Gold Miners: Two Years of Rally and a 2021 Slowdown

Gold Miners: From the 2020 Rally to the Stall That Left the Metal Alone

An Eldorado Gold buy order, sent at market close expecting to enter at $8.52, was executed at $8.55. Three cents. This is the first lesson for those who believe guessing the price of gold is enough. The second takes longer to arrive: between an ounce of metal and the company that extracts it lie extraction costs, fuel, debt, geology, and management that rarely keeps pace. In recent years, this gap has separated soaring gold from flatlining mining stocks.

In the second half of 2019, the acceleration was real. From the lows of late May, Barrick Gold rose 60%, while Yamana, Harmony, and Eldorado did much more: the Canadian company tripled its value, and Yamana accumulated 37% for those who invested in the spring. With gold at its highs, the sector seemed to have buried the bear market that began in 2013. It had not.

The Gold/Silver Ratio Signals Buys

The first argument put on the table was the ratio between gold and silver. When this quotient stretches, silver becomes cheap relative to gold, and by extension, the miners that extract it. In March 2020, the GSR touched 126—a figure off any historical chart—and from there it fell to 111. The reading was straightforward: with normality broken by the pandemic, the differential between the two metals offered an entry window for both silver and mining stocks.

In parallel, the ratio between gold and the XAU index, which groups major producers, was examined. Here, the message was different but convergent: miners were trading undervalued relative to the metal on a historical basis. This is not a clockwork signal. It's a compass, and one that often errs.

Senior, Junior, or Royalty: What Withstands a Fall

The second, and most useful, discussion was about company type. The thesis repeated insistently: seniors resist downturns better because they have low extraction costs; juniors perform better during upturns. The reasoning is simple arithmetic. A miner extracting at $1,000 per ounce who sees gold go from $1,100 to $1,200 doubles its revenue. This leverage works both ways, and as easily as it multiplies, it divides.

Against this, the defensive bet was royalty companies. They don't extract metal; they finance others' mines in exchange for a percentage of production. Franco Nevada, Wheaton, Royal Gold, Sandstorm, and Osisko have high margins, less volatility, little exposure to individual mine operational problems, and a modest dividend that tends to grow. More than one person sold Barrick and Newmont to boost precisely this part of their portfolio. Less emotion, fewer disappointments.

Peak Gold and the Gold/Oil Ratio

Another variable closely watched was the gold/oil ratio. Mining involves heavy machinery and depends on fuel. It was argued that if this quotient fell below 15, extracting gold would cease to be a good business. With the ounce at $1,500 and WTI at $55, the balance still favored miners. Production, meanwhile, was at historic highs, with no signs of decreasing until at least 2022.

This is where peak gold came in: the idea that global production ceilings are near and that, when they arrive, the best mines will be worth much more while the worst will close. The argument was supported by background data: after the bear market starting in 2013, exploration budgets plummeted, few elephants over 30 million ounces were discovered, and Toronto's TSX Venture lost 82% of its market cap in just over a decade. The longer the bear market, the greater the subsequent bull market usually is. Or so statistics suggest, which in gold has the virtue of working until it stops.

March 2020: The Carnage

The spring 2020 collapse spared no one. Precious metal miners fell with the rest of the market, and the drop was of a magnitude many hadn't seen in such a short time. Consolation came in the order of the rebound: those who held on saw Barrick recover 60% from its May lows while Eldorado tripled. In specific portfolios, Royal Gold gained 8.7%, Pan American Silver 40%, and Alexco 28%.

Not everyone stayed in. Some sold with the thesis that, with the Fed printing money and the pandemic looming, volatility would deliver another scare before year-end. Others decided to stay: trinc the trend, even knowing these stocks are pure contradiction, that on days when everything rises they stay flat, and on days when no one expects it, they jump 15%.

The Fed, QE4, and Cheap Money

The underlying driver was monetary. When Powell hinted at a possible QE4, gold took flight. The circulating reasoning: as long as the Fed keeps printing money and indices remain at stratospheric levels despite the crisis, gold has room to run. Historically, real interest rate lows have coincided with metal highs.

This dependence cuts both ways. With indices moving in one direction and gold in another, miners end up moving to the rhythm of the general market rather than the metal. Hence the recurring complaint: what the heck is going on that gold is soaring and miners are standing still? It's not a mystery. It's short-term correlation and long-term fundamentals, and those who mix the two timeframes usually pay for it.

The Mine Ecuador Seized Twice

The sector's most telling story isn't from a chart. Aurelian Resources discovered Fruta del Norte, a high-grade deposit in Ecuador with over 13 million ounces in indicated and inferred resources. Kinross bought it for $1.2 billion—about $25 per share—in July 2008. Then came years of negotiation with Quito, a 70% profit tax, and surrender: in 2014, it sold the project for $240 million to Lundin Gold, which, with a more reasonable government, has now built and operates the mine. Twelve hundred to two hundred forty. Fiscal policy can harm a mining company as much as a poor drill result.

2021: From Silver to Uranium and Copper

With the cycle already advanced, the conversation diversified. Some portfolios rotated from gold to silver (Hecla, Gatos, Alexco, Silvercorp), uranium (Energy Fuels), copper (Ivanhoe), and even coal (Mongolian). The argument was not to depend on a single metal.

On the junior side, names multiplied: Karora Resources, Perseus Mining—with a target price of 1.95 Australian dollars from Canaccord—Roxgold, Steppe Gold, and West African Resources, which produced 63,610 ounces in the June 2021 quarter. Oz Minerals, meanwhile, extracted 32,681 tons of copper in the same period and raised its gold forecast for the year. And Novo Resources moved into production with 96.4% recoveries in its Pilbara conglomerates, something few expected when it was called a science project.

Funds and Brokers: Access Also Filters

Not everyone can buy what they want. Many Canadian or Australian juniors only trade on the US OTC market or directly on the TSX Venture, and some brokers do not provide access. The alternative is funds. A BlackRock World Gold Fund, with Barrick, Newmont, Agnico Eagle, and Newcrest among its main holdings, accumulated over 40% in gains since the first investment. At Renta 4, there were options from Franklin, DWS, and Invesco; on other platforms, different ones. Choosing the instrument also determines which part of the sector you access.

How to Read an Exploration Drill Hole

To navigate this terrain, one must know how to interpret a drill result, and the rules are three: the thickness of the intersection, the average grade of the sample, and the depth. At shallower depths, it's more accessible and cheaper to extract; if it's near the surface, it can be open-pit mined, always more economical than drilling tunnels. A headline like "85.3 meters at 84.3 grams per ton of gold and 6.8% copper from 19 meters depth" is exceptional on all three fronts simultaneously.

The other lesson from the cycle is risk management. Those holding twenty-five companies could afford a dud; those relying on a single junior could not. Diversify among four or five miners, with patience, and accept that getting half right is enough for the numbers to work.

The Disconcerting Data

After all the run-up—gold soaring, royalties as a refuge, peak gold on the horizon, rotation towards silver and copper—the scene that remained etched was different: the metal hitting highs and mining stocks flat, as if the market didn't quite believe its own narrative. The gap between the ounce and the company that extracts it remains open. And no one has fully explained why.