May 19, 2020
Kenny Fowler
2020 has been a year unlike any in our lifetimes. It is hard to predict what will happen next week, much less many months from now. But with the coronavirus pandemic’s effects on global markets and central banks around the world, many believy know which way gold and gold stocks will go in 2020.
Where will Gold Go?
Whenever there is uncertainty in global markets, gold is always seen as a lighthouse in the midst of a raging storm. As central banks deliberate about how much to devalue their currencies to get things flowing again, gold still fulfills its age-old role as a store of value. This ability of gold to hold value while fiat currencies fall in value due to increasing supply is the result of the massive amount of effort that is required to procure gold. In order to obtain a new supply of gold, large and expensive equipment must be mobilized and large numbers of works must be involved. This natural limit in supply is in stark contrast to governments around the world, who create new money with the stroke of a pen.
As 2020 rages on and the governments of the world continue to react to the coronavirus pandemic, the fiat money supply will increase even more and the value of gold, with its limited supply—limited even further by the restrictions and immediate safety concerns of the virus—will stand its ground against inflation. Bank of America believes that the environment is so inflationary that the price of gold will reach $3,000 per ounce by October 2021.
Best Way to Benefit from Bullish Gold
A bullish outlook for gold might make you think the best way of profiting from a rise in gold to buy physical gold. However, there are several reasons why investing in gold mining stocks are actually a much better way to invest in the rise of gold.
Physical gold has many disadvantages as an investment. As commodities go, it is quite heavy. It can be quite expensive and cumbersome to store and transport, especially to do it safely and securely. Holding large quantities of physical gold without proper security is akin to stuffing large denominations of currency in the mattress. Having such large-value assets on hand can make you an easy target for theft.
Digital gold is an alternative to the hassles of dealing with physical gold, but many of these instruments lack transparency. For that reason, you aren’t even sure what amount of gold you are really buying. Without the ability to redeem digital gold for physical gold, and without the intense regulation that stock markets demand, it is virtually impossible to know what you are buying when it comes to digital gold. You can make a leap of faith as to its value, and trust that other investors will believe in that same value—but as far as real value, you have no idea.
With the heightened interest in gold, the gold extracted by gold mining companies will be at a premium, which should yield excellent profits. The rising value of gold and the potential for profit from producing it will cause lots of investment in gold mining stocks, even if other sectors do not see such frenetic activity. In contrast to physical gold, mining stocks may also pay a dividend to its shareholders. Publicly-traded gold mining stocks will be much more transparent in terms of financial statements and demand for their output. In contrast, tracking the sales of physical gold as a commodity can be quite challenging.
MicroCap Gold Exploration Stocks Stand to Benefit the Most
Among gold stocks, microcap gold stocks are in a position to potentially benefit the most. This is because smaller cap gold mining ventures are more flexible and nimbler. As conditions change rapidly during these health and economic crises, smaller companies will be able to adapt more easily to changing conditions, whether they be economic conditions across the entire globe or industrial conditions related to a local labor stoppage or a virus outbreak at a mining operation. For examples, despite the fact that Marathon Gold Corporation (OTC:MGPDF, TSX:MOZ) extended the spring closure at the Valentine Gold Project in central Newfoundland due to concerns about coronavirus, the company’s stock has recovered from the lows reached during that timeframe and now sits at 1.76 CAD, a high not seen since 2011.
Many microcap gold stocks, particularly exploration companies advancing gold projects in favorable mining jurisdictions, have caught the attention of investors and are rallying to 52 week highs. Not an easy feat given today’s uncertain markets.
Microcap gold stocks are often much cheaper than their mid- and large-cap competitors. That means that when the price of gold is on the way up, these companies can easily double or quadruple in price.
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Conclusion
In these uncertain times, as in all uncertain times, gold will serve as a stable landmark by which the decreasing value of fiat currencies can be clearly put in perspective. The best way to profit from the coming increase in gold is not buying physical gold or even digital gold, but stocks of companies that mine the metal itself. Microcap stocks that explore potential gold deposits stand to gain the most. The low overhead of these companies means that they are purer gold plays than larger companies and their low prices mean that they can easily gain multiples in price much easier than their larger competitors—giving you the potential to double or triple your money and more.
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