.
3. Leverage Options Market Signals: The SKEW index is at historically extreme lows, indicating the market is underpricing tail risks. Once financial instability intensifies, demand for protection will surge, and gold may regain safe-haven buying.
4. Short-Term Risk Asset Rebound Unsustainable: The current rebound is driven by low net exposure and "Fed pivot FOMO," but the market’s micro-structure is fragile, and the rebound may be followed by a sharper decline.