Multi-Year Breakout In Gold At $1400 Could Boost Junior Miners
Jeb Handwerger | Jan 21, 2018 12:13AM ET
“We see a breakout at $1,400 in gold, which could mean new multiyear highs,” said Jeb Handwerger, editor of GoldStockTrades.com, which offers a newsletter focusing on mining exploration companies. Gold futures haven’t topped $1,400 since 2013.
A decline in the value of the U.S. dollar has recently helped boost dollar-denominated prices of gold, but Handwerger pointed out that “many investors have been diverted away from mining into much more speculative areas like blockchain and cannabis.”
“Even investment conferences and newsletter writers who were once gold bugs are now cryptocurrency gurus,” and this is very similar to 1999 when gold bulls became dot-com gurus,” he said. “Eventually, we will have another gold rush possibly even bigger than the late 70s but possibly more like the 30s.”
Given all that, he expects “a lot of institutional capital to return and significant short covering that could cause the price to gap to $1,750.” Gold futures haven’t settled above that level since 2012.
And “the miners boom after gold makes a sustainable move,” said Handwerger.
Even at a $1,400 gold prices, he expects junior gold miners, which are exploration companies in search of new gold deposits, to soar. That “could set off a huge [merger and acquisition] push by the major [gold mining companies] to replace their reserves, which have been in decline,” Handwerger said.
Year to date, the exchange-traded VanEck Vectors Junior Gold Miners fund VanEck Vectors Junior Gold Miners (NYSE:GDXJ), -0.09% has climbed 1.3%.
Handwerger believes investors should “avoid the royalty companies in this part of the cycle”—those that help fund exploration and production projects—and instead look at some of lowest-cost producers, especially in Nevada, like Barrick Gold Corporation (NYSE:ABX), +0.20% Kinross Gold Corporation (NYSE:KGC), -1.18% and Newmont Mining Corp (NYSE:NEM), +0.07%
He said he doesn’t personally own shares in the large producers, but does invest in the “developers and explorers with proven management teams and world class assets backed by top sponsors, preferably below the $50 million market cap, that may eventually get bought out by the majors.”
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