Gold Forecast 2021: Gold Juniors Primed for Growth

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Gold is on track to end the year on a positive note, rising 20 percent from January to mid-December. Safe haven demand has driven much of the precious metal’s growth, with investors looking to protect their portfolios from the wild volatility that COVID-19 introduced.

But that 20 percent growth is only part of gold’s 2020 story. A market upset in March pushed it down to US$1,498 per ounce before a three month rally drove it to an all-time high of US$2,068 in August.

The global response to the unprecedented coronavirus pandemic proved to be the most disruptive catalyst of 2020, although as many market watchers have pointed out, COVID-19 has only exacerbated the effects of years of quantitative easing (QE) and poor monetary policy.

Brian Leni of Junior Stock Review believes 2008’s credit crisis and the response from the global financial system set in motion some of the policies that are impacting the economy today.

“The central banks responded (in 2008) with excessive amounts of QE and, of course, ultra-low interest rates,” he told the Investing News Network (INN).

“These forms of stimulus have enabled the world economies to stay afloat over the last 10 years, but in my view it was only ever a matter of time before we saw major issues arise once again. COVID-19 was the straw that broke the camel’s back, as they say.”

As stimulus pushed money into global markets, gold’s resiliency in the face of currency debasement came into play. Speaking during an April webinar, Rick Rule of Sprott (TSX:SII,OTC Pink:SPOXF) predicted that this positivity on gold would eventually translate into an uptick in gold stocks.

“Historically, gold moves first and then silver moves later. Historically too, in the immediate aftermath of a currency crisis, all stocks sell off, including gold stocks, and we have seen that,” he said at the time.

Patience, Rule emphasized, is key in these situations. “If we look at prior recoveries from oversold bottoms in precious metals markets, what we note is that the move up in the gold stocks is delayed, often for six or eight months after the move in the commodity.”

Gold forecast 2021: Gold companies resilient amid closures

Rule’s observation has come true. The NYSE Arca Gold Miners Index (ARCA:GDM) has recovered its March losses and added 23 percent to its value since then.

Junior indexes have seen similar growth. After slipping 48 percent year-to-date in March, the VanEck Vectors Junior Gold Miners ETF (ARCA:GDXJ), which contains 83 junior gold stocks, has surged 26 percent,.

The Sprott Junior Gold Miners ETF (ARCA:SGDJ) has also benefited from the rising gold price. After declining 44 percent in March, the ETF, which has 36 holdings, is up 44 percent year-to-date.

But before those bouncebacks came turmoil, and it began around the same time as this year’s Prospectors and Developers Association of Canada (PDAC) convention.

The mining industry converged in Toronto in March for one of the few in-person sector conferences of 2020. And while this year’s conference wrapped up ahead of the large-scale COVID-19 prevention measures, the pandemic was a prominent topic at the event.

Eight months later, President Felix Lee offered insight into how PDAC’s member companies are dealing with the longer-term effects of the virus.

Felix Lee: PDAC Atmosphere Positive Despite Coronavirus, Protestorsyoutu.be

Watch Felix Lee discuss PDAC and the protocols implemented to safeguard attendees.

“The pandemic has had widespread impacts on our members in Canada and around the world,” Lee told INN. “The challenges related to ensuring the health and welfare of people working in the mineral industry have been tremendous, and many members have had to cease activities temporarily.”

He went on to note that while mineral exploration activity in Canada is likely to see declines year-over-year, strong commodity prices have mitigated some of the effects of COVID-19.

Leni concurred, pointing out that 2020 has been ripe with challenges for miners and explorers.

“The lockdown of the global economy has destroyed many businesses and, in terms of mining, has reduced or temporarily shut down some major mining operations over the last six or seven months.”

To gauge the sentiment of industry participants, INN surveyed precious metals explorers with gold-focused projects, asking them about the trends of 2020 and what they expect 2021 to entail.

The respondents were: Alianza Minerals (TSXV:ANZ), Bold Ventures (TSXV:BOL), Commander Resources (TSXV:CMD), FireFox Gold (TSXV:FFOX), Gold79 Mines (TSXV:AUU), Laurion Mineral Exploration (TSXV:LME), Maple Gold Mines (TSX:MGM), Newrange Gold (TSXV:NRG), Nexus Gold (TSXV:NXS), Novo Resources (TSXV:NVO), Sentinel Resources (CSE:SNL), Silver Viper Minerals (TSXV:VIPR), Straightup Resources (CSE:ST) and Belcarra Group, a management firm representing three junior companies.

Of the 14 companies, a dozen believe 2021 will be a better market for gold; one was uncertain, and another anticipates worse conditions.

The vast majority see continued stimulus, economic instability and recession fears as tailwinds for gold.

“The 2020 commodity market exceeded expectations in its strength. Gold vastly outperformed our modest upside predictions, but copper‘s improvement was a real surprise,” said Robert Cameron, CEO and president of Commander Resources, a precious and base metals explorer.

“The impact of COVID on operations and exploration was less than expected, and we managed to undertake most of our planned work programs.”

While Commander’s operations saw little impact, the broader sector did see disruptions. Travel to and from sites, postponed deals and logistical issues are some of the challenges the gold sector encountered.

“COVID-19 has absolutely affected the turnaround times at the labs, with drill results delayed up to three months in some cases,” Gerardo Del Real of Digest Publishing pointed out to INN.

Since breaching its all-time high in August, the gold price has been locked in a decline, shedding 9 percent over the last three months. Holding in the US$1,850 range, the recent price pressure has added uncertainty to the mix again.

H2 2020 gold price performance. Chart via Kitco.

“We are in a consolidation phase,” said Robert Archer, CEO of Newrange Gold. “(Expect to see) continued volatility without any clear direction for awhile.”

Gold forecast 2021: Uncertainty a continued price catalyst

Though it’s sitting firmly above US$1,800, the gold price may be subject to continued headwinds from any widespread vaccine rollouts. That said, its safe haven nature and use as a hedge against inflation are expected to ultimately work in its favor.

“A successful COVID-19 vaccine rollout would cap the expected QE that is needed to keep the economy afloat — okay,” said Leni. “In my view, the damage is already done.”

He pointed to GDP-to-debt ratios reaching “the point of no return.” Leni noted, “Countries either devalue their currencies through inflation, which they have stated publicly that they want to do, or they default.”

That sentiment that was echoed by Laurion’s management.

“We are on a set longer-term expected trajectory as part of this gold and silver supercycle, which COVID and the G30 countries’ central banks have just amplified with their money printing and stimulus packages,” said Cynthia Le Sueur-Aquin, president and CEO of Laurion.

While most survey respondents anticipate tailwinds for the gold market in 2021, others expect the toll of the pandemic to continue to weigh on the sector.

“(2021 will be) a worse market due to the prolonged impact of COVID-19,” noted Shirley Anthony, director of corporate communications at Maple Gold.

For Gary Thompson, chairman and CEO of Gold79 Mines, the precariousness of the market only underscores the inherent value of gold. “The world is awash in debt; fixed real assets shall remain in demand (and) fiat currency devaluation points to higher gold,” he said. “You can’t print gold.”

In light of the unexpected volatility seen in 2020, PDAC’s Lee remains cautiously optimistic about the industry’s recovery.

“Uncertainties remain about what is ahead in 2021, but the boost in gold and silver prices had led to a jump in financing activity within the mineral sector so far in 2020,” he said. “Total equity raised in Canada for the mineral industry through the end of October has surpassed C$6 billion and the total raised in 2019, which suggests that many companies could be well financed heading into 2021.”

Looking ahead, Junior Stock Review’s Leni continues to see central bank policies impacting economies, which will be reflected in a rising gold price.

“Central banks have publicly stated that they will continue to try to spur inflation over 2 percent per year,” he said. “QE and its deployment into the economy isn’t over, and before the end of all of this we are bound to see numerous attempts to increase the velocity of money.”

The risk of QE policy, paired with pandemic relief and economic upheaval, propeled gold to its record high and continues to underpin the fundamentals for the yellow metal.

For Leni, these factors have added to the growth the precious metals space has experienced. “Gold and silver’s price strength has ignited a new bull market in the junior gold and silver companies,” he said.

“Many companies have seen their market caps double, triple or quadruple off the bottoms of the COVID-19 crash in March. It’s my guess that this trend will continue in 2021. The second leg of the bull market is ahead of us — it’s when, not if.”

Digest Publishing’s Del Real expects gold to rise in the new year. “The combination of low and negative rates, an increased distrust in government and predictable monetary and fiscal policy have and will continue to contribute to the rise,” he said.

The expert anticipates that the junior gold sector will be a continued good play in the year ahead.

“I expect 2021 to be a breakout year for juniors with significant discoveries,” said Del Real. “Several quality names have sold off on COVID-19 fears and the delays in assays. Companies that deliver will reward shareholders very well.”

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Alianza Minerals, Bold Ventures, Commander Resources, FireFox Gold, Gold79 Mines, Laurion Mineral Exploration, Maple Gold, Newrange Gold, Nexus Gold, Novo Resources, Sentinel Resources, Silver Viper Minerals and Straightup Resources are clients of the Investing News Network. This article is not paid-for content.

The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.