Canada’s main stock index rose on Tuesday, steered by energy stocks and the materials sector, which added 0.7% as gold futures rose 0.3% to $1,700 an ounce. U.S. gold futures rose 0.9% to $1,713.20 per ounce.
The most heavily traded shares by volume were Freegold Ventures Ltd, down 5.9%; B2gold Corp while Canadian Natural Resources Ltd, which rose 3.4%., was among the largest percentage gainers on the TSX.
Canadian junior gold miners were among the first to feel the effect of rising gold prices on their gold stocks. Investor interest turned to gold ETFs such as Direxion Daily Junior Gold Miners, which offers exposure to some of the best-known junior gold miners in the world. These include Kinross Gold (NYSE:KGC), Yamana Gold (NYSE:AUY) and B2Gold (NYSE:BTG).
As coronavirus has spurred safe-haven demand, the spot gold price managed to maintain the $1,700 level throughout much of April and early May. That’s good news for Canadian junior gold mining companies. While some gold miners experienced supply chain disruptions due to nationwide lockdowns, the industry as a whole has registered a modest growth since the onset of the pandemic.
Amid the growing economic and political uncertainty, the sentiment towards junior gold mining companies remains positive. B2Gold, a Canadian holding of the ETF, posted record revenues of $380 million during the first quarter of 2020. For the rest of the year, the company projects record gold production totaling around one million ounces of the yellow metal.
An unexpected move of China’s Shandong Gold Mining, one of the country’s top bullion miners, into the Canadian market has made headlines in the past week. Shandong agreed to buy Canadian junior gold miner TMAC Resources (TSX: TMR) for around $149 million. The deal will see the Chinese state-controlled company pay C$1.75 a share in cash, or 4.2% above TMAC’s Thursday close on the Toronto Stock Exchange. The offer represents a premium of 52% to TMAC’s 20-day average price as of May 6, the gold junior miner said.
The deal would mark the third time in the past few months that an underperforming Canadian junior gold miner is swept up by a larger and financially stronger gold producer. Analysts are highlighting that in the months to come, the sector is bound to see some more consolidations before things start to settle down.
As more countries decrease their interest rates or move them into negative territory, gold is coming on top as the winner thanks to its status as a hedge against inflation and currency debasement. Gold prices have risen over 12% so far this year as global central banks unleashed a wave of stimulus to limit economic damage.