Central banks around the world are currently printing more money than ever before in connection with the Corona Pandemic to keep the rest of the economy afloat and maintain social peace. The short-time work allowance is equivalent to an unconditional basic income, and given the alternatives, that is a good thing at the moment. The danger, however, is that an addiction to cheap money will arise and the bubble in the shares of Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: APPL), Netflix (NASDAQ: NFLX), Google/Alphabet (NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT) will continue to escalate. The value of these six US companies is now almost equal to the combined market value of the following indices: DAX, France CAC, FTSE 100, Italy MIB, S&P TSX and Spain IBEX. But the winner of this development is also the oldest currency in the world: gold!
Rescue measures with side effects
Diego Parrila manages a USD 450 million investment fund and has indicated that the price of an ounce of gold could rise to USD 5,000.00 in the next three to five years. "What you’re going to see in the next decade is this desperate effort, which is already very obvious, where banks and government just print money and borrow, and bail everyone out, whatever it takes, just to prevent the entire system from collapsing," Parrilla said in an interview with Bloomberg. If you want to escape the bubble of fiat currencies and seek protection from inflation, there is no way around gold.
Experts predict rise
Gold production is running at full speed, as at a price of USD 1,800.00 the profit margins for producers are currently high. If one believes the forecasts of Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC), the price will have potential up to USD 2,000.00 or even USD 3,000.00 in the next 12 months. The reality, however, is that no one can say for sure at the moment how long the measures taken by politicians and central banks will be needed and when the day of reckoning will come. Until then, money will be busy printed and distributed.
Exploration in the key position
If you as an investor want to profit from the rise in the price of gold, you should look at the exploration industry, this is where gold is found. Without exploration, global reserves will continue to shrink. In the period from 2012 to 2019 the gold reserves of the largest producers have already decreased by 34%.
Considering that the production peak of the precious metal is expected to be reached in 2020, the focus from now on should be on exploration. Barrick Gold expects global gold production to decline from around 118 million ounces in 2020 to less than 65 million ounces in 2029. The shortage on the supply side is likely to meet panicky demand as inflation rises.
Investors position themselves
The winners of this development will be companies such as Desert Gold Ventures (TSXV: DAU), Scottie Resources (TSXV: SCOT) and Triumph Gold (TSXV: TIG). These companies are active in exploration and focus on expanding their existing discoveries and exploring for new deposits. Companies of this type pursue the goal of being acquired by a major producer.
They usually pay a price per proven ounce in the ground. Depending on the region and market phase, the price can vary between USD 100.00 and 200.00 as a rule of thumb. In 2018, on average more than USD 200.00 was paid in Africa. Due to the rising price of gold, it can be assumed that the trend will be rising rather than falling.
Multiplication potential of the industry
Desert Gold Ventures is active in West Africa and plans to discover up to six million ounces of gold there. Ross Beaty is on board as investor and the company's properties cover more than 400 km2 and are located in the neighborhood of well-known producers such as B2Gold, Barrick Gold and Iamgold. Scottie Resources operates in British Columbia's Golden Triangle and has Eric Sprott among its investors. Triumph Gold is active in the Yukon and already has a producing anchor investor in Newmont (TSX: NGT).
The market capitalisation of Desert Gold is currently CAD 24.4 million, Scottie Resources CAD 40.9 million and Triumph Gold CAD 32.6 million. The potential of these companies is enormous and in view of their current stock market valuation, there is a realistic chance of a multiplication of the share price if they continue to develop successfully.
CONFLICT OF INTEREST & RISK NOTE
We would like to point out that Apaton Finance GmbH, the owner of news.financial, as well as partners, authors or employees of Apaton Finance GmbH may hold long or short positions in the aforementioned companies and that there may therefore be a conflict of interest. Further details can be found in our ´Conflict of Interest & Risk Disclosure´.