Weekly Market Recap (May.10) – Is the Era of Gold Stocks Outperforming Gold Upon Us?

Is the Era of Gold Stocks Outperforming Gold Upon Us?
Published on: May 10, 2024

Since the launch of the U.S. gold and silver ETFs, we have witnessed a 13-year bear market for gold mining stocks.

However, Eric Strand, the founder and portfolio manager of AuAg Funds, recently stated that while gold stocks have not followed the upward trend of gold prices, he expects the profitability of gold miners to increase. Coupled with the long-term shortage of exploration investment affecting future supply, gold stocks are expected to perform strongly for the remainder of this year, with potential price increases even reaching three digits.

Once the bull market for gold stocks is initiated, companies with strong fundamentals and high-quality resources and assets, especially those with significant potential for exploration upside, are expected to deliver remarkable performances.

In May of last year, Mr. Brett Richards, CEO and Director of gold development company Goldshore Resources Inc. (TSXV: GSHR, OTCQB: GSHRF, FRA: 8X00), stated in an interview with “METALS 100” that the inferred resource estimate of the company’s flagship Moss Gold Project in Ontario has significantly increased to 6 million ounces (a 44% growth) with a grade of 1.02 grams per ton. Additionally, the company recently raised $6.9 million in financing, and with the re-evaluation of the project’s value, more institutional investors are expected to join in the future.

What drives such a judgment? When gold prices achieve significant breakthroughs and substantial rebounds, the profitability of gold mining companies accelerates. Therefore, compared to gold prices, gold stocks have greater price elasticity.

Historical data tells us that during bullish gold cycles, gold stocks can outperform gold itself. These bull markets generally last for about three years and often include breakthroughs in gold prices, such as the upward breakthrough of gold prices to over $500 per ounce for the first time in decades in the autumn of 2005, and the breakthroughs to over $1000 in October 2008-April 2011, and over $1375 in August 2018-2020.

It has been two months since the breakout from the 13-year cup-and-handle pattern for gold prices, and after subsequent pullbacks in gold and silver prices, the performance of gold miners remains relatively robust. If the current cyclical bull market for gold persists for three years, mining stocks are expected to continue outperforming gold in the next 18 to 24 months.

Gold Mining Precious Metals