Momentum for junior gold mining stocks is building.
During an interview with VanEck’s Joe Foster at the 2020 Canadian Mining Symposium on Zoom, Dean McPherson, Head of Business Development at TMX Group, stated,
“For the first in a long time we’re seeing equal if not more participation in the junior [mining] space as well in the rebound here.”
Our research shows that roughly half a billion dollars poured into junior gold mining stocks last month. Sure enough, the VanEck Vectors Junior Gold Miners ETF (GDXJ) – which intends to track the overall performance of gold and/or silver small-caps – hit a 7-year high of US$53.31 on July 1, 2020.
Joe Foster, Portfolio Manager & Gold Strategist at VanEck later commented,
“I think we’re in the middle of a secular bull market in gold – secular being a long-term bull market that is driven by financial risks, and systemic risks to the financial system. . .”
Mr. Foster went on to note,
“Something that’s different in this cycle that we haven’t seen before – usually the big companies, the majors, lead in terms of performance when gold is rising and then the smaller companies catch up and ultimately outperform the larger companies.
That hasn’t been happening so far in this cycle – you know gold broke out last year, the big guys broke out and did very well, but a lot of the smaller companies were lagging for quite some time, and it wasn’t until just the last month or two that we’ve seen the smaller companies really start to perform and start to make that catch up. Usually that catch up is measured in weeks, maybe a month or two, [but] it’s been a whole year and finally these smaller companies are starting to move for us.”
“Extreme monetary policies, negative real interest rates, unsustainable sovereign and corporate debt levels and diminishing dollar headwinds should continue to support higher prices for gold in our view.”
Maintaining sustainable debt levels will be a key challenge for countries as they continue to re-open their economies.
“The need for continued fiscal support is clear, but this begs the question of how countries can finance it without debt becoming unsustainable. In 2020, relative to the January 2020 World Economic Outlook, fiscal deficits are expected to be more than five times higher in advanced economies (AEs) and to more than double in emerging market economies (EMEs), leading to an unprecedented jump in public debt of respectively 26 and 7 percentage points of GDP.”
“. . .the policy response [to COVID-19] has . . . contributed to global public debt reaching its highest level in recorded history, at over 100 percent of global GDP, in excess of post-World War II peaks.”
Fears Over Unsustainable Debt Support Junior Gold Mining Stocks
Global public debt is at a record high, and there’s significant uncertainty as to how governments will pay it back in the coming years. What’s worse, this debt is only poised to increase as coronavirus continues to weigh on economies around the world. These macroeconomic conditions could support a higher price per ounce of gold – and thus higher valuations – for junior gold mining stocks.