Gold’s continuing uptrend boosts gold mining shares, says Junior Gold’s Damaskos
Angelos Damaskos, CEO Sector Investment Managers and fund adviser for the Junior Gold fund, says that generally speaking the ongoing global macro uncertainty is good for gold mining companies.
Gold shares have rebounded from extremely oversold levels in the last few days. The gold price seems to have disconnected from the price action of other commodities, notably copper and oil, which are primarily influenced by macroeconomic prospects.
Stubbornly high unemployment levels in the US and Europe, as well as a potential slow-down in Chinese economic growth, have impacted investors’ sentiment, depressing both industrial commodities and global equity markets. Gold, nevertheless, has risen sharply in early June. This indicates that it is beginning to regain its safe-haven status, not surprising given the dramatic socio-economic situation in the eurozone. Capital flight from the beleaguered banks in Europe is increasing the likelihood that alternative stores of value, such as gold, will be sought.
The continuation of gold’s eleven-year uptrend is good news for gold mining shares. Their cashflow and profits have been expanding and producers’ balance sheets have never been stronger. Junior companies, however, need to manage their capital conservatively. Financing windows are brief and equity offerings completed at greater share dilution. Development-stage companies with weak balance sheets and large exploration programmes may find it difficult to raise the required financing. They are likely to be acquisition targets of larger producing companies, many of which are finding their cash positions growing even stronger on the back of the high gold price.