For decades, junior mining companies have gone through hell. Although gold and senior gold stocks have recently enjoyed massive price appreciation, junior gold stocks encounter little traction, are still trading for pennies on the dollar and are struggling to raise even the smallest amount of money. Today the TSX Venture Composite Index of small capitalisation companies is breaking out after a long, 3 years base. If this is confirmed, the huge bull run gold bugs have been dreaming of might just be getting started.
February 6, 2025
Hatha Yoga
Patanjali was an author, mystic and philosopher from ancient India. He is believed to have written in Sanskrit the classic text “Yoga Sutra”. This essential book on Yoga starts by 2 simple words: “Hatha Yoga”. In Sanskrit, Hatha means “now”, or even more precisely, “up to now”.
It means that when someone starts a genuine journey in Hatha Yoga, something changes immediately.
There is a sense of discontinuity, like a change in character.
Could the junior gold mining universe be experiencing a revolution of its own?
Small cap mining stocks - a 20 year bear market!
Since its April 2007 high of 3380, the TSX Venture Exchange has been in a devastating bear market, touching a low of 324 in early March 2020.
Standing today at 641.95, this index is still down a whopping 81% from its all-time high.
Precious metals equities have never been cheaper versus gold
The XAU to gold ratio hit a high of 0.37 in May 1996 and is now trading at 0.05 just off its all time low touched in the dark days of December 2015.
This massive collapse has nothing to do with a cyclical downturn.
This is a secular move. It shows the structural deterioration in the fundamentals of mining. This encompasses all the negatives that are now well known. It takes over 10 years to permit a mine even in Canada or in the USA.
The red tape is enormous.
The cost of studies have skyrocketed… ESG… Anti-mining…
Of course, this is well documented and entrenched in investor psychology.
A strong cyclical rebound in this ratio becomes a distinct or even a probable possibility.
Sentiment towards gold is still lukewarm in the west!
Central Banks and Asian gold purchases have been the two most important drivers of this very robust gold bull market.
At the end of January 2025, the barbarous relic is making again new record highs in all currencies.
Curiously, allocation to physical gold is still minimal and to gold equities nearly non-existent!
Gold is on everyone’s lips…
Gold miners massively under owned
Since western investors have not participated in the purchase of gold bullion, it is not surprising that they have not bought gold equities.
Central Banks and Asians investors relentlessly bought the yellow metal but not gold equities.
No wonder allocation to gold stocks is still minimal!
Perception of Gold stocks performances are still in the doldrums
What do people remember about 2024?
They certainly all recall the stellar performances of the technology stocks!
A very few might have noticed that gold had a good year rising 27.3%, which is by the way better than the Dow Jones industrial and better than the S&P 500.
The market observers focused on precious metal equities will certainly have lamented over the relatively poor performances of GDX only up 10.3%
Since March 2024 leverage is back in the gold miners.
The rare gold bugs still focusing on the performances of markets since March 2024 to year end have noticed a very different picture.
Gold was up 14%, while GDX was up 34%, and SILJ the Silver Stock index was up a massive 53%.
And during these last 9 months of 2024, the darling NASDAQ appreciated by 3.4%.
Will gold miners outperform the S&P 500 and the NASDAQ in 2025?
There is no doubt that the general stock market has been recently carried by the artificial intelligence craze.
To turn a very long and very spectacular bull market is not an easy exercise.
It could take one knock out shot or a series of body blows!
It is quite clear that the huge loss of market capitalization of Nvidia (NVDA) could very well mark the end, or the beginning of the end, of this decade long bull market in general equities.
A rotation out of overvalued technology stocks into underpriced commodity stocks will take place.
Could gold equities ever outperform the S&P 500?
To have a real bull market in gold equities, this asset class must outperform the general stock markets.
More specifically, as the very astute newsletter writer Jordan Roy-Byrne puts it, : “ Gold miners need to do better than the 60/40 portfolio”.
This is all the more plausible because senior gold miners now enjoy the highest margins of all S&P 500 sectors. This will of course develop into a dynamic M&A cycle where producing gold companies will buy developers.
Disclaimer: SGL does not provide investment advice and is not a registered investment advisor. Always do your own due diligence before making an investment. Investing in securities, especially junior miners, can be risky and never invest money you cannot afford to lose. SGL cannot guarantee the accuracy of the information in this post. SGL has attempted to present the information fairly, but it or its contributors may own shares of any companies mentioned so bias cannot be excluded. SGL and its contributors have no relationship with any company mentioned. SGL or its contributors may buy or sell shares at any time.
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