Gold Digger: This is why a strengthening silver price could be bad for gold
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Where’s the gold price going in 2021? No one knows, but there’s a swarm of guesses to choose from.
There was the forecast that gold prices would surge in January (which hasn’t happened, yet).
Metals Focus reckons the yellow metal will hit all-time highs of $US2,300/oz later this year.
US-based natural resource investors Goehring & Rozencwajg is more circumspect. It predicts we are due a small ‘price correction’ in precious metals, a small blip in a larger bull market.
A correction is often referred to as a relatively short term fall of more than 10 per cent (but less than 20 per cent), from a most recent peak.
But why? Goehring & Rozencwajg say a strange thing happens when silver surges relative to the gold price: they both fall right after.
This is a pattern that has played out multiple times over the last half-century.
In gold bull markets over the last 50 years, silver has shown a strong tendency to lag the advancing gold price for many years before catching up suddenly in a “spasm of speculative activity”, Goehring & Rozencwajg say.
Like right now.
After bottoming at $12 per ounce in March, silver has staged an impressive catch-up rally over the last six months, up ~33 per cent to gold’s ~3 per cent.
“We are extremely bullish on gold and do not believe we are repeating the 1979 and 2010 experience [when precious metals prices spent a decade in purgatory],” Goehring & Rozencwajg say.
“However, given silver’s huge move in the last six months, gold and precious metals could now go through a potential correction phase within a larger bull market.”
Which is the good news. A student of history knows that real gold bull markets are of substantial duration, legendary gold investor Rick Rule told Stockhead late last year.
They typically last upwards of eight years, and by his reckoning we’re into this one for around 20 months.
Goehring & Rozencwajg say investors should play the long game.
“We recommend investors use any such corrective phase to build up significant positions in both physical gold and silver and related equities.”
Here’s how ASX-listed gold stocks performed January 11 – January 15 [intraday].
Scroll or swipe to reveal table. Click headings to sort. Best viewed on a laptop:
Frontier Resources (ASX:FNT) surged after picking up a rock containing up to 101g/t of gold at the Kimono prospect in PNG.
Trench sampling is planned for late January to dial in on some drill targets.
Hawkstone Mining (ASX:HWK) is a gold focussed explorer right now, but its recent spike can be attributed to positive battery metals sentiment.
Its Big Sandy project in the US, currently on the backburner, hosts a big 320,800 tonne lithium carbonate equivalent (LCE) resource.
Great Northern Minerals (ASX:GNM) hit thick, high grade gold at the Camel Creek project in Queensland.
Highlights include 5m grading 12.2 grams per tonne (g/t) gold from a depth of 59m.
“At Camel Creek we have now tested 1000m of the total 3.3km of total mineralised strike and previous mined areas,” managing director Cameron Mclean says.
“The surface has only been scratched and from what we know about this style of gold deposit is that it should continue to great vertical depth. We now need to drill the entire gold system.”
Pacific American (ASX:PAK) has locked in a previously announced farm in deal over the Porphyry North gold project in WA.
A drill rig has also been secured, with 3,600m of drilling due to kick off at the end of January, the company says.