Precious metals miners have usually found themselves in the investor spotlight during times of market turmoil. As investors seek out more risk-averse investments, precious metals miners have benefited from increased interest and investment. While gold stocks sometimes follow equities lower at first, they find shelter in the risk-averse trade that follows any bearish pressure. Right now, gold stocks are undervalued and poised to follow a trend higher.
Companies like Canadian junior mining company Trillium Gold (TSXV:TGM) (OTCQX:TGLDF) have seen selling pressure since the start of the year, even while they have continued to make leaps in progress on their projects. Trillium recently announced that it has commenced its 2022 regional exploration program at its 72-kilometre-long Confederation Belt Property in Red Lake, Ontario. Multiple properties were consolidated to form one 54,362-hectare contiguous land package spanning 72 kilometres east to west. The news kicks off a massive exploration program at what is now the most significant exploration project in the Red Lake District.
The drop in stock price is clearly not reflective of the company’s progress and exceptional blue sky potential at the Confederation Belt property and in other areas of its property portfolio.
Part of the reason gold stocks often sell off during times of turmoil is that investors have still not figured out where the risk lies. Instead of determining the riskiest companies and selling those, investors often just sell everything and move to cash. However, with a little research, it is not difficult to find the companies that are still making progress and have the potential for sizable returns. These are the companies that offer investors the best chance at weathering any market storm.
Fawad Razaqzada, a market analyst and economist at City Index, has pointed out in a recent note: “It is not uncommon for gold stocks to fall alongside other equities when the markets are in turmoil. However, times like now is when gold ‘should’ be performing well, as investors seek safety from riskier assets and hedge against soaring inflation. Gold therefore should find some haven demand, which, in turn, should boost the appeal of precious metals miners.”
Other assets that typically gain inflows are Gold ETFs which are designed to track the price of gold. The SPDR Gold Trust is one of the largest and most popular gold ETFs. This fund is one of the largest holders of physical gold in the world.
However, the risk-hedging gold ETFs and large-cap mining stocks that might be more familiar to retail investors do not offer the upside potential of small-cap mining companies. These companies are defined by the potential of their projects and are usually earlier in their development. They offer investors a chance to get in on the ground floor of what could be the next big thing in gold mining.
For example, Trillium Gold’s recently launched regional exploration program gives investors a chance to get in on the action as the company searches for the next major gold deposit. With a large land package and experienced management, Trillium is well-positioned to make significant discoveries.
According to Razakzada, “Right about now is when gold ‘should’ be doing what people expect from it: to shine and do so brightly. Until now, the metal has been unable to find much demand from inflation hedging or flight from riskier stocks. That’s partly because investors have until now been piling into the dollar, weighing down the buck-denominated metal. The precious metal has also been held back all this time due to rising bond yields, making this non-interest-bearing commodity less appealing for yield seekers.”
As this momentum begins to shift, it will in turn lift gold mining stocks along with it, following the gold price more closely. Any short-term gains in the gold price are also likely to trickle down to those small-cap mining companies that have the most upside potential. The good news for investors is that right now is quite possibly the first time in a very long time when stocks have hit fresh lows. The value inherent in these stocks is just waiting to be unlocked.
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