Recently, billionaire resources investor Rick Rule described how the gold cycle in a market upturn works — showing that we are moving into the final phase of the present “lifting all boats” phenomenon.
“In the gold space, the physical metal price will move first, then large cap miners, then mid-tier producers, then junior producers, and lastly the exploration sector,” he told an online round table discussion last month.
Mr Rule is chief executive officer of Toronto-based Sprott US Holdings, the high-profile resources investing house. He has been described as “the most successful broker of natural resource investments ever”.
Small Caps recently noted the wave of capital raisings as junior gold explorers replenished their bank accounts.
More placements and share purchase plans have followed, but we can also see two other developments in the junior sector that confirm that the gold fever has reached the exploration sector: juniors reporting good exploration news, and juniors expanding their land holdings.
Are we facing a physical gold famine?
It is hard at present to get your hands on physical gold (or silver for that matter).
Go to the Perth Mint website and try and buy a 1 ounce gold bar and you are told “out of stock”; for other bar sizes it’s either “out of stock” or “product not available”. Likewise, when you try buy a particular silver bar.
Try and telephone and you get a recorded message warning of unusually long wait times and advice that in a time of “unprecedented demand” some products are “temporarily unavailable”.
So, it is clear that there has been a rush on physical metal.
We seem to be relearning the lessons of the Great Depression.
In 1931, in a speech to the Wall Street crowd, Benjamin M Anderson Jr, the economist at Chase Manhattan Bank made this point: “Gold is merely the most liquid asset”. (It seems to be proving that once again.)
Newspaper headlines in the 1930s talked of fears of a gold “famine”. True, with the gold standard still in place at the beginning of the Great Depression and gold part of the money system, that was always a concern.
Partly due to the thought of gold shortages and partly because so many people found themselves unemployed, gold prospecting soared in North America. Ontario was crawling with diggers, the Christian Science Monitor reported that the “famine in gold” has caused prospectors to fan out across the US “from the Dakotas to the deserts”.
Even the South Australian government in 1933 provided an aircraft to fly prospectors to Tarcoola to begin picking over the old mine sites around there.
Who is going to sell their gold in present climate?
It is highly unlikely that central banks will sell anything substantial; of late they have been net buyers by a large margin.
High net worth investors who have been gold hoarders will similarly want to keep their bullion in their own safe places.
Private Chinese investors may have stopped buying due to the COVID-19 crisis but there is no indication they want to cash in on existing holdings.
For the average Australian investor wanting to get a seat at the gold table, the choices are limited: persevere with waiting on the Perth Mint, buy into an established listed producer, or begin combing through the lists of junior gold stocks looking for some promising one that is still below the radar.
Lifeblood flowing into junior stocks
This time last year this writer did a random sampling of junior gold exploration stocks.
It was not all that reassuring: there were still plenty in the penny dreadful category. It was difficult to be reassured by companies with such low market capitalisations; one company was worth just $1.13 million.
In fact, if you asked yourself if there was still anything in the world you could buy for 1c, one of the few answers would be a share in an Australian junior gold explorer.
Now, however, there is daily action on the junior gold scene.
This week we have seen a good deal of that action.
Juniors race to get hands on prospective ground
Companies are acquiring, a sure sign of confidence.
First Au (ASX: FAU) has applied for a new tenement to enlarge its project area near Kalgoorlie; Red 5 (ASX: RED) has exercised an option over two gold deposits 10km from its Darlot gold mine in what it describes as a “bolt-on” acquisition; and Volt Resources (ASX: VRC) is to take up an 85% interest in a project in Zambia as it builds a new gold business while progressing its graphite project in Tanzania.
And former hot rock geothermal play Petratherm (ASX: PTR) has picked up a large ground position in the West Ballarat goldfield that, in spite of being located near former mines, has been subject to only superficial exploration and no drilling through basement.
Treading through more well worked-over ground is Silver Mines (ASX: SVL) which has expanded its Tuena gold project south of Orange NSW from 174sq km to 747sq km. The ground is littered with old gold mines worked between the 1850s to the early 1900s.
Exploration successes are being announced with varying levels of enthusiasm.
At the top of the enthusiasm ratings is DiscovEx Resources (ASX: DCX) — motto: “Putting the Explore back into Exploration” — which reported it has a major new gold discovery in the Laverton district of Western Australia and visible gold in drill holes.
“The feeling of seeing gold in the pan is like nothing else, it’s fantastic,” said managing director Bradley Drabsch in the company’s ASX announcement.