Hyperinflation Fears are Making Gold Stocks Interesting

Published on: September 20, 2021
Author: NAI500

Is the US Market Heading for Hyperinflation?

Higher than expected consumer price index data have been getting a lot of media coverage recently, with some outlets suggesting climbing CPI could be paving the way for red-hot inflation or even hyperinflation. But are these hyped-up inflation concerns valid or just sensational attention-grabbing headlines?

Hyperinflation is a unique situation that hasn’t been witnessed in a developed economy since after WWI, when Germany saw inflation rates top 322% per month. A hyperinflationary environment is characterized by rapidly climbing, excessively high prices and inflation rates topping 1,000% or more per year.

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The current inflation rate in the US is 5.3%. While still at a 13-year high, that number is a far cry from the hyperinflation level increases. However, that hasn’t stopped some members of the general public from believing that persistent US money printing will bring about an inflation-driven apocalypse.

So, is the US heading into hyperinflation territory?  According to authorities and most economists, the answer is no; hyperinflation worries are more rumour than reality.

Attempting to quell internet speculation, economist Asher Rogovy explains, “In the US, the central bank does not pay debt with the money it creates. Rather, it lends money at its targeted interest rate and the private sector employs that capital more productively. The money created is paid back, which is a crucial reason this monetary policy doesn’t produce hyperinflation.”

We Are Seeing Price Increases in Consumer Staples

Even though hyperinflation may not be a valid concern, inflation data has been coming in hotter than expected, and rising prices are putting pressure on consumers.

Grocery spending has been steadily climbing since last year. Food experts are blaming Covid and climate change for the increases, and unfortunately, there is little relief in sight for the latter.

However, price increases have not been spread out equally, and depending on which departments they shop in, some consumers may be spending more than others.

Thanks to a challenging growing year, higher wheat and grain prices have had a trickle down effect, impacting beef, pork, and bakery prices. Consumers can expect to pay 5%-9% more for everything from red meat and bread to pantry staples like cookies and crackers at the checkout counter.

How will Gold Stocks Benefit?

Historically, when inflation gets bad, investors buy gold to help pad their portfolio against currency depreciation, pushing up gold prices and, by extension, gold stocks. In the current environment, inflation averse investors should be paying particular attention to gold stocks; if inflation persists, these companies could witness explosive growth.

Looking at Canada’s largest gold miners, we can see that gold prices haven’t been keeping pace with rising inflation so far. This is possibly less a reflection on gold as a haven investment and more a sign that the market still believes that the current rise in inflation is transitionary.

Barrick Gold (TSX: ABX)(NYSE: GOLD) has struggled to break through the US$30 barrier after peaking at US$29.99 in September 2020. Stock prices are down nearly 19% YTD and over 35% off 52-week highs.

Other gold stocks, like mineral exploration company Newrange Gold (TSXV: NRG)(OTC: NRGOF), are facing a similar situation, with prices down over 30% from January highs.

However, if the market has got it wrong, and inflation isn’t just transitionary, these gold stocks could see massive price appreciation. But if inflation does turn out to be transitory, and assuming gold prices remain stable, there is still significant profit potential for gold companies like Newrange and Barrick. It’s a win-win situation for gold stocks.

Newrange Gold – Exploring Past Producing Mines in Nevada

Newrange Gold is a mineral exploration company focused on looking for gold in resource-rich areas, like its flagship Pamlico Property in Nevada. While they may be significantly smaller than other Canadian gold companies like Barrick, they are worth watching.

Unlike gold miners, mineral exploration companies like Newrange do not actually mine gold. Instead, they are involved in exploring various assets to determine how much gold is hidden underground. After favourable sites are located, the exploration process involves drilling core samples, which are then analyzed to determine the extent and grade of gold deposits present at the site.

Newrange’s flagship Pamlico Property is in a prolific gold-producing district, and the Property itself is a historically well-known high-grade gold producer.

Gold exploration companies like Newrange drive shareholder value based on the potential for discovering economically viable gold and mineral deposits within their properties. Using exploratory drilling, they collect and analyze data about what’s in the ground and then share their discoveries with the public.

And Newrange has been sharing a lot of very positive news from its recent drilling operations.

In 2016, Newrange Gold expanded its operations into the US by purchasing the Pamlico Property, a 2,528-hector site located in Nevada’s renowned Walker Lane trend. The Pamlico Property was established and mined throughout the late 19th century. At that time, the mine was well-known for its high-grade underground gold production. However, the Property has largely remained dormant since then.

Newrange is offering investors an exciting opportunity as they further explore into unexplored areas of a former high-grade gold producer using modern technology, techniques, and tools. And so far, results from the Company’s exploration programs at their flagship Pamlico Property have been very promising.

In July, the Company completed four diamond core holes totalling 800.6 meters. They were following up on reverse circulation hole P21-115, which had intersected several high-grade structures assaying up to 22.35 grams gold per metric tonne (g/t Au) within an overall intercept of 123.5 meters averaging 1.13 g/t Au.

“We are very encouraged by the four follow up holes on this new zone, and especially with the apparent correlation with the Pamlico Mine mineralization,” stated Robert Archer, Newrange CEO.  “While all assays are pending, the zone appears to be open to the north, east and south.  Once results have been received and compiled, we will be in a better position to interpret the potential and plan additional follow-up drilling.”

Disclaimer: The company described in this article is a customer of NAI Interactive Ltd. This material is for informational purposes only and is not intended as a recommendation or offer or solicitation for the purchase or sale of any securities or financial instruments, or for transactions involving any financial instrument or trading strategy.

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