Unexpectedly strong Chinese economic data gave mining stocks a boost this week, while analysts continued to advocate for junior gold companies despite a reverse for the yellow metal.
Figures showing that China’s economy continued to expand at breakneck pace in the first quarter despite its trade war with the US came as analysts at Barclays Bank produced a particularly bullish report on the sector: they point to the fact that the effects of Chinese government stimulus are yet to be felt and therefore believe that mining stocks face a “Goldilocks backdrop” for the rest of the year at least.
"Despite the strong sector rally [year-to-date] we believe investors should stay long," the Barclays report states.
Coming in a week when the world’s biggest miner, BHP Group, trimmed its annual iron ore production forecast because of disruptions caused by a tropical cyclone, increased demand for metals used by China’s resource-hungry manufacturing and construction sectors should be excellent news for the junior mining stocks. However, it was gold stocks that continued to dominate the newsflow.
Among the junior gold stocks, Aztec Minerals (TSXV: AZT) said that a magnetic and radiometric survey of its Cervantes copper-gold project in Sonora, Mexico, had identified 11 porphyry targets. It claimed the survey supports the company's belief that the project contains multiple porphyry cells and that Cervantes is a ”district scale” property. The company intends to complete detailed mapping, rock and soil sampling and possibly IP geophysics to confirm possible drill targets.
On a bigger scale, New Gold (TSE: NGD) received federal environmental approval for its 100% owned C$1.8B Blackwater gold project proposal in British Columbia, Canada. Plans for Blackwater, which is still at the exploration phase, suggest it could produce 60,000 tonnes per day of gold and silver ore, over a mine life of 17 years. But despite getting the go-ahead, the mid-cap mining stock closed down on the day as the news coincided with a sell-off in gold itself.
Analysts were nonplused by gold’s slide, however. Commerzbank clearly felt is was not serious: “We attribute the price fall to technical selling after the price dropped below the technically important 100-day moving average,” it said. ”We do not understand why the gold price should be weak given the very loose monetary policy pursued by many Western central banks.”
Credit Suisse was also among those taking a steady - if not fully bullish - stance on gold. The bank said it stands by earlier forecasts which suggest the yellow metal should hold around current rates through to Christmas, but it added: “We continue to believe gold miners will operate against a backdrop of higher gold prices year-on-year in 2019.”
Frank Holmes, CEO and chief investment officer at US Global Investors, laid out his bullish view on gold in an interview with Mike Gleason on Market Oracle. He cited loosening monetary policy, gold buying by central banks and demand for jewellery by China and India’s increasingly affluent population, and concluded that the price could jump at any time.
“I think it happens in a New York second, and then it's going to go sideways for a while but it's just going to surprise everyone and just explode - and find that new level and hang around $1,400,” he said. “There will be some type of event and I believe that the peak gold is here. So, if we have rising in the amount of printing money and GDP per capita is rising around the world and with the cultural affinity for gold… we have peak mine supply, I remain pretty constructively bullish.”
As to his preferred stocks, Holmes singled out the innovative online jewelry firm Mene Gold (TSXV: MENE, US: MENEF) as a company well situated to benefit from rising demand in the world’s most populous - and most gold-loving - countries.