Canada's main stock index ticked lower on Monday as the materials sector, which includes precious and base metals miners, lost 0.5% as gold futures fell 0.5% to $1,498.2 an ounce.
This follows newly released projections from Citigroup that gold prices may surge to a new record high at some point during the next year or two. After a summer of low interest rates around the world and mounting recession risks gold stocks continue to find favour as a safe-haven asset when investors are concerned that geopolitical or financial shocks could turn global equity markets on their heads.
The Toronto Stock Exchange saw several junior gold miners continue registering gains. Notably, Barrick Gold (TSX:ABX)(NYSE:GOLD) has rallied 50% since late May, which is well ahead of the roughly 17% gain for the price of gold over the same timeframe. This shows that gold miners generally have more upside torque when gold rallies, and the longer the boost in margins remains, the more likely it is that traders will be comfortable giving a stronger valuation to the majors.
With Barrick Gold, last year’s merger with Randgold Resources unlocked not only access to global deals but resulted in higher dividends. There is significant potential to generate significant free cash flow in the event that gold extends the gains through 2020, and beyond. It may be a bit early for the market to appreciate the opportunity, but once traders catch on, Barrick could pick up another strong tailwind. The stock currently trades at $24 and a move to $36 or even higher by the end of 2020 wouldn’t be a surprise if gold extends its rally.
Contributing to the gold rush is a new approach to development with high-powered electronic equipment. This comes in light of the mining news covering Newmont Goldcorp Corporation’s Borden Gold Project -- also known as the "mine of the future". The new project will utilize Newmont’s line of sustainable and electric mining equipment instead of diesel fuel-powered machinery.
The combination of state-of-the-art digital mining technologies and low-carbon energy vehicles is expected to help reduce energy costs, protect employee health and minimize impacts to the environment. This helped the Borden Gold Project receive full permission to operate in Ontario following a Partnership Agreements with local First Nations who inhabit the land where the project intends to mine for gold ore.
Ore from the Borden Gold Project will be sent for processing at their mill in the town of Timmins, about 112 miles to the east.
As a result of Borden’s use of safe and sustainable mining the Canadian and Ontario governments both granted $5 million Canadian dollars towards electrification of the mine.
Another miner that made headlines in the past week is the Toronto-based Kirkland Lake Gold (KL). The mid-tier gold miner is an incredible growth stock with the company investing in Novo Resources (OTCQX:NSRPF) and Osisko Mining (OTCPK:OBNNF). Estimated revenue for the third quarter is $374 million with gold production rising to another record high again. Output for the third-quarter is 248,100 Au Oz, 37.7% higher than the output for the same quarter a year ago.
On a longer-term outlook, the global trend in the bonds markets toward negative yield remains supportive for gold. A number of analysts say at least 25% of global government bonds trade with negative yields. That makes no-yield gold more attractive for big funds that would normally hold large chunks of government debt.