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to read the previous gold forecast.
Gold is on track to end the year on a positive note, rising 20 percent from January to mid-December. Safe haven demand drove much of the
precious metal
’s growth, with investors looking to protect their portfolios from the wild volatility that
COVID-19 introduced
.
But that 20 percent growth is only part of gold’s 2020 story. A market upset in March pushed the metal to
US$1,498 per ounce
before a three month rally drove it to an
all-time high
of US$2,068 in August.
The global response to the unprecedented coronavirus pandemic proved to be the most disruptive catalyst of 2020, although as many market watchers have pointed out, COVID-19 has only exacerbated the effects of years of quantitative easing (QE) and poor monetary policy.
The Junior Stock Review’s Brian Leni believes 2008’s credit crisis and the global financial system response set in motion some of the policies that are impacting the economy today.
“The
central banks
responded [in 2008] with excessive amounts of QE and, of course, ultra-low interest rates,” said Leni.
He continued: “These forms of stimulus have enabled the world economies to stay afloat over the last 10 years, but in my view, it was only ever a matter of time before we saw major issues arise once again. COVID-19 was the straw that broke the camel’s back, as they say.”
As stimulus pushed money into markets, gold’s resiliency in the face of currency debasement offered risk aversion to the mounting debt and the QE. According to Rick Rule of Sprott (TSX:
SII
,OTC Pink:SPOXF), the culmination made precious metals particularly alluring.
Rule went on to note that positivity in the gold market, translates to an uptick in gold
stocks
, even if it is delayed.
“Historically, gold moves first and then
silver
moves later. Historically too, in the immediate aftermath of a currency crisis, all stocks sell off, including gold stocks, and we have seen that,”
he said during an April webinar
.
“If we look at prior recoveries from oversold bottoms in precious metals markets, what we note is that the move up in the gold stocks is delayed, often for six or eight months after the move in the commodity.”
Rule’s observation has come true. The NYSE ARCA Gold Miners Index (ARCA:
GDM
) has recovered its March losses and added 23 percent to its value since.
Junior indexes have also experienced similar growth patterns. After slipping 48 percent year-to-date in March, The Van Eck Junior Gold Miner ETF (ARCA:
GDXJ
), which contains 83 junior gold stocks, has surged 26 percent, to US$53.22.
The Sprott Junior Gold Miners ETF (ARCA:
SGDJ
) has also benefited from rising gold prices. After declining 44 percent in March, the ETF with 36 holdings is up 44 percent year-to-date.
Despite the positive price movement, 2020 has been ripe with challenges for miners and explorers.
“The lockdown of the global economy has destroyed many businesses and, in terms of mining, has reduced or temporarily shut down some major mining operations over the last 6 or 7 months,” said Leni.
Gold Forecast 2021: Gold companies resilient amid closures
Before the pandemic restricted air travel and sent countries into lockdown, the mining industry converged in Toronto in March, for one of the few in-person sector conferences of 2020.
The
Prospectors and Developers Association of Canada
(PDAC) convention is the largest
resource
-centric event in the world. While
2020’s conference
wrapped up ahead of the large scale COVID-19 measures, the pandemic was a prominent topic.
Watch
Felix Lee
discuss PDAC 2020 and the protocols implemented to safeguard attendees.
Now 8 months later, PDAC president Felix Lee offered insight into how members are dealing with the longer term effects.
“The pandemic has had widespread impacts on our members in Canada and around the world,” said Lee. “The challenges related to ensuring the health and welfare of people working in the mineral industry have been tremendous and many members have had to cease activities temporarily.”
He went on to note that while mineral exploration activity in Canada is likely to see declines year-over-year, strong commodity prices have mitigated some of the COVID-19 effects.
To gauge the sentiment of industry participants, the Investing News Network surveyed 14 precious metals explorers with gold focused projects, regarding the trends of 2020 and what they expect 2021 to entail.
Respondents include:
Maple Gold Mines
(TSX:
MGM
),
Firefox Gold
(TSXV:
FFOX
),
Gold 79 Mines
(TSXV:
AUU
),
Sentinel Resources
(CSE:
SNL
),
Silver Viper Minerals
(TSXV:
VIPR
),
Straightup Resources
(CSE:
ST
)
Laurion Minerals
(TSXV:
LME
),
Newrange Gold
(TSXV:
NRG
),
Commander Resources
(TSXV:
CMD
),
Alianza Minerals
(TSXV:
ANZ
),
Bold Ventures
(TSXV:
BOL
),
Nexus Gold
(TSXV:
NXS
),
Novo Resources
(TSXV:
NVO
) and Belcara Group a management firm representing three junior companies.
Of the 14 companies, a dozen believe 2021 will be a better market for gold, while one was uncertain, and another was anticipating worse conditions.
The vast majority see continued stimulus, economic instability and recession fears being a tailwind for gold prices.
“The 2020 commodity market exceeded expectations in its strength. Gold vastly outperformed our modest upside predictions, but
copper
‘s improvement was a real surprise,” said Robert Cameron, CEO and president of Commander Resources, a precious and
base metals
explorer.
He continued: “The impact of COVID on operations and exploration was less than expected and we managed to undertake most of our planned work programs.”
While Commander’s operations saw little impact, the broader sector did see disruptions. Travel to and from sites, postponed deals and logistical issues are some of the challenges the gold sector encountered.
“COVID-19 has absolutely affected the turnaround times at the labs with drill results delayed up to three months in some cases,” Gerardo Del Real of Digest Publishing pointed out.
Since breaching its all-time high in August, gold prices have been locked in a decline, shedding 9 percent over the last 3 months. Holding in the US$1,850 range, the recent price pressure has added uncertainty to the mix again.
H2 2020 gold price performance. Chart via
Kitco
.
“We are in a consolidation phase,” said Robert Archer, CEO of Newrange Gold. “(Expect to see) continued volatility without any clear direction for a while.”
Gold Forecast 2021: Uncertainty to be continued price catalyst
Sitting firmly above US$1,800 the gold price may be subject to continued headwinds from the widespread vaccine rollout. Although it’s safe haven nature, and use as a hedge against inflation will ultimately work in its favor.
“A successful COVID-19 vaccine roll out would cap the expected QE that is needed to keep the economy afloat – okay,” said Leni. “In my view, the damage is already done.”
He then pointed to the GDP to debt ratios reaching “the point of no return.”
“Countries either devalue their currencies through inflation, which they have stated publicly that they want to do, or they default,” he said.
A sentiment that was echoed by Laurion Minerals management.
“We are on a set longer term expected trajectory as part of this Gold & Silver Super Cycle which COVID and the G30 countries central banks have just amplified with their money printing and stimulus packages,” Cynthia Le Sueur-Aquin, president and CEO of Laurion Mineral Exploration, responded.
While most survey respondents anticipate tailwinds for the gold market in 2021, others expect the toll of the pandemic to continue to weigh on the sector.
“[(2021 will be) a worse market due to the prolonged impact of COVID-19,” noted Shirley Anthony, director corporate communications at Maple Gold.
For Gold 79 Mines, chairman and CEO Gary Thompson the precariousness of markets only underscores the inherent value in gold.
“The world is awash in debt fixed real assets shall remain in demand Fiat currency devalue points to higher gold,” he said. “You can’t print gold.”
In light of the unexpected volatility that was 2020, PDAC president Lee, remains cautiously optimistic about the industry’s recovery.
“Uncertainties remain about what is ahead in 2021 but the boost in gold and silver prices had led to a jump in financing activity within the mineral sector so far in 2020,” he said. “Total equity raised in Canada for the mineral industry through the end of October has surpassed C$6 billion and the total raised in 2019, which suggests that many companies could be well financed heading into 2021.”
Looking ahead, the Junior Stock Review’s Leni continues to see the policies implemented by central banks impacting economies, which will be reflected in rising gold prices.
“Central Banks have publicly stated that they will continue to try to spur inflation over 2 percent per year,” he said. “QE and its deployment into the economy isn’t over, and before the end of all of this, we are bound to see numerous attempts to increase the velocity of money.”
The risk of QE policy, paired with pandemic relief and economic upheaval propelled gold to its record high and continues to underpin the fundamentals for the yellow metal.
For Leni, these factors have aided in the growth the precious metals space has experienced.
“Gold and silver’s price strength has ignited a new bull market in the junior gold and silver companies,” he said.
“Many companies have seen their market caps (MCAPs) double, triple or quadruple off the bottoms of the COVID-19 crash in March. It’s my guess that this trend will continue in 2021. The 2nd leg of the bull market is ahead of us – it’s when, not if.”
Digest Publishing’s Del Real, expects gold prices to rise in the New Year, driven by, “The combination of low and negative rates, an increased distrust in government and predictable monetary and fiscal policy have and will continue to contribute to the rise.”
The market analyst anticipates the junior gold sector will be a continued good play in the year ahead.
“I expect 2021 to be a breakout year for juniors with significant discoveries,” said Del Real. “Several quality names have sold off on COVID-19 fears and the delays in assays. Companies that deliver will reward shareholders very well.”
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Alianza Minerals, Bold Ventures, Commander Resources, FireFox Gold, Gold 79 Mines, Laurion Minerals, Maple Gold, Newrange Gold, Nexus Gold, Novo Resources,
Sentinel Resources, Silver Viper Minerals and Straightup Resources are clients of the Investing News Network. This article is not paid-for content.
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.