Looking for three indicators that there is a new bull market for gold?
- The price of gold recently hit a 7 ½-year high
- Share prices for many gold mining companies have jumped higher
- New financings are plentiful
Compare this to conditions during the long bear market for gold and gold stocks from 2013 through much of 2019.
The price of gold was flat (or falling). Share prices were extremely depressed (at all price levels for gold). Capital was extremely difficult to raise.
Fund-raising for the global mining industry as a whole
reached an eight-year low in 2019, according to private capital tracker Preqin. But 2020 represents an entirely different climate for gold mining companies.
Gold has been one of the best-performing asset classes going back to the latter months of 2019. Many of the larger gold miners have already gone on big runs.
The
VanEck Vectors Gold Miners ETF (US:GDX) is a popular ETF of larger gold producers. It has been trending steadily higher since the middle of 2019, subject to a brief but dramatic plunge during the March panic in markets.
This matches the traditional pattern with this sector. The senior mining companies are first to rise in an emerging rally as still-wary investors look for the security of larger market caps and greater production profiles.
Then the smaller miners and exploration companies start to move. With improving sentiment comes the opportunity to raise capital – on favorable terms.
From the smallest micro-caps to current gold producers, gold mining companies are lining up to announce new private placements. Investors are lining up to get in on the action.
And Eric Sprott is no longer the only gold mining investor ready to open up his wallet for these gold mining companies.
Most of these financings are non-brokered. But they are closing quickly, with some offerings being over-subscribed.
For higher net-worth investors, these financings provide an opportunity to scale up holdings in gold mining stocks, on superior terms.
Smaller retail investors and those who choose not to participate still benefit from these private placements. As a capital-intensive industry, gold mining companies require regular infusions of capital to drive growth – especially with respect to gold exploration.
Gold reserves for the senior mining companies are presently at critical levels. This means there has never been a greater need for new discoveries (and gold deposits) to replenish the pipeline of the gold mining industry.
New capital is reaching these gold exploration companies at the perfect time.
Many gold analysts expect a continuation if not acceleration in the rise of the price of gold. Yet gold and gold stocks are still dramatically under-represented in most investor portfolios.
The gold producers need new gold deposits and discoveries to replenish depleted reserves.
The gold exploration companies need significant capital to fuel those discoveries.
Investors want more exposure to gold.
In the last major rally for gold mining stocks between 2009 and 2011, GDX more than tripled. Many smaller gold mining stocks moved much higher. In the current rally, GDX is roughly 60% higher.
Conditions are arguably even more supportive today for a long term rally in these stocks.
Central bank monetary operations are even more extreme (and inflationary) than during the 2008 Financial Crisis. Meanwhile, gold mining stocks began this rally trading at historic lows versus the price of gold itself.
Many industries are struggling to cope with depressed conditions brought on by the pandemic lockdowns. The gold mining industry is powering ahead despite current restrictions.
As capital continues to flow into the sector, an increasing number of investors are betting on a repeat rally (or better) in 2020.
