Gold was up nearly 2% Thursday and trading above $1,230 an ounce after hitting a high of $1,233.50. After a scary sell-off earlier in the week that sent the precious metal back below $1,100 it is showing considerable strength and junior gold stocks have been the benefactors.
Small-cap investors rush back to gold
Small-cap investors were buying up junior gold stocks at a breakneck pace Thursday morning. Trading activity on the TSX Venture, the world’s largest junior resource-centric exchange, was proof of that.
Check out these quick stats:
The top 10 most liquid stocks on the TSX Venture were all resource-based Thursday morning. To my knowledge, this has not happened in quite some time. There has almost always been at least one tech, biotech or healthcare related company in the Top 10 for liquidity.
5 of the top 10 most liquid stocks were gold-focused in nature. This is unprecedented in the past few years as the gold bear market left its constituents completely forgotten.
While many gold stocks began a stealth rally in December or January, now, towards the end of February mainstream media outlets are taking notice.
A CNBC article titled Cramer: Could gold be ready to roar higher? was published yesterday and looks at the technicals behind gold’s recent momentum. Below is a short excerpt:
“Garner took a look at the results of the Commodity Futures Trading Commission’s commitments of traders report. She used this report as a tool to find out how big institutional money managers are placing their bets in the gold futures market.
She found that in December of 2015, large speculators were net long only 20,000 futures contracts. Since that time the precious metal has rallied, and the net long position has increased to 100,000 futures contracts. However, Garner said she wouldn’t consider the bullish position aggressive until it gets to around 250,000.”
Jim Cramer argued that negative interest rates are driving investors out of bank accounts and into assets like gold, given they can’t reap even a small return in the banks.
From articles on SeekingAlpha titled Swiss Fund Manager Florian Siegfried Says Gold Bear Market Is Ending, investors are turning back to gold.
Barrick has at times been the best performer on the TSX thus far in 2016. Take a look at Barrick’s 3 Month Chart below:
Barrick Gold gives small-cap gold stocks hope
Barrick reported its quarterly financials yesterday and, despite losing $2.62-billion in the quarter, saw its share price rise 0.93% on the day and 5.9% Thursday. This fact alone should tell every investor that the market is anticipating higher gold prices, not lower, for the first time in years.
Despite the loss there were some positive takeaways, paritcularly the fact that the company lost even more ($2.85-billion), in the same quarter from a year earlier. Below is an excerpt from this morning’s Globe and Mail article titled Barrick Gold planning to cut debt by at least $2-billion in 2016:
“Barrick has been aggressively working to cut debt and streamline its operations around roughly half a dozen mines in the Americas. President Kelvin Dushnisky said last mlonth he intends to structure operations to be sustainable “at virtually any foreseeable gold price.”“
Barrick, stressing quality over quantity, went on to say that: “While we are producing fewer ounces today than we have in recent years, we are generating significantly more cash.”
Blue-chips will lead small-cap gold stocks
Small-cap investors who’ve been around for a few cycles know that seniors usually lead juniors into a bull market. While this is not always the case, if senior producers are rebounding and ultimately making money, it bodes very well for small-cap gold miners. In spite of this, many junior gold stocks have already doubled or tripled from 2015 lows.
Seeking out the best management teams as this historic bearish period comes to an end is no small task. So, how does one go about finding the ‘stout’ management teams?
This was the motivation behind our new Ebook at Pinnacle Digest.
Traders and investors alike buy things that are going up. It is just human nature. Gold is having its day in the sun currently, whether or not it lasts is anyone’s guess as central banks have been sorcerers in their ability to suppress its price and keep the market playing its game. It is now obvious that many small-cap gold stocks have been undervalued for years, especially if the narrative of rising gold prices becomes one investors begin following.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.