Gold continues to consolidate. Two months of sideways price action is proving the yellow metal’s early-year gains were justified while setting the foundation for another move up.
That move will require some kind of impetus and there are many options to provide the push: more stimulus announcements in Europe or Japan, weak Q1 earnings, increasing inflation expectations, rising general economic uncertainty, US dollar weakness, and interest rate roulette, to name a few.
We don’t know if these things will transpire, let alone when. The US dollar is certainly declining, if in fits and starts:
That helps gold, from both the fundamental angle that gold is priced in greenbacks and the investment rationale that a declining greenback encourages savers to find another safe haven hideout for their savings.
But a declining dollar is only one cog in a machine driving investor interest towards gold. Another is the fact that super low interest rates have removed investors’ go-to tool for hedging their stock portfolios: bonds.
No matter what you think the odds are of a recession in the near to medium term, the fact is we are in uncharted waters. Very low or zero to even negative interest rates had their intended effect, which was to force savers and investors into riskier assets like bonds and equities. That created a seven-year bull market in equities and bonds – but one not representative of the actual economy, which remained stagnant.
That is what already happened. Of interest now is what will happen next.
Bonds have long been the go-to hedge against equities. Bonds are supposed to rise in price when recessionary periods push equities down, because recessions prompt central banks to lower interest rates and that lifts bond prices.
But how’s that supposed to work when interest rates are already rock bottom?
Bonds will not hedge stocks if we enter a recession because central banks can’t do anything to support bonds. That means investors will look elsewhere for a hedge. Gold will be a natural conclusion.
As John Hathaway of Tocqueville Asset Management calculated, if investors were to increase their gold allocation from 0.55% (the current level) to 1.55%, that would represent 56,075 tonnes of demand. That is far more gold than is currently available in London. In fact, a 0.1% increase swamps the supply of physical gold. 
That is the kind of logic that backs the idea that gold has a good run ahead.
Gold moving sideways and consolidating supports the view that gold’s run has truly begun. The way equities are acting adds weight.
Gold stocks outperform gold at the start of a bull cycle. Take a look back to the last cycle: gold bottomed in April 2001 but then ascended slowly, not making a new 52-week high until early 2002 and not establishing a higher high until almost the end of that year. Meanwhile, gold stocks as per the HUI more than doubled during 2002 while many juniors moved far more.
Gold stocks outperform the yellow metal the most at the start of the bull cycle. We are seeing that kind of outperformance now.
Then there’s silver, which has finally started to move.
It doesn’t look like much on the five-year chart, but silver seems to have carved out a bottom. It is up 21% this year, making it the best-performing metal.
And silver has more ground to regain. Gold may have lost 45% in the bear market, but silver lost more than 70%.
The fact that silver is moving now matters. Silver never moves lock step with gold. When uncertainty prompts investors to seek out safe havens, they look to gold long before silver because gold is a far more straightforward safe haven. Silver, by contrast, is also an industrial metal, which means demand waxes and wanes more with economic demand.
However, after some time silver’s safe haven status starts to catch up. And once it starts to look like a safe haven, it acts increasingly so. That process usually starts when gold is consolidating its first big move and preparing to take out its next resistance.
In other words: we’re seeing gold consolidate, which gives confidence in the new price range, and gold is trailing gold equities, which is precisely the pattern we see to start new bull markets. Silver’s recent move only confirms the pattern.
Explorers, miners, and resource investors have been waiting for this pattern to emerge for years. With evidence of a new bull market mounting, they are getting busy.
Here’s a good comparison: in the fourth quarter of last year, miners and explorers raised a measly $565 million. The average placement totaled just $3.3 million.
In the first quarter of this year, the sector has raised $3.5 billion and the average size rose to $23 million. 
That’s a massive change. Granted, a few huge raises tipped the scale, including Franco Nevada’s $1 billion, Silver Wheaton’s $623 million, and Goldcorp’s $250 million.
But the money still matters.
For one, royalty and streaming companies like FNV and SLW put capital to use by investing in other assets and companies. That helps the whole sector.
For another, doozies aside the sector still raised a lot of cash and about a fifth of the financings went to explorers and developers. That is significant – in the depths of the bear market, explorers just didn’t have access to capital.
Then there’s the deal flow. The quarter saw several big deals: Tahoe buying Lake Shore Gold, Endeavour buying True Gold, and Newcastle buying Catalyst Copper. There were a good number of smaller deals as well: Probe Metals and Adventure Gold merged, Kootenay Silver took over Northair Silver, and First Mining Finance bought both Clifton Star Resources and the Pitt project from Brionor Resources, among others.
Also really interesting are the moves by majors and mid-tiers to acquire stakes in smaller companies. Goldcorp’s move on Gold Standard Ventures is one example (and it prompted Oceanagold to put more money into GSV to maintain its stake); Oceanagold’s investment in NuLegacy is another.
A favorite question during the bear market was: what will it take to bring mining back to life?
Our answer was always the same: investors have to make money.
In that sense, a mining revival becomes a self-fulfilling prophecy. A bit of recovery gives companies confidence to raise capital. Capital enables exploration, development, and deals, which in turn adds life to share prices. Reinvigorated share prices means more financings, more activity and happier investors.
It’s game on.
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 Haywood Research, Junior Exploration Report, 2nd Quarter: https://clientcentre.haywood.com/uploadfiles/secur...