How bull markets begin – a look at gold

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    Gold bars - gold market

    There’s a reason gold stocks move so much in a bull market: the market is tiny. The global gold market has a combined capitalization of about U$225 billion – the entire gold business is smaller than a single company in the S&P’s top 30.

    That means when generalist capital rotates in, there aren’t a lot of places for it to go. And so a lot of dollars pile into a few places. Where are those places? To start, generalist capital interested in gold goes to gold-backed ETFs and the biggest of the major miners.

    That’s clearly underway already. Last week the SPDR Gold Shares ETF, which is the biggest of the gold-backed funds, saw $1.6 billion in inflows, including the biggest one-day haul since the fund started in 2004.

    Miners are also moving. In the last month the NYSE Arca Gold Miners Index is up 25%; half of those gains happened since the Fed meeting on June 19th .

    NYSE Arca Gold Miners Index 

    Gold-backed ETFs and major gold miners remain preferred destinations throughout a gold bull market. But other kinds of companies soon get attention too.

    Next in line are mid-tier miners, single asset operators, developers, and optionality plays. Those are all self explanatory aside from the last category.

    Optionality plays are companies with large assets that would not make a lot of sense to mine at low gold prices but that make tonnes of sense once gold rises. That move – from not economic to economic – is a game changer for the asset and therefore for the company.

    As such these stocks outperform in a rising gold market. They’re called ‘optionality’ plays because they are like buying options – they are a call on a higher gold price.

    I’m introducing one such company today. I think the Maven Metals portfolio is already well positioned for a rising gold market, but it lacked a stock chosen specifically for optionality.

    About Gwen Preston

    Gwen Preston is a renowned expert in the field of mining. She spent years as a mining journalist giving her a deep base of knowledge and a broad network of contacts. She understands which projects and pieces of news matter. 

    The team at MiningIR love her writing and her knowledge which is why we’re pleased to feature her on our site. Sign up for a free trial of her leading newsletter at www.resourcemaven.ca

    Disclaimer
    MiningIR host a variety of articles from a range of sources, our content, while interesting, should not be considered as formal financial advice. Always seek professional guidance and consult a range of sources before investing.

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