Gold price set to rise on negative interest rates with high risk reward

By Staff Writer / October 25, 2019 / Article Link

Canada is fast becoming the hottest ticket in gold mining with gold stocks up last week as trade talks between the US and China resumed on Thursday. Mining shares were up on average 4.2% last week with several junior gold miners coming out strong after posting their Q3/19 results.

Steady operating results and stronger quarterly financial results are offering an appealing opportunity for investors looking to diversify safely. As more producers and prospectors are pouring money into the region, gold prices rally and gold stocks are being leveraged to the gold price. On average North American junior gold miners are trading at an 11% discount on operating spotgold P/NAV (1.11x) @7% relative to the 5-year historical average, and a 7% discount on 2-year forward EV/EBITDA (7.6x) relative to the average level since January 2016. This suggests there are opportunities for fundamental investors to achieve attractive returns investing in gold equities with high risk rewards and a massive upside potential.

At least several new projects started up this year and multiple high-grade discoveries were made. Great Bear Resources (TSX: GBR) is in the process of modernizing and expanding its flagship Dixie Property in the prolific Red Lake gold camp. Recent developments contributed to the valuation of GBR’s gold stock as the company announced discovery of disseminated gold along a 3.2km zone on the 18km long LP Fault. The potential of LP Fault will be further explored in 2020.

The new discovery and massive upside potential of the Red Lake district comes at a time where there is robust demand for gold from both individuals and foreign central banks. Great Bear’s new lithological discovery hosting high-grade mineralization hints at great near-surface open-pit potential. As a result, the Canadian miner’s shares are on the radar of investors looking to acquire high-grade bolt-on assets.

Several other gold miners presented strong quarterly results. Agnico Eagle (NYSE: AEM, TSX: AEM)’s reported a record third-quarter gold production of 476,937 ounces, up 13% year over year. As a result, shares of Agnico Eagle Mines Limited (NYSE:AEM) traded higher on Wednesday thanks to strong operations and ramp-up of the new Meliadine and Amaruq mines in Nunaut, and a rebound at Kittila. The junior miner produced a 40% increase in its quarterly dividend to 17.5 cents per common share that will be paid to shareholders on Dec. 16.

Newly-announced projects are brimming with potential. White Gold Corp (TSXV:WGO) shares were another top performer with a 11% climb to $1. The gold junior announced trench and surface sample results from the Vertigo target and other surrounding targets as part of its JP Ross property in Yukon’s White Gold District, which included 30.86 grams per tonne (g/t) gold over 7 metres.

As of Oct. 23, the average gold price for the current month is $1,493.42. This shows an increase of 0.91% from the third quarter realized gold price. A combination of macroeconomic factors such as low yield environment, strengthening global demand and heightened uncertainties due to continuous trade tensions amid countries, are expected to push the price of the precious metal higher in the final quarter of 2019.