Synching Gold Stocks With The Gold Price

November 29, 2020

Source: Gold-Eagle Price of Gold & Precious Metals Chart

The gold price is up $333.46 per ounce, over 1 year, recording gains of 22.94%. The precious metal has a 52-week high of $2,069.40 per ounce, and a 52-week low of $1,453.4 per ounce. The performance of gold has consistently outperformed over the long-term, serving as a viable hedge against stock-market volatility.

At times, gold rallies alongside bullish stock markets, and at other times it moves in the opposite direction. Gold is not an income-generating commodity, but gold exchange traded funds (ETFs) and stocks such as (SPDR: GLD), Barrick Gold (NYSE: GOLD), VanEck Vectors ETF, Franco Nevada, Kirkland Lake Gold, and World Gold TR SPDR GLD (GLDM), have income generating potential under the right conditions.

It is worth highlighting that the performance of gold stocks tends to be closely aligned with the price of gold. While not absolute, the guidance for trade and investments in gold stocks typically mirrors the performance of the gold price. On a macroeconomic level, a rising gold price tends to presage bearish expectations, such as a weakening USD, or a correction/reversal in the stock markets.

As the preferred hedge against a market downturn, and global uncertainty, gold has retained its ranking status among traders and investors. When futures markets in gold are bullish, this generally coincides with expectations of a stock market decline, or geopolitical uncertainty. A depreciation in the greenback bodes well for gold, since foreign-based traders and investors need to pay less per unit currency for the same amount of gold, driving up demand and ultimately the price.

The Performance of Gold Penny Stocks

The Securities and Exchange Commission (SEC) identifies penny stocks as tradable securities priced under $5 per unit. There are 4 unique tiers of penny stocks available to traders, with Tier 1 (listed stocks subject to SEC reporting guidelines) and Tier 2 (priced between $0.01 and $1.00 per share) being the most credible and trustworthy.

Given that penny stocks are often traded over-the-counter (OTC), or as pink sheets, it is best to stay away from gold mining companies which offer nothing but a glossy prospectus, with little or no substance in the value proposition. The best gold penny stocks are those whose companies have a strategic mission, a viable product offering, and strong growth potential. Traders and investors are encouraged to conduct due diligence, comparative analysis, and careful assessment of company financial reporting results to make informed decisions.

It is disingenuous to advise traders on the purchase of penny stocks, given their extreme volatility, low trading volume, low liquidity, and low market capitalization. By the same token, gold penny stocks offer tremendous upside potential, given cost and upside possibilities. Several gold penny stocks that have been making the rounds in recent weeks include the following [as that Monday 30 November, 2020]:

  • Osprey Gold: OSSPF – $0.0590 – up $0.019 YTD
  • Harmony Gold: HMY – $4.2400 – up $0.520 YTD
  • Argonaut Gold: ARNGF - $1.7700 – up $0.16 YTD
  • Antioquia Gold: AGDXF – $0.0443 – up $0.0243 YTD
  • Vendetta Mining: VDTAF - $0.0500 – neutral YTD
  • Comstock Metals: CMMMF – $0.0773 – up 0.0373 YTD
  • Bullfrog Gold (OTC: BFGC) - $0.2081 – up $0.0981 YTD
  • Galiano Gold (NYSE: GAU) - $1.1300 – up $0.21 YTD
  • Yamana Gold (NYSE: AUY) - $5.11 – up $1.23 YTD
  • Precipitate Gold (OTC: PREIF) - $0.1798 – neutral YTD
  • Alamos Gold Inc. (NYSE: AGI) - $8.24 – up $2.31 YTD
  • Avino Silver & Gold (NYSE: ASM) - $0.9199 – up $0.28 YTD
  • Golden Star Resources (NYSE: GSS) - $3.8100 – up $0.14 YTD
  • Paramount Gold Nevada (NYSE: PZG) – $1.0647 – up $0.283 YTD
  • Platinum Group Metals Limited (NYSE: PLG) - $2.3900 – up $0.64 YTD
  • Gold Resource Corporation Common Stock (AMEX: GORO) - $3.0400 – down $1.38 YTD

Gold penny stocks can be perceived as a store of value, on the proviso that technical and fundamental analysis reflects long-term growth potential. It must be stressed that investments in gold mining companies are inherently risky, given the high costs of mining (extracting gold ore from deep within the earth, manpower and machinery, and the capital intensive production that is required).  The gold price is mercurial, in line with macroeconomic uncertainty, as identified earlier.

In Closing

The gold price has appreciated by 564.01%, or $1,517.76 over the last 20 years, generating inflation-matching returns for investors. Equally impressive is the 5 year return on the gold price performance in USD, which reflects $721.06 appreciation, or 67.65% returns on investment for physical gold bullion. These figures, impressive as they are, can pale in comparison to the exponential growth potential of gold penny stocks. Once again, the majority of gold penny stocks are bum deals, but the gems have stratospheric potential.

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China has only 2% of its Total Foreign Reserves in gold.

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