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Gold going 'mainstream,' reawakening Canadian explorers amid broader optimism

Gold is "becoming mainstream" amid a record run that is only starting and has reawakened exploration, particularly in Canada where optimism will flow into global mining markets, according to industry experts at the first Virtual Gold conference.

Buoyant stock, property and bond markets show "everyone has been spoiled by central banks printing more money, thinking they're saving the system," Switzerland-based Matterhorn Asset Management founder and managing partner Egon von Greyerz told the Aug. 20 conference hosted in Sydney.

"Nobody sees the big bad wolf in disguise," von Greyerz said, referring to global debt. Von Greyerz estimated that global debt will soar from close to US$280 trillion now to US$2 quadrillion by 2025, warning that the global financial system could collapse as a result, and said the 2007-2008 global financial crisis was "just a rehearsal."

"There will be a mass stampede into gold, and there will not be enough gold at current prices to satisfy that stampede," von Greyerz said. "Remember, the price of gold reflects the debasement of currency and printing of money, so if gold is behind, there's a lot of catch-up, so this rise hasn't begun yet, when measured against printed money."

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The European Central Bank's 2019 stimulus package was just as important as U.S. President Richard Nixon announcing the abolishing of gold's backing of the U.S. dollar in 1971 as it "clearly indicated that there were real problems in the financial system," von Greyerz said.

"It is now clear the system is under real pressure and will require another round of unlimited money printing, which has started," von Greyerz said, adding that COVID-19 was only the catalyst to accelerate the process.

Silver signpost

Another positive sign for gold's ascent is the silver price, which had soared nearly 130% to US$27.44/oz as of Aug. 19 after hitting a multiyear low March 19 of US$12.01/oz. Von Greyerz believes that it will move "into the hundreds, or several hundreds."

SNL Image
Silver ingots.
Source: Thinkstock

"Silver normally leads the precious metals when they start rallying, and that is happening now. That's a very good sign, though silver will be incredibly volatile," von Greyerz said.

The gold mining boom has "only just started" and gold has "now become mainstream," said Hedley Widdup, executive director of listed investment company Lion Selection Group. Widdup noted that the S&P/ASX All Ordinaries Gold Index has far outperformed the S&P/ASX 100 Resources Index in 2020.

Gold was previously considered a domain for gold investors only but is now being talked about in mainstream media, Widdup told the conference. Widdup cited Warren Buffett's positive view on gold, which was widely reported this month when Buffett's multinational Berkshire Hathaway Inc. invested US$563.6 million in Barrick Gold Corp.

Biggest shock

Widdup said the biggest "shock" has been the money flowing into the mining sector, particularly at the smaller end with the junior companies.

Since the COVID-19 crash in February-March, investors have been "warming to ... and even seeking out explorers," Widdup said. "Rather than just rewarding discoveries, they're actually pricing in exploration potential, so the risk metric [of juniors traditionally being the hardest to finance] has flipped on its head."

There are also a number of stories outside the gold space where explorers are "getting real market attraction" before discovery, based on location and "nearology," Widdup added.

The money flowing back into exploration is particularly telling in the Toronto Stock Exchange and TSX Venture Exchange, which Widdup said is important as Canada is the world's biggest mining market for equity.

Widdup noted that while total financings on the TSX Venture Exchange improved steadily through 2019 when gold rose by US$230/oz, financings for miners rose 50% year over year from January to June 2020, during which time the gold price rose by more than US$260/oz. The price has since soared by another US$280/oz.

This has pushed money into the mining market, and "Canada is coming back to life," particularly TSX Venture Exchange-listed explorers, Widdup said.

"This enables the rest of the world's markets and money to stretch their legs, because while the Canadians were doing nothing, it was like a big anchor slowing us down," Widdup said, referring to Canada's exchanges being "distracted" by the new cannabis market, leaving Australian explorers to gain more market traction.

Widdup said that during a trip to Canada in January, bankers "were all saying cannabis was last year, the money is now chasing metals."