Weekly Market Recap (May.17) – Gold Miners: Patience is Key as History Repeats

Gold Miners: Patience is Key
Published on: May 16, 2024

In the “METALS 100” interview in May 2023, Mr. Jerry Wang, a representative of the Canadian gold exploration company White Gold Corp. (TSXV: WGO, OTCQX: WHGOF, FRA: 29W), highlighted the key features of their flagship White Gold Project and provided detailed information on their recent announcement of a significant increased Mineral Resource Estimate. Lastly, Jerry explained why White Gold would be an attractive option for investors interested in Yukon.

In the long term, gold stocks tend to move in sync with gold prices. However, in the short term, their trajectories can diverge, particularly when gold prices rise rapidly within a short period. The fluctuation in gold stocks is typically greater than that of gold prices, which means that in the short term, gold stocks may exhibit significant volatility and may not always quickly follow the rise in gold prices.

Additionally, the current investment sentiment in the mining sector, including gold miners, is low. During bull markets, numerous market hotspots divert funds to themes and sectors with higher growth potential, such as the recent surge in artificial intelligence (AI), leaving the gold sector overlooked. In bear markets, even if gold prices rise, the overall depressed market sentiment can cause gold stocks to underperform.

Tavi Costa, a partner and portfolio manager at Crescat Capital, noted that although some gold stocks have risen in price, their gains are below investor expectations when compared to the movement in gold prices. Generally, the revenue of gold stocks is primarily driven by gold prices, with relatively stable costs and expenses. This means that when gold prices rise, corporate profits can increase significantly. However, during this recent “V-shaped” recovery in gold prices, the performance of gold stocks has been disappointing.

Costa believes that the gold mining sector will “significantly outperform” gold prices in the future. He asserts that no sector is currently more despised by investors than gold miners, which presents a substantial opportunity.

Costa stated that it is not uncommon for the mining sector to surge by 300% to 400% in the short term, and that threshold is now very close. Disillusioned investors are about to give up, reminiscent of the 1970s when investors felt that the sector was beyond recovery. Unless this time is different, this sector is poised for a strong comeback, a conviction he firmly holds. Therefore, now is not the time to worry about why gold miner stocks have not followed the rise in gold prices, but rather to position oneself actively before stock prices soar.

Contrarian Investing Gold Mining Precious Metals