Although the past week saw gold and silver bullion trade with a negative bias, the trend remains positive on the intraday basis.
Spot silver prices (XAG/USD) remained flat just above $23.30. The precious metal is off extremes; gains were capped at $23.50 on Thursday morning but the buyers came in ahead of $23.20. That marks two days now that silver has been unable to rally past $23.50. This consolidative price action aligns with the broader sense of market quiet as US participants are largely absent during the Thanksgiving holidays.
Similar patterns were observed for gold as well. Despite its recent hike, the gold mining sector is still nowhere near its bull market highs of 2011. Gold topped out at well over $1900 an ounce in September 2011 and just recently surpassed this number this year. However, the mining sector has failed to follow through, leaving investors mostly with an undervalued asset class on their hands.
At the same time, interest in individual mining companies has remained somewhat stable. Amid the looming pandemic investors have been observing disruptions to the operations of gold and silver miners that might affect production, revenue and dividend payouts. Overall, there is no getting way from the fact that mining companies as a whole remain more undervalued than bullion at the moment.
For this reason, the past month saw investors move away from individual gold stocks and silver stocks and towards silver and gold ETFs.
Investing in a gold ETF, which holds a basket of major, mid-tier and minor gold miners, is a good way to manage risk. Although an aggressive second wave of the virus would be detrimental to many miners, investing in a basket of companies decreases the risk that operations would be stopped in 100% of the holdings.
When analyzing which gold stocks to buy or which are the top gold miners, it’s important to look at the way a sustained bull market affects the sector as a whole. The reason being is that gold mining companies with the highest top line growth, highest free cash flow yield, and lowest debt-to-equity, always remain the most sought-after gold stocks.
Junior gold miners are among the participants in the sector that benefit the most from a rally in the price of gold. And this is even truer when they strike a new deposit.
Since the start of the pandemic, Canadian junior gold miners have been able to cash in on the record high gold prices with record quarters, including soaring cash flows.