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“Everything goes with the metal price,” Kerry Smith, an analyst at Haywood Capital Markets, said. “The (gold) metal price has improved and some investors are prepared to take on more risk and they’re prepared to own the exploration companies.”
Smith speculated that some generalist investors who made money on senior gold producers are “recycling their profits” by reinvesting in smaller-cap junior miners.
He noted the TSX-V “has just gone straight up like a stick, it’s incredible,” but added that the index remains far off its 2011 level above 2,400.
That year also marked the end of the last bull cycle for gold. For a roughly six-year period between mid-2013 and mid-2019, the price of gold remained largely rangebound between US$1,150 and US$1,350.
But gold prices began steadily climbing last summer, driven by declining global interest rates, a weakening U.S. dollar and general economic uncertainty. Since January, gold prices have risen 27 per cent and are now hovering close to the US$2,000 per ounce benchmark.
Meanwhile, exploration budgets have largely tracked the price of gold, according to an analysis done earlier this year by S&P Market Global Intelligence, which found that budgets remain far off their 2011 peak and declined more than any other commodity in 2019.
“There are no major gold discoveries on our list in the past three years, and only 25 in the past decade,” the S&P report said.
The scarcity of new gold discoveries in the past decade has now magnified demand for junior gold mining companies with strong projects, McPherson said.
“We’ve starved the exploitation space for so long, and a lot of majors don’t have the exploration projects lined up,” he said. “That’s why you see investors putting so much interest in the junior space.”
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