Gold prices edged lower on Tuesday after a long winning streak since the start of 2020. As riskier assets like gold stocks gained traction, Canadian junior gold miners have a reason to be optimistic.
Gold prices moved lower, and continued to trade sideways unable to break down, after reaching a 7.5-year high last week. Prices fell below support near the 10-day moving average at $1732, which is now seen as resistance. Target support is an upward sloping trend line that comes in near $1,693
The US dollar took a hit, which failed to buoy gold prices as the uptick in the US 10 year yield seemed to weigh on the value of the yellow metal. Meanwhile, the Bank of England Chief Economist Haldane confirmed that the central bank is still reviewing negative rates. The Peoples Bank of China continued to let the yuan drift falling to the weakest level since early 2008.
Gold has been dropping amid an upbeat market mood that saw investors turn to gold stocks from Canadian junior gold miners who are showing promising results. Since gold miners reflect the current economic environment instead of the spot price of gold, investors bet that demand for precious metals would crater and production would ramp down significantly.
Many junior gold miners demonstrated much improved balance sheet activity in Q1 and several of the biggest producers are generating high free cash flow yields. The disruption in the operations for junior miners in Canada has been minimal during the pandemic, and now that lockdown measures are starting to ease, analysts expect to see improved operational efficiencies and reduced costs for gold miners in general.
As global bond yields continue to plunge, investors are looking for opportunities to generate guaranteed real income. Gold is thus viewed as the logical store of value for the foreseeable future. Although not all gold stocks are benefiting from rising gold prices, even junior gold miners whose shares are on the lower spectrum in terms of value are now attractive.
Some medium and junior gold miners have entered 2020 with stronger balance sheets. Kirkland Lake Gold (NYSE:KL) ended the first quarter with $530.9 million in cash and no debt. What's more, Kirkland Lake spent $329.8 million to repurchase more than 9.7 million shares of stock during the quarter and doubled its quarterly dividend to $0.125. Its recent acquisition of the Detour mine will boost Kirkland's 2020 production by around 50%, with the company's first-quarter AISC of $776 per ounce sold indicating a nearly $1,000 cash margin over current spot prices.
SSR Mining (NASDAQ:SSRM) is another gold stock to consider after the gold miner outlined a plan to execute 30% production growth out of its Marigold mine. Recently, SSR Mining and Alacer Gold announced their intention to merge. In addition to SSR Mining’s $200 million in net cash, this charts an attractive upwards trajectory for the company.