June 24th, 2020 | 12:10 CEST
Barrick, Franco-Nevada, Yamana - Gold price at record high and now the second row is getting interesting
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"[...] Both the geology and the infrastructure around the project make for a very attractive cost structure. We expect to be able to produce at 50% of the current gold price. [...]" Bill Guy, Chairman, Theta Gold Mines Limited
Born and raised in Hannover, Lower Saxony follows social and economic developments around the globe. As a passionate entrepreneur and columnist he explains and compares the most diverse business models as well as markets for interested stock traders.
Golden times have begun
When Barrick Gold, Franco-Nevada or Yamana Gold have gold produced and sold by their projects or their related companies, they are currently generating more profit than in the past eight years. The demand for gold has been rising for months and is gaining further momentum with the actions taken to combat the effects of the Corona Pandemic. By increasing the money supply, citizens rightly fear that their money will be worth less as a result of inflation. This assumption is well-founded and is supported by the US banks. Goldman Sachs recently raised its target price for gold from USD 1,800.00 to USD 2,000.00 per troy ounce for the next 12 months. The Bank of America even believes that a gold price of up to USD 3,000.00 in 2021 is possible.
Gold supply will decline
On the occasion of the rising gold price it is therefore obvious that producers will try to increase their quantities in order to maximise profits now and today. On the other hand, the reserves of the largest producers have been steadily decreasing since 2012, with a decline of around 34%. It is expected that a historic peak production of around 118 million ounces will be reached in 2020, which from today's perspective will then, due to a lack of permits and reserves, drop by around 45% to around 62 million ounces per year by 2029. Two things become clear from this: 1. supply is diametrically opposed to demand, which should give the price increase a further boost and 2. sooner or later producers with a lot of money in their coffers will start to take over the smaller market participants in order to rebuild the reserves.
Diversification with takeover candidates
In addition to the well-known names from the gold sector, shares of smaller companies are an ideal addition to the portfolio, as they are predestined as takeover candidates and already have well-known investors on board. At SolGold (solgold.com.au), with a focus on gold and copper, BHP is already the largest investor with a foot in the door. At Triumph Gold (triumphgoldcorp.com), the giant Newmont already holds 18% and is thus the largest single shareholder. Billionaire Eric Sprott joined gold explorer Scottie Resources (scottieresources.com) at the beginning of the year and has since held a stake of around 10%. The Canadian raw materials expert Ross Beaty is involved in Desert Gold Ventures (desertgold.ca) and Osino Resources (osinoresources.com).
In these smaller companies, investors have the advantage that when the price of gold rises, not only does the probability of a takeover increase, but the price per ounce in the ground also rises. With luck, the investors can multiply their investment.
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