For veteran geologist Roger Moss, this year’s runup in gold prices to seven-year highs over US$1,750 per ounce could not have come at a better time.
The president and CEO — and only full-time employee — of two-year-old Labrador Gold Corp. had been focused on prospecting in Labrador until early this year when news emerged of a potentially significant gold discovery near Gander, N.L.
Toronto-based LabGold switched gears quickly and snapped up mineral claims covering 66 square kilometres just to the north of the find. It proposed the Kingsway Gold Project, then went to the market with a $3.5-million equity financing offer in May.
Unexpectedly strong investor interest led to raising the proposed financing to $5 million, and then again to $5.3 million, more than enough for this summer’s exploratory drilling program.
“The gold price is definitely part of it,” said Moss, 56, who has been prospecting in Canada and overseas for more than 30 years.
“I think initially the majors were making a lot of money at those prices and then some of the intermediate gold miners have done well and I think, finally, the interest is trickling down to the smaller cap junior companies like ours.”
(As a side note, the privately held holder 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 per ounce in 2011 to under US$1,100 at the end of 2015, then slipped into a holding pattern for years before gradually strengthening through most of 2019.
The increase in the gold price from around US$1,550 per ounce six months ago is largely because of the economic disruption and uncertainty caused by the COVID-19 pandemic, said Christopher Louney, a commodity strategist with RBC Capital Markets.
In its most recent forecast, RBC said gold could reach a record-setting average price of US$2,012 per ounce in the first quarter of 2021 under its high-price scenario.
“Our argument is that it’s possible to get there and achieve those levels; it just will take a significant economic impact, from a potential second (pandemic) wave, for example,” Louney said in an interview.
The analysts consider their base price forecast, where the average first-quarter 2021 price averages US$1,739, to be slightly more likely to occur.
Louney cautioned that markets have largely factored in the current “easy” monetary policies that have reduced interest rates to extremely low levels and polished gold’s traditional appeal as a hedge against inflation and a lower U.S. dollar value.
In a recent report, Goldman Sachs said it expects gold prices to follow a similar path to that in the aftermath of the financial crisis of 2008-09 — jumping initially as rates fall, directionless for about six months after, then rising with higher inflation and remaining high for several years before…