May 14, 2020 (Financial News Media via COMTEX) -- FN Media Group Presents Oilprice.com Market Commentary
London - May 14, 2020 – The pandemic lockdown is killing the global economy, and while stocks are rebounding on the slim hope that everything will eventually go back to normal, Wall Street knows a fear bargain when it sees one, and this could be gold's time to shine, while some other commodities get crushed. Mentioned in today's commentary includes: Yamana Gold Inc. /zigman2/quotes/201751186/composite AUY -5.87% , Eldorado Gold Corporation /zigman2/quotes/208573595/composite EGO -9.50% , First Majestic Silver Corp. /zigman2/quotes/202373250/composite AG -4.96% , Wheaton Precious Metals Corp. /zigman2/quotes/209818190/composite WPM -5.35% , Rio Tinto Group /zigman2/quotes/202627887/composite RIO -3.03% .
Gold is trading at over $1,688 an ounce right now. And it's going to hit $3,000 an ounce in about 18 months, according to the Bank of America. So, imagine buying it in the ground for $3-$4 an ounce instead. When Wall Street goes bargain hunting, it's looking for discount gold.
One way it does so is by targeting junior miners with in the ground gold assets, setting short-term price targets that make these global gold assets a cheap base price for investors who are fleeing the next potential economic meltdown.
Among the well-known Wall Street bargain shoppers are Cantor Fitzgerald and GMP Research, two authorities on the street that closely follow the world's breakthrough gold developments.
In the past, both have spotted an obvious gold target: Euro Sun Mining (ESM, CPMFF) – owner of the biggest in-development gold mine development project in Europe. Cantor Fitzgerald's short-term price target of $2.10. GMP Research has given it a $3.00 price target.
That's because when this gold gets out of the ground in a world that has undergone an epic change due to a global pandemic that no one predicted, gold won't only be one of the most valuable safe haven assets in the world–it may be the only thing still holding on.
The Fear Opportunity
Fear has overtaken greed, and investors are running for safe havens. A year ago, greed ruled the day. Now, the market's running on fumes and an economic meltdown is already being written in the history books. We've gone from a trade war that knew no bounds and a geopolitical disruption pitting the U.S. and its allies against Iran to a global pandemic far worse than anything a single political leader could have concocted.
The IMF says the "world economy will experience the worst recession since the Great Depression," with global economic growth this year projected to fall to negative 3%.
America’s economy contracted in Q1 and the pain is expected to be even worse in Q2. The damage already done by COVID-19 is just starting to catch up.
The labor market is dying a painful death. COVID-19 has stripped the American labor market of 30 million jobs. A new report Wednesday morning showed US private sector companies alone cut a record 20.2 million jobs in April.
In a matter of weeks, Bank of America has changed its 18-month $2,000 price target for gold to a whopping $3,000. That's more than 50% above the existing price record.
Why? Because there's too much paper money floating through the system and the Fed just keeps printing tons of fiscal and monetary stimulus to beat back COVID-19–but "the Fed can't print gold".
How Do You Buy Gold At A Discount?
Gold is and always has been the ultimate safe haven. After decades of experimentation with gold alternatives, gold's hegemony as the go-to store of value remains unchallenged.
Central governments the world over knew gold would soar even before the pandemic. Right before COVID-19 hit, central banks were stockpiling the yellow metal at the fastest rate in six years.
That stockpiling alone prompted billionaire investor Paul Tudor to tell Bloomberg that gold has everything going for it right now and could zoom to $1,700 per ounce in a matter of months.
He was right, and he didn't even have the foresight to predict the global pandemic, which now has predictions of gold reaching for $3,000 sooner rather than later. But the real money isn't in buying the bullion itself...
It's in getting exposure to gold at a discount. A technique for buying ounces of gold in the ground at cents to the dollar.
Gold mining is a tough business and getting progressively harder with the easy-hanging fruit in open pit mines now mostly gone. For every ounce a Barrick pulls out of the ground – they typically have 11-12 ounces in undeveloped projects. A large operator might have 60-80 million ounces of gold in proven reserves.
Instead of paying $1,688 (or even $3,000) per ounce from a gold broker, investors can pay $100... $50, $25...even $4 per ounce for resources that haven't yet been mined. When gold likely skyrockets - they'll benefit from extraordinary leverage.
Take Euro Sun Mining (ESM, CPMFF) for example, a company with over $17 billion gross worth of measured and indicated gold equivalent on its books. This company's current market cap is $40 million - valuing each indicated ounce of gold at just $4.
During the last gold boom, investors had plenty of success with this strategy as small miners enjoyed outstanding returns - Back in 2016, when gold prices soared 26% in 6 months, Mid cap miners such as Endeavour Mining Corp and its Ontario based competitor IAMGold gained significantly.
...but some of the real winners were the shareholders of small cap miners.
Great Panther Mining saw its share price jump in no more than 4 months after it reported a 19% increase in gold production.
Admittedly, a strong dollar can annihilate junior mining stocks. That's what's happened over the past five years, and now some of these little explorers are trading at a tiny fraction of their gross value estimates based on their existing gold reserves.
Based at the company's mine development project in Rovina, Romania, Euro Sun Mining has 400 million tons of ore, with billions of dollars in gold equivalent and copper locked inside the rock.
Gold had lots going for it before COVID-19. Now, it's an upward trend that is being solidified, and if the pre-pandemic environment was rife with the geopolitical strife that gold loves, the present and post-pandemic atmosphere will be even more amenable to the precious metal.