Strong gold demand to continue
Gold is seen as a safe-haven asset, and demand rises when there is concern of defacing currency with expansionary monetary policy. While it is also used in manufacture of jewellery, the recent surge in prices was a result of the massive stimulus packages used to prop up the economy upon being exposed to COVID-19.
In conjunction with this, interest rates have dropped to zero, and in some regions they are negative. This article by Financial Express goes into detail on this matter:
A strong demand for gold as a safe-haven asset is likely to continue at least until the global economy is back on a solid recovery path, according to markets data provider Refinitiv.
“Central banks around the globe have come out with unprecedented stimulus to counter the economic slowdown caused by the COVID-19 pandemic. Interest rates have been kept either at historical low levels or in negative territory to create demand in the financial system and to stimulate growth,” Refinitiv Senior Metals Analyst Debajit Saha said on Tuesday.
He added that a strong demand for gold as a safe-haven asset is expected to continue at least until we see that the global economy is back on a solid recovery path.
This thesis appears to be gaining traction, as the Oracle of Omaha, who used to refer to it as a useless metal, but who’s investment firm infused $565M to acquire a stake in Barrick Gold, the world’s second largest gold miner.
Further to this, the average grade of gold deposits has been declining over time.
With this in mind, the best approach is to identify a gold mining stock with the potential for high grade gold. Given the decline in average grades across the board, the rise in demand due to expansionary monetary policy, it stands to reason that finding a deposit with higher grades, in a proven jurisdiction, and with a very attractive geological base, would be the right approach to investing in junior mining.
We recently covered one such stock. Tocvan Ventures (CSE:TOC) has an option to acquire 100% of the Pilar property, and the geological makeup of the deposit is one that has proven in the past to host bonanza-grade deposits. Bonanza-grade refers to a grade greater than 1 ounce per ton of gold. This is well well above average, with open pits hosting somewhere in the region of 1 gram per ton, and underground mines hosting slightly more.
Here is a stock worth north of $1.50, and currently trades at $0.41. You can read the full report below: