Canadian bank says gold could reach $ 2,000 an ounce by 2021

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CALGARY – For veteran geologist Roger Moss, the rise in gold prices this year to seven-year highs above US $ 1,750 an ounce could not have come at a better time.

The president and chief executive officer – and the only full-time employee – of two-year-old Labrador Gold Corp. had focused on prospecting in Labrador until early this year when news of a discovery of potentially significant gold near Gander, NL

LabGold of Toronto quickly changed gears and obtained mining claims covering 66 square kilometers just north of the discovery. He proposed the Kingsway gold project, and then went on the market with an equity financing offer of $ 3.5 million in May.

Unexpected investor interest led to the proposed financing being increased to $ 5 million and then to $ 5.3 million, more than enough for this summer’s exploratory drilling program.

“The price of gold is definitely one of them,” said Moss, 56, who has been prospecting in Canada and abroad for more than 30 years.

“I think initially the majors made a lot of money at these prices, then some intermediate gold miners did well and I think that, ultimately, the interest spreads to small, smaller capitalization companies like ours. ”

(In addition, the private owner of the Newfoundland discovery, New Found Gold, has since filed a preliminary prospectus for an initial public offering that would raise $ 15 million to $ 25 million.)

Gold prices went from an all-time high of almost US $ 1,900 an ounce in 2011 to less than US $ 1,100 at the end of 2015, and then slipped into a holding pattern for years before gradually strengthen during most of 2019.

The increase in the price of gold by about US $ 1,550 an ounce six months ago is mainly due to the economic disruption and uncertainty caused by the COVID-19 pandemic, said strategist Christopher Louney in raw materials at RBC Capital Markets.

In its most recent forecast, RBC said gold could reach a record average price of US $ 2,012 an ounce in the first quarter of 2021 under its high price scenario.

“Our argument is that it is possible to get there and reach these levels; it will just have a significant economic impact, from a potential second wave (pandemic), for example, “said Louney in an interview.

Analysts believe their baseline price forecast, where the average price for the first quarter of 2021 averages US $ 1,739, is slightly more likely to occur.

Louney warned that markets have largely taken into account current “easy” monetary policies which have reduced interest rates to extremely low levels and have polished the traditional lure of gold as a hedge against inflation and a lower US dollar value.

In a recent report, Goldman Sachs said it expects gold prices to follow a trajectory similar to that which followed the 2008-2009 financial crisis – initially jumping when rates go down, with no direction for about six months after, then increasing with higher inflation and staying high for several years before falling.

He also predicts that gold prices will reach US $ 2,000 an ounce at the same time next year as demand increases with the lifting of pandemic locks and the weakening of the US dollar.

Rising gold prices are good news for miners, but it won’t necessarily immediately lead to more projects in Canada, said Kevin Chan, national mining leader for PwC Canada.

“Companies are still using a relatively conservative gold price assumption,” he said. “Many of them are still planning and considering their future development projects using lower gold prices, somewhere between $ 1,200 and $ 1,300.”

He said the gold miners had learned from the last boom to avoid going into debt and risking increasing production.

Gold companies have had an advantage this year over other sectors of the economy, as most mines in Canada have been able to stay open most of the time despite pandemic closings, Chan said.

Mergers and acquisitions activity has increased, mainly among medium and young companies, and conservative attitudes are reflected in companies trading in shares or zero bonuses, he said.

Companies are expected to create more joint ventures to share risk and achieve synergistic cost savings, a trend exemplified by the Nevada gold mine partnership with giants Barrick Gold Corp. and Newmont Corp. Last year.

Acquisition is still the primary way for miners to continue growing, but the technology is coming, said Katherine Wetmore, partner at KPMG Canada, citing his recent mining survey.

“The mineralized bodies are becoming more and more difficult to access. The reserves are running out, “she said.

“So companies have to look for more creative ways to be more focused on exploration activities or to cut costs.”

In a June research paper, Wood Mackenzie said the global gold mining industry will need to invest approximately US $ 37 billion to create 44 new mines or restart the mine over the next five years to maintain 2019 production levels and replace depleted mineral reserves.

Miners wishing to take advantage of today’s high prices may need to consider joint ventures and phased approaches to build larger mines, he said, but small projects will have the advantage of reducing initial capital expenditure and ” accelerate production times.

After observing investor interest in the mining industry for decades, LabGold’s Moss has seen its industry’s recent success in attracting well-heeled admirers.

“Small businesses have been struggling for several years and it is quite refreshing to see that people are now returning to the junior mining market,” he said.

“I think in recent years funds have been diverted to marijuana stocks and Bitcoin and much of it now goes to miners, especially gold miners. “

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