Why gold bugs are bullish for 2020 after a breakout 2019

What a difference a year can make — just ask a gold bug.

As 2018 drew to a close, the price of the yellow metal was struggling to break US$1,300 per ounce and precious metals mining companies were stuck in the doldrums: Barrick Gold Corp., for example, was trading at $17.88 while Detour Gold Corp was sitting at $10.88, having just emerged from a contentious battle with its shareholders.

As 2019 ends, it’s a totally different story: Gold broke through the US$1,500 per ounce barrier in August for the first time in six years before settling just below that threshold, sparking a run on gold mining equities that was bolstered by a string of transformational mergers. That included deals involving Barrick and Detour, which sat in the $23 and $24 range, respectively, in late December.

But even as gold’s hot run tempered slightly to end the year, its most enthusiastic investors say its prospects have seldom been so positive. They argue that the same factors that helped gold perform so well in 2019 — including trade tensions, potential interest rate cuts, a volatile stock and bond market and geopolitical uncertainties such as Brexit — remain in place to a certain degree and are setting the stage for a massive rally in 2020.

Juan Carlos Artigas, director of investment research for the World Gold Council, is one of those who believes the problems have not been sorted out.

“Not only do we think that they’re not going to be resolved, they’ve been postponed, and things we haven’t been thinking of will start to come up,” Artigas said.

Artigas is skeptical about stock market gains, taking the view that low interest rates, including negative yields, have steered many investors to place their money into stocks. “Stocks have been performing well,” he said. “Many are pretty high especially in relation to interest rates, but it’s driven by easy money, and not fundamentals … (so) you can expect pull back in the stock market.”

Meanwhile, for a second consecutive year, central banks around the world looked to be on pace to be net accumulators of gold. In 2018, central bank purchased roughly 650 tons of gold, the most since 1971 when the U.S. ended its gold standard that allowed its Federal Reserve to redeem dollars with gold, according to Artigas.

Peter Grosskopf, chief executive of Sprott Resources Inc., a fund which invests in physical bullion as well as gold miners and explorers, said he is predicting a wave of merger activity among smaller mining companies.