This week’s dovish Federal Reserve statement gave gold a boost and in the aftermath, analysts have been talking up the prospect of a real change in fortunes for junior gold stocks.
John Kaiser, of Kaiser Research, said that following a “pretty lame start to 2019” for junior mining stocks an upturn could finally be on the way. Junior gold mining companies in particular could start to create bubbles based either on exploration discoveries, or gold prices trending upwards and making more goldfields viable, he said.
“I think we are at a turning point, the beginning of a feast cycle for the juniors linked largely to the gold price that’s going to be trending upwards,” he said. “The cannabis bubble is going into its final stage. Juniors no longer have the excuse that [it] is sucking the air from the high risk game.”
Boris Mikanikrezei, of Mikz Economics, wrote on Seeking Alpha that he expected a ”warm macro backdrop” for gold in Spring 2019, thanks to a continuing dovish Fed stance and the - in his view - “unsustainable rally” in US equities. He noted that ETF investors had started to buy gold again for the first time in six weeks.
All that adds to the cheer for Britain’s Endeavour Mining Corp., which has announced the first bars from its Ity carbon-in-leach project four months earlier than planned, with commercial production set to be declared in the coming months. With an annual output of 300,000 oz. of gold at an all-in sustaining cost of $525 to $590 per ounce at Ity, Endevour is hardly a junior gold mining company. But it is planning an $11-million exploration program with about 71,000 metres of drilling as it seeks additional resources, so the promise of exciting discoveries is still there for eager investors.
The bad news this week came for Venezuela's state-run gold mining company Minerven as it was hit with US sanctions for allegedly propping up the inner circle of the Maduro regime. The Maduro regime in turn stands accused of selling off the country’s gold without the approval of the legislature. However, such interventions are not without consequences to the dollar either, according to some analysts.
The gold price retreated from 3-week highs seen following the Fed’s mid-week statement after US President Donald Trump upped his rhetoric on Chinese trade tariffs. But analysts believe that the harsher tone of international relations seen under Trump’s presidency is ultimately supportive of gold.
John Kaiser said: “I see the world wanting to black off from it’s reliance on the dollar as a reserve currency.” Global businesses wanted to distance themselves from US power plays but have no alternative currency to use for trade, and gold could be the beneficiary, he said.
Such macro-political speculation appeared of little concern to junior mining expert Rick Rule, however. The Sprott Holdings founder this week lifted the lid on his approach to the notoriously risky business of mineral exploration, saying that he saw the value of good explorers lying in their intellectual property: their expertise at finding reserves, rather than any specific exploration acreages. He was therefore taking an approach he likened to owning “a bag of partial lottery tickets”.
“I’m looking for a portfolio of 10 project generators, each advancing 3 or 4 projects a year, funded by other people’s money,” he said. “I’m diluting my interest in the property but [...] I don’t want to reduce my share of the intellectual property.”
Rule said the position of such expert explorers was strengthening because the big miners had underinvested in exploration and now needed to increase their resource bases.