Gold is known as a safe-haven asset. The precious metal is one of several assets that investors prefer to have exposure to when times are uncertain.
Given the level of uncertainty being caused by COVID-19 and its dramatic impact on the global economy, it should come as no surprise to see that gold prices and gold stocks are on the rise.
NovaGold Resources Inc (NYSEAMERICAN: NG) is one of the gold stocks that has seen tremendous growth over the past year. Looking at the share price chart, NG stocks closed as low as US$ 3.75 in May 2019. This year the stock price has more than tripled, closing at a high of US$ 12.14 on April 22, 2020.
Even before COVID-19 put the whole world into such a severe shutdown, NG shares had been moving strongly higher, with the exception of a volatile period in mid-March during which many stocks around the world registered heavy falls.
Like most stocks, NG has seen some volatile periods, but price action over the past year paints a positive outlook for the company. After building a solid base in the region of US$ 3.50 to US$ 5.00 over several years, there was a sharp break to the topside in mid-2019. Encouragingly, this move was achieved on the back of a huge jump in trading volumes and average volume has remained relatively high ever since.
While gold stocks may not have such an obvious linkage to COVID-19 as some sectors do (like healthcare stocks), gold prices and gold stocks have a strong connection to the massive stimulus packages being unleashed across major economies.
The ongoing money printing may see gold pushing higher.
While further volatility in the price of NovaGold cannot be ruled out, steady demand is currently seeing the stock consolidating just below its nine-year highs. Given the positive outlook for gold and the sector as a whole, we would anticipate that any modest near-term dips are likely to be corrective, with potential remaining for additional gains.
NOVAGOLD is a Canadian company known for its 50%-owned flagship Donlin Gold mine in Alaska. The company is listed on the NYSE American and the Toronto Stock Exchange.
According to a recent company statement, the Donlin gold mine is one of the most important, in the ground, gold projects in the world today in terms of size, grade, exploration potential, production profile, mine life, and jurisdictional safety.
What makes Donlin an attractive gold mine?
Size – with approximately 39,000,000 ounces of gold in measured and indicated mineral resources, NG said it is nearly impossible for this endowment to be replicated given the scarcity of such projects and the lack of new discoveries in the world.
Grade of the mine – with an average 2.24 grams per tonne, this is more than twice the industry average grade.
Exploration potential – the site sits within three kilometres of an eight-kilometre mineralised belt, which gives it an ideal district-sized exploration potential.
Location in Alaska – given the state’s history of support for responsible mining and mine development, this gives NG the kind of jurisdictional safety required for an exploration of this kind and size.
NovaGold president and CEO Gregory A. Lang said the company is in a strong position – well funded with a cash balance of US$140.7 million as of February 29, 2020 – to continue the exploration at Donlin gold mine.
During the release of the company’s recent financial results, Mr Lang said: “Given our strong balance sheet, we can focus entirely on moving Donlin gold mine forward without the distraction of needing to raise additional capital.”
Outlook for gold
The market volatility spawned by COVID-19 has not spared gold which saw prices moving from US$1570 to a high of US$1750 over the past six months with some falls and rallies in between.
Given the ongoing uncertainty until a COVID-19 vaccine or a cure is found, gold may remain in the spotlight and may get a further boost in the coming months.
The thinking is that more stimulus packages (money printing) thrown into the global economy will create more inflationary impact later on. This will make gold even more attractive to investors.
At the same time, if uncertainty remains – concerns about a second wave of COVID-19 cases – investors will seek safe-haven assets again. As always, gold remains a preferred asset during high inflation periods.
However, with consumers and investors keen to see the re-opening of businesses, there are also indications that global growth may start to pick up, albeit tentatively at the start.
While every investor must keep an eye on emerging trends and market movements, the uptrend in gold prices and gold stocks is something to watch out for.
Given its strong share price performance over the past year and the ongoing outlook for gold in general, we consider NovaGold a buy.
Alex Douglas is the managing director of Monex Securities Australia (AFSL 363 972), and is responsible for the overall growth of Monex in this region. He has held senior executive positions with numerous financial services companies both in Australia and Asia over the past three decades. Early roles in the industry included being a foreign exchange voice broker, a trader on the floor of the Sydney Futures Exchange and a senior analyst with Standard & Poor’s in Singapore. Alex is a Certified Financial Technician (CFTe) and former board member of the International Federation of Technical Analysts (IFTA) as well as a sought-after author, speaker and market commentator.