When Should I Invest in Gold?

Published on: August 18, 2021
Author: Caroline Kong

Gold Recovers After Drop in August

Investors were left reeling in early August after gold plunged from a high of $1,831, falling below $1,700 an ounce. However, Bloomberg intelligence quickly speculated that the 7% was just a temporary dip in an otherwise bullish trend.

And the recent recovery suggests they may have been on the money, with spot gold trading back up at $1,788.

“Gold backed up to its upward-sloping 24-month moving average in what we see as a dip in a bull market,” Bloomberg Intelligence senior commodity strategist Mike McGlone had said. “When the distortions of 2020-21 subside, a resumption of pre-pandemic trends is likely, which favors gold’s upward course vs. crude’s descent.”

Bulls have been predicting $2,000 gold since early this year, and the current market environment makes that prospect seem even more likely. Government debt in the US is growing at a record pace, and stocks are significantly overvalued; a big drop in stocks could be the catalyst that takes gold to record highs.

Precious metals, and particularly gold and silver mining companies, have never been cheaper. This begs the question, should I invest in gold right now?

High Debt Environment Could Be A Clue That You Should Invest In Gold

The US national debt is growing at an unprecedented rate. And with the debt currently exceeding $28 trillion, Washington has just passed a historic $1 trillion infrastructure bill. Even before the bill was approved, the US national debt was gearing up to reach $89 trillion by 2029. This would put the US debt-to-GDP ratio at 277%, making it the world’s highest debt-to-GDP nation, exceeding even current debt-leader Japan’s ratio of 272%.

A high level of debt is like hanging an albatross on economic growth. But with overheating stocks reaching a tipping point and low interest rates making income-yielding investments hardly worthwhile, where should investors be looking for gains?

Two options return hungry investors should be exploring right now are commodities and precious metals.

Gold has long been used as a hedge against inflation, and with inflation alarm bells sounding, now might be the right time for investors to build up some portfolio protection against currency devaluation.

The case for gold becomes especially strong in light of low Treasury yields and rising inflation, a situation that leads to negative real interest rates – which is the current environment in the US. Historical charts suggest that when real interest rates turn negative, the price of gold rises. Right now, the 10-year US Treasury yield is sitting at 1.28%, and the annual inflation rate is 5.4%, resulting in a real interest rate of negative 4.1%.

Gold prices and the debt-to-GDP are also closely correlated. The higher the ratio, the higher gold prices tend to climb.

The Case for Gold Stocks

Younger investors are increasingly putting their money into more and more speculative assets, like Bitcoin and other cryptos. The potential for gains from these unproductive assets rests entirely on someone else willing to pay more for it down the line. But, as long as these investors realize that they are speculating rather than investing, there is nothing really wrong with that.

However, young investors looking for more predictable long-term gains may want to consider branching out into other areas. And right now, resource exploration and mining companies like Barrick Gold (TSX:ABX)(NYSE:GOLD) and Newrange Gold Corp. (TSXV:NRG) (OTC:NRGOF) may be able to offer investors better value.

Gold has been through the wringer this year, with prices falling below $1,700 again this month.

These price swings have hit gold stocks even harder, and at their current prices, gold companies can offer investors a significant opportunity in an otherwise overvalued market.

Barrick shed 4% last Tuesday on an otherwise flat day of trading and is currently sitting at $25.37, well off its 52-week high of $41.09. While comparatively much smaller, Newrange Gold is another interesting play. The Canadian exploration company is currently trading at $0.17, down 33% from its 52-week high.

While gold itself is also an unproductive asset, these gold stocks offer investors a cheap and productive way to benefit from movement in gold prices.

About Newrange Gold Corp.

Newrange is a Canadian mineral exploration company is focused on district-scale exploration for precious metals in several favourable jurisdictions, including Nevada, Ontario, and Colorado. With the discovery of high-grade, near-surface gold mineralization, the Company’s flagship Pamlico Project is poised to become the next big Nevada discovery. At the same time, the North Birch Project offers additional blue-sky potential in the prolific Red Lake District.

Focused on developing shareholder value through exploration and development of key projects, the Company is committed to building sustainable value for all stakeholders.

Newrange Coverage

Last week, Newrange announced that it had entered into a definitive agreement to acquire 100% interest in the historically producing, high-grade Argosy Gold Mine in northwestern Ontario’s Red Lake Mining Division.

“The acquisition of a past-producing, high-grade mine in an area of active exploration presents a unique opportunity to increase shareholder value,” Newrange CEO Robert Archer said in a statement.  “The Argosy Mine has seen minimal exploration below the old mine workings and there is excellent potential to extend the mineralization to depth and to discover new veins elsewhere on the property.  The Argosy Mine is approximately 10 kilometers northwest of the Springpole Deposit being advanced by First Mining Gold Corp. and less than a kilometer from our North Birch Project.  We look forward to commencing the first exploration on the property since 2004.”

The Argosy Gold Mine is the most significant past-producer in the Birch-Uchi Greenstone Belt. Between 1931 and its closure in 1952, the mine produced close to 101,875 ounces of gold and minor amounts of silver from 276,573 tons of ore, yielding an average grade of .37 ounces per ton (12.7 g/t) Au. However, during that time, the mine was only developed to a depth of 900 feet (270 metres), and it is well-known that the high-grade gold mineralization extends below past workings.

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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