Last year gold and silver notched their best gains in a decade, but the sudden pullback late in the year saw the market on edge and valuations in the juniors scaled back.

However, according to many market watchers, that was merely a temporary blip on the longer-term radar, with record gold and silver prices on the table for 2021.

Gold kicked the year off by hitting a two-month high on Monday, rising over $50 to hold above $US1900/oz, while silver is again advancing closer to its five-year highs of nearly $US30/oz, trading at around $27/oz.

Matt Maley, chief market strategist for investment firm Miller Tabak, told CNBC that barring some minor hurdles, 2021 could bring new records for both gold and silver.

Paul Franke, a private investor and speculator with over 30 years of trading experience, says gold and silver bullion prices should benefit further this year from the US Federal Reserve’s continued money printing and Treasury bond issuance to combat the pandemic.

“As we enter the new year, it does appear the early August to Thanksgiving sell-off in gold and silver assets has reversed back into a long-term bull trading trend,” he said.

Gavin Wendt, senior resources analyst and founding director of MineLife, also believes gold and silver have the potential this year to surpass its 2020 performance.

“While the focus at present appears to be on base metals and battery metals, there is every likelihood that gold and silver will benefit from the same economic circumstances that drove them during 2020 and could outperform,” he told Stockhead.

“The cocktail of economic certainties during 2021 that will assist gold and silver’s run are ultra-low interest rates, economic uncertainty, skyrocketing debt levels, a weaker US dollar and unprecedented levels of government stimulus, combined with the eventual likelihood of rising inflation.

“Silver will also benefit from its varied uses in industrial applications such as electronics.”
 

ASX juniors back on the shopping list

Former geologist and experienced stockbroker Guy Le Page said previously that with such a strong run up in the gold price in 2020, which led to overinflated gold stock valuations, one of two things was going to happen.

“Gold was either going up or valuations were going to come down, and we saw those values come down,” he said. “So I think it’s getting into a good buying range again.”

Franke agrees now may be a good time to increase exposure to strongly performing junior miners.

“Junior gold miners typically have greater leverage to gold and silver,” he said.

“They usually hold higher-cost inground resources, with development plans years out from today. Some are mining ore, but too much debt and excessive extraction costs don’t translate into rising stock quotes during a low or falling gold/silver price environment.

“Yet, with sharply better bullion prices like 2020 and less liquid stock floats for investors to buy, outsized gains vs. the leading mining names often take place in the middle to tail end of a multi-year bull market.”
 

Gold was primed for record price long before COVID

Wendt said that while some might correlate gold’s rise with the COVID-19 pandemic, the metal’s ascent began long before the outbreak.

“In fact, it began five years ago, when the yellow metal was trading at around $US1,050 ($1,327) per ounce, with a subsequent price up-leg that began during August 2018, when gold was trading around $US1200 per ounce.

“Relative to gold’s recent peak around $US2,050 per ounce, gold has almost doubled in price over the past five years and is up by two-thirds over the past two years alone.

“Silver meanwhile rose five-fold in the post-GFC environment, from under $US10 per ounce in 2009 to a high of close to $US50 per ounce in 2011.”

Wendt said during the post-GFC years both gold and silver surged to their highest levels on record.

“The money already thrown at the pandemic dwarfs what we saw post-GFC and the spending isn’t over yet,” he said.

“The trillions being fed into the financial system represents the perfect conditions for gold and silver to flourish.

“If we reference the GFC, we didn’t see gold’s peak until three years later – so if we witness gold prices continuing to rise for another three years, predictions of $US3,000 don’t seem that unreasonable at all.”
 

Gold, silver players on the radar

For investors wanting exposure to both gold and silver, two in particular that are on Wendt’s radar are Rimfire Pacific Mining (ASX:RIM) and White Rock Minerals (ASX:WRM).

Rimfire is focused on the historic mining district of Fifield in central NSW, with the area hosting major mines like Northparkes — a JV between China Molybdenum Co and Japan’s Sumitomo — and Newcrest Mining’s (ASX:NCM) Cadia Valley operations.

Rimfire made a greenfields discovery, known as Sorpresa, which hosts a maiden resource of 6.4 million tonnes at 0.61 grams per tonne (g/t) gold and 38g/t silver for 125,000oz of gold and 7.9 million oz of silver.

Exploration is underway to boost the resource and investigate potential early commercialisation.

“The wider Sorpresa area is now considered a significant gold mineralised district of significant promise,” Wendt said.

Meanwhile, White Rock Minerals’ portfolio features the wholly owned Mt Carrington project, which hosts shallow indicated and inferred resources totalling 352,000oz of gold and 23.2 million oz of silver.

“The mineral resources are situated in seven surface deposits, all located on granted mining leases and with developed infrastructure,” Wendt explained.

“Following a positive prefeasibility study in late 2017 (which was subsequently updated during 2020), White Rock can now progress Mt Carrington through a definitive feasibility study and permitting process prior to a decision to mine.”
 

RIM and WRM share prices



 

Higher prices boost producers’ balance sheets

Manuka Resources (ASX:MKR) also has exposure to both gold and silver. The company already produces gold from its Mt Boppy mine and is getting closer to silver production at its Wonawinta mine.

The company purchased the Wonawinta silver project in NSW’s Cobar district out of administration in late 2016, which included an 850,000-tonne-per-annum mill that has since been refurbished.

The mill has been treating gold ore from Manuka’s Mt Boppy mine 150km away since April 2020, but it will only require a quick three-to-four-week transition for the mill to start processing the silver stockpiles.

Manuka is chasing a much bigger gold resource at Mt Boppy after it uncovered more high-grade gold beneath the existing pit, increasing the potential of a resource extension and longer mine life.

The company is starting a deeper drilling program next week.

“We’re putting in another four holes into the pit and once those results come through, that will give us all the ammunition we need for a resource update,” executive chairman Dennis Karp told Stockhead.

Manuka is also kicking off a deeper drilling program at Manuka Deeps within the Wonawinta mining lease next week. That is expected to run for about four weeks, with the results to feed into a resource update at Wonawinta.

The company expects to produce 900,000oz of silver from 500,000 tonnes of stockpiled ore over nine to 12 months at Wonawinta before making a decision on whether to mine the project’s silver oxide resource.

Forecast production from the oxide resource is more than 2 million oz of silver a year over at least four years.

Karp said the high gold and silver prices provide greater certainty around Manuka’s ability to commercialise any brownfields discoveries.

He noted the gold-silver ratio – the number of ounces of silver it takes to buy one ounce of gold – had reduced from over 100 to around 70, which is a positive for the economics of a silver mine.

“So 1oz of gold equates to 70oz of silver. At these levels we’re able to put through around 2.6x the volume of silver ores through our plant than we do gold,” he explained.

“If we’ve got 100-gram material of silver, that equates to 1.4 grams per tonne gold, and then because we’re able to put through 2.6x the volume, you’re getting close to 4 grams per tonne.

“For us it’s going to be purely an economic decision at all stages. As soon as we’ve got the resource update from Mt Boppy and the resource update from Wonawinta, we will then be making a commercial decision at that point in time, bearing in mind we’ll mine the silver stockpiles first.

“It’s very easy for us to transition from gold to silver.”

Laneway Resources (ASX:LNY), meanwhile, is mining its high-grade Agate Creek gold mine in Queensland in stages and began a second campaign in October last year.

The company was focused on getting into production quickly to take advantage of high gold prices. It poured its first gold bar within 10 weeks of a mining lease being granted.

Laneway has employed a ‘capital lite’ strategy by utilising third party processing plants as a means to de-risk early cash flows and as a stepping stone to building its own plant.

The company processed an initial 18,000t of the total 43,000t being mined from the Sherwood Pit in the most recent campaign and the remaining 25,000t has been stockpiled for processing at the end of the wet season.

At Stockhead, we tell it like it is. While Laneway Resources and Manuka Resources are Stockhead advertisers, they did not sponsor this article.

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