Gold price drives gold stock valuations Unless you have personal reasons to close out or reduce a TUO position, is there any rush here to tidy up the Goldstorm infills and set out next year’s TUD drilling plans? The continuing erosion of the share price is a gift to committed longs looking to increase exposure, especially those who were smart enough to take some profits at the Summer highs.
According to Kitco, not always the best sentiment indicator, but they do aggregate stories and data related to gold, there has been a significant gold ETF outflow since Covid vaccine news arrived, as if the structural push on gold prices no longer holds true.
“Risk-on sentiment has been encouraging the ETF outflows, noted BMO Capital Markets commodities analyst Colin Hamilton.
"Gold ETF holdings continue to fall as potential vaccines drive risk-on sentiment … With this, net outflows over the past week have been over one million ounces," Hamilton said on Thursday.
The selloff in ETFs got started last week on the positive COVID-19 vaccine news, with investors beginning to price in a return to normalcy next year.
"There have been several similar reports in the meantime, including again yesterday. It appears that some market participants assume that governments and central banks will already return to more prudent fiscal and monetary policy next year, which is why they are selling gold. In our opinion, this expectation is likely to prove wrong," Fritsch noted.
Because of this type of thinking, gold is likely to remain under pressure in the short-term, Fritsch added.
However, potential dollar weakness could offer support to the precious metal in the near term, Hamilton pointed out. "We expect gold to maintain in the $1,800-1,900/oz range through year-end unless we see some aggressive profit-taking following the gains seen earlier this year," he said.
TD Securities also reminded investors on Thursday that the vaccine news is actually good for gold in the long-term due to rising inflation expectations next year.
"It is worth recalling that the driver of investment flows into precious metals has ultimately been sourced from a powerful impulse lower in real rates. In this lens, the vaccine will ultimately be a boon for gold bugs, helping strengthen inflation expectations without immediate implications for central bank policy," TD Securities strategists said.
Gold will remain an attractive investment despite the recent ETF selling, the strategists added.
"Capital [will continue to] seek shelter from increasingly negative real rates. Therefore, while gold bugs are anxiously hoping prices hold north of the $1,850/oz trendline, a break below could catalyze another positioning squeeze which would asymmetrically tilt the balance of risks to the upside," they noted.”
Negative real rates. Weakening USD policies. Long-term inflationary bias due to bloated government balance sheets and needs for aditional central bank and government spending stimulus. Leverage provided by gold.
IF there are 5 million ounces in the 300m theoretical open pit horizon at Goldstorm (I’d say a highly conservative estimate). 20% is 1 million ounces to TUO. Gross value at $1800/Oz ... $1.8 billion USD or $2.35 CDN. Or around $45/share. One part of TC. No value for the NSR, and the additional targets, and the portfolio.
We’re down to 5% of metal in ground at Goldstorm alone now. Buy or sell?
cg