New Found Gold Corp V.NFG

Irrational Markets re. Junior Gold Explorers IMO

[AlwaysLong683]

Yes, interest rates are going up:

Tomorrow:
U.S. Fed will likely raise their benchmark interest rate range by 0.50%. I don't think they'll do a 0.75% raise, though that's what the market seems to be pricing in, so if it's "only" 0.50%, I suspect markets will rally tomorrow after the Fed makes their announcment, which I think is scheduled for around 2pm.

July 13:
BOC is scheduled to make an interest rate announcement. I think they'll boost their interest rate by 0.50% as well, though I'm less certain because the announcement is still one month away. However, I think the market is currently fearful of a 0.75% increase on July 13.

Now, when interest rates rise, some investors may find fixed income securites increasing more attractive than gold stocks given they can get higher yields on them with less risk vs. gold stocks, most of whick pay no dividends, and in most cases, those that do pay dividends (e.g. mid-to-large gold producers) equate to low yields.

That having been said, rising interest rates should affect those gold companies that carry a lot of debt the most.

Second, it should affect other gold producers since they also carry some debt.

It should affect junior gold explorers the least, provided they have not to date announced plans to build a mine, or are in the midst of financing, or have actuallly started the build, as they will likely take on some debt in order to proceed. Junior gold exploration-stage-only companies like NFG have very little debt, so being punished alongside other gold companies in a rising interest rate environment doesn't make sense in my view.

Now, inflation usually does genuinely hurt junior explorers if it results in significant price increases in the ongoing expenses they incurr as they conduct their exploration work, but the focus of the recent price hits to markets seems to be on rising interest rates, not inflation.

The next inflation announcements scheduled for:

Canada:  June 22   (May 2022 number)     (8 days from now)

USA:       July 13    (June 2022 number)    (30 days from now)

The Canadian number should be the one of concern for Canadian-based Junior Explorers like NFG, but again, I think NFG will likely continue to follow the gold stocks in general as all gold companies seemed to be lumped together as far as the investment community as a whole is concerned. However, a grand-slam assay result (particularly in a new zone) that exceeds market expectations can boost NFG's share price in the face of rising inflation or interest rate news.

[1condor]

AlwaysLong63...I am in a different camp on how the general market reacts to the FED on Wednesday. The market is looking for 0.75....anything less will cause the market to continue its "fall". The market is giving the FED all systems go as far as rising interest rates...in other words its time to tame the inflation dragon and everyone knows the FED is way behind the curve..so some big

[paydirtontario]

Come on Eric  we know you read the boards  isn't it time to rile the troops ? lots of us with skin in the game that would like to hear your take 

[AlwaysLong683]

1condor, good counter argument. You'll probably be right if the market fears inflation more than they do higher interest rates. My view is the reason markets have taken a sizeable hit recently is they fear the cost of borrowing will rise more than expected. There is a lot of debt out there, both for companies and clients / consumers, and higher rates mean higher interest payments on

[GGGsOldFriend]

I think exactly the opposite. Anything lower than .75 will spark a rally, accriss all assets.