The gold market has been on fire throughout the first half of 2020, with prices driving above $1,800 an ounce for the first time since 2011, amid ongoing concerns that the coronavirus will derail the economy during the first half of the year. Yet, the push may not be over, as reigniting bullish sentiment has generated interest in the mining space, according to one market analyst.
In an interview with Kitco News, Mickey Fulp, founder of the Newsletter Mercenary Geologist, said gold prices are aided by an anemic U.S. dollar. However, Fulp also explained that the junior mining space is beginning to become overvalued and investors need to be careful when looking to invest in projects.
Fulp said that he is worried about private placement funds and that although the mining sector is appealing to investors, with prices above $1,800, the rate at which companies are gathering capital is unsustainable, creating a surfeit of equity once the holding periods are concluded.
“There’s no quality with a lot of these stocks, no concern about quality. Private placements are closing oversubscribed. They are closing way higher than the 30-day reserve price that you get on that, you know, and. And that’s unsustainable,” he said.
As a result, if gold prices aren’t supported here, then the market could be in trouble, Fulp said. He alluded to a price action that was similar to what occurred in 2016, as companies began to gather assets amid increasing precious metals prices, which eventually led to a fall in the second half of the year, hurting equity holders.
“All I’m saying is buyer beware right now. If you’re going into a private placement, make sure it’s a quality company,” he said. “There’s this house of cards right now and I’m not going to tell you it’s going to collapse, but I’m just telling you to be careful and rational.”
So what should savvy gold investors do?
“Find stocks that are unknown, unwanted, unloved, and undervalued. And I’ll tell you, there’s still some of those around. We’ve picked off a couple of them over the last two or three months,” he said.
ETF investors who are bullish on gold can get in on the action via the following funds:
- VanEck Vectors Gold Miners (NYSEArca: GDX): seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE® Arca Gold Miners Index®. The index is a modified market-capitalization weighted index primarily comprised of publicly traded companies involved in the mining for gold and silver.
- Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG): seeks daily investment results, before fees and expenses, of 200% of the daily performance of the MVIS Global Junior Gold Miners Index. The index includes companies from markets that are freely investable to foreign investors, including “emerging markets,” as that term is defined by the index provider.
- Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT) : seeks daily investment results, before fees and expenses, of 200% of the daily performance of the NYSE Arca Gold Miners Index. The fund invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements, and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. The index is comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in the mining for gold and, in mining for silver.
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