Exploration work and financings are back on the table, and foreign investors are taking notice.
EXCEPT FOR THE ODD moment here and there, the Midas Touch has been missing in action from the gold market for the past five years. But guess what? After watching prices slide sideways or slip downward along with most other mining stocks during the long dry spell — when raising money for gold companies is described by Frank Mariage of Fasken Martineau DuMoulin LLP as “an extreme sport” — investor appetite for gold is quietly rebounding.
There are a few different reasons for the renewed demand, but one that keeps coming up is the US dollar. Seen as the global reserve currency and a safe haven since World War II, that view has slowly been eroding. In recent months, geopolitical tensions have ratcheted up while US consumer spending has come in below expectations — suggesting the American economy is not as strong as the market had been pricing in.
Gold and the US dollar move in opposite directions. So any pressure on the US dollar makes gold more expensive for Americans but cheaper for foreign investors to buy — an attractive combination for investors looking to hedge their US-denominated investments.
Sander Grieve, a partner at Bennett Jones LLP in Toronto, says day-to-day fluctuations in the price of gold have been considerable, “and it almost seems right now to be more a barometer of the US administration than anything else.” In other words, the Trump effect. “Anyone who lacks confidence in the US dollar, even if they believe inflation’s coming at some point, and wants to hold something that’s not exposed to dollars, will say, ‘I need some exposure to gold.’ So gold’s certainly alive as a hedge on the US currency,” Grieve says.
The climb in the price of gold has started to translate into a “more normal market” from a law firm perspective, he says — one in which there are financings, M&A activity. There have even been a couple of initial public offerings again and while they haven’t been monster IPOs — Superior Gold Inc. raised $28.5 million, for example — Grieve says, “We perceive it more as business getting back to normal.”
That, he says, has been reflected in improved analyst ratings for many gold companies. He points to Detour Gold Corp., an intermediate producer with a mine in Ontario, as one example among dozens. Detour was trading around $14 in the second quarter of the year, up from a low of $2.88 just seven months earlier. “There are lots of them you can look at that were probably 90 cents and are now $3,” he says, indicating there has been not just an investor shift back into the space, but “an extraordinary reset.”
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