It has been a tough market for junior explorers to raise capital for some time, but with Donald Trump having taken out the US presidential election, gold juniors now have to fight bitcoin for investor attention.
After Trump claimed victory, the intense gold rally started to unwind and bitcoin went through the roof.
In early November, the cryptocurrency beat its previous record high to reach nearly $US74,000 ($113,118) and has continued its northern trajectory to currently sit at over US$92,286 ($141,246).
Since just before the 5 November election through to its current price, bitcoin has surged roughly 37%.
Geopolitical issues are a key driver of the gold price, reinforcing its status as a safehaven metal, and Brookville Capital CEO Simon Popple says Trump is viewed as less aggressive when it comes to global conflicts than outgoing President Joe Biden has been.
“I think that Trump is viewed as more likely to agree a peace deal with Russia and Ukraine than probably Biden,” he tells Mining.com.au.
“I understand that Biden recently sanctioned longer-range missiles, which is likely to cause some consternation.”
Both junior exploration companies and cryptocurrencies are speculative investments, meaning they are riskier and based more on conjecture than knowledge.
“Gold, not so much the big producers, but the exploration companies are more, let’s say, speculative investments and I think that speculative investors have had their heads turned by crypto,” Popple notes.
“The junior market is probably competing for capital with the crypto space, so it doesn’t have it all to itself.”
Over a period of about 10 days following Trump’s landslide win, gold dropped just shy of 7% from about US$2,755 an ounce to around US$2,565 an ounce.
However, the precious metal seems to be reversing the downward trend and is back up around US$2,647 an ounce.
Saxo Bank head of commodity strategy Ole Hansen says gold and silver continue to recover, supported by a fading US dollar rally and now by worsening US-Russia relations.
He says this culminated when the Kremlin stated any aggression against Russia by a non-nuclear state with participation of a nuclear state will be considered a joint attack.
“Shortly after, one newswire reported that Ukraine had made its first ATACMS (Army Tactical Missile System) strike inside Russia, resulting in fresh demand for safe havens such as precious metals, as well as the yen, Swiss francs, and short-duration government bonds,” Hansen says.
“Overall, we see no reason to alter our bullish stance on investment metals.
“While the recent US$253 correction in gold was the worst in more than a year, it has to be seen in the context of the strong rally leading up to it.
“With that in mind, we view the correction as a healthy response to weeks of election-focused buying, which in some cases had led to softening demand from physical buyers balking at the prospect of adding further fuel to the rally.”
While rising gold prices drive producers’ values higher, this does not necessarily flow down to the smaller end of the market.
On the mergers and acquisitions front, gold juniors are also in a tough spot because while low valuations mean greater interest from the majors, they need to have some ounces in the ground to find themselves on the radar, according to Popple.
He says for a junior gold explorer to be appealing to a producer, they need to have a sizeable JORC resource.
“They need to be able to say that there is 2 million ounces here, and this is a good deposit, and this is why we’re paying a chunk of money for this. They can’t really take a speculative punt if they don’t know what’s there,” he explains.
“You end up in a situation where you’ve got a junior company that hasn’t got the capital to explore, or it has explored and it hasn’t really found anything, and then you’ve got a more senior company that probably is interested in buying it but can’t buy it simply because there’s nothing proven in terms of the resource.
“It’s all a bit too much of a long shot.”
Meanwhile, the small cap gold hopefuls are less likely to agree to a merger or takeover when they believe value is not being realised.
“As a junior company, I think there’s quite a lot of them out there that view themselves as far too cheap and don’t want to sell out,” Popple notes.
“I think a lot of them have got fairly concentrated ownership. One or two, maybe three, main shareholders who pretty much control the share register. So they’re unlikely to want to sell out at anything like these levels.”
Write to Angela East at Mining.com.au
Images: iStock
