Consolidation and higher gold prices give junior miners relative strength

By Staff Writer / September 02, 2020 / Article Link

Gold prices climbed higher in Tuesday’s trading session as a weaker dollar countered some pressure from the better-than-expected U.S. manufacturing data, which offered a correction from a two-week high.

Spot gold was up 0.1% to $1,971.61 per ounce, having earlier hit its highest since Aug. 19 at $1,991.91. U.S. gold futures settled marginally higher at $1,978.90 per ounce. 

With gold continued to be supported in this environment of firming inflation expectations, bullion is viewed as a haven in the face of the COVID-19 pandemic.

“Gold will continue to be one of the best beneficiaries of the dollar’s weakness so expect to see a retest above $2,000 in the upcoming weeks,” wrote Hussein Sayed, chief market strategist at FXTM, in a Monday note.

The weaker dollar and continued interest in the yellow metal helped gold stocks make significant gains early on Tuesday. Declining gold reserves and a lack of new gold discoveries in the sector in the face of increased demand has seen profits from mid-tier and junior Canadian gold miner increase recently.

While senior gold producers face an uncertain outlook, the consolidation of recent gains in the mining space has seen investors positioning themselves into Canadian junior gold miners that control large deposits which they expect to be eventually acquired by global mining firms for large premiums once M&A in the sector inevitably picks up again.

With junior miners acquiring new assets in highly-desirable locations, many see them as soon replacing aging mines. The value placed on junior gold miners has also been increasing recently, as they emerge as the primary source of new reserves for majors. While most grassroots exploration projects have been on hold for nearly a decade, gold's recent bullish ride is bringing risk capital back into the sector. 

Hundreds of millions of dollars have poured into junior explorers and developers since the COVID-19 pandemic began, resulting in many fully funded exploration and development programs now underway.

Experts see the first new major discovery as a matter of months and once that happens even more investments will move into high-quality junior gold stocks. This will in turn cause valuations to rise across the entire Canadian junior gold mining resource complex.

ETFs that track smaller gold miners have flourished since the start of the pandemic. The VanEck Vectors Junior Gold Miners ETF, which tracks a basket of smaller miners, gained 20% over the past three months, according to data from Yahoo. In comparison, the VanEck Vectors Gold Miners ETF, which tracks a basket of larger miners, registered a more modest gain of approximately 11%.