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Gold Miners Soar Higher

Gold bull

April 24, 2020

For the first time ever, on Monday, April 20th, the benchmark price for U.S. oil crashed below $0 a barrel, a reality almost no one thought was a possibility up until a few short days ago.


However, the carnage in the oil markets didn't stop there , as a further 30% cut in consumer demand caused prices to continue cascading lower, hitting negative $40 per barrel at one point in the trading session before settling at negative $37.63 per barrel.

This, of course, is the lowest price oil has ever traded at in all of its history on the markets, symbolizing just how dire an economic situation we now find ourselves in. A true black swan event.

Large sectors of the economy have all but shut down, meaning that demand for oil has fallen off a cliff, leading to a huge surplus of oil reserves that continue to pile up in warehouses. Consumers simply have no need for the tremendous amount of oil being produced on a daily basis.

(Chart source, oilprice.com)

Fortunately, in recent days these lows were not maintained and the price of WTI Crude, along with other key benchmarks, have staged a rally. However, they still remain at historically low levels that are not profitable for many producers.

The Canadian oil markets, which already trade at a disadvantage due to a number of significant factors against them, are especially hard hit by this crash in prices and are unlikely to see a recovery anytime soon, even if normality returns in the short-to-medium term.

Sadly, if this crisis continues in its current state, or God forbid, things deteriorate even further, you can rest assured that this will not be the last time we witness negative oil prices. That would devastate the oil industry even more than it already has been, especially if this crisis has a second wave come the fall of 2020, as some health experts are stating.

Gold Miners Benefit

It is not all doom and gloom, however, for the entire commodities sector. Gold producers are uniquely positioned to benefit in these dire times, especially if they are capable of continuing production throughout this crisis.

Miners such as Barrick Gold Corp and Newmont Goldcorp are two of the largest gold bullion miners in the world, and as can be seen from the chart below, they are weathering this crisis much better than most.

It is a fact that the price of oil is one of the largest cost inputs for precious metal miners and miners in general, with the price of oil having a direct impact on the total cost that it takes to get commodities out of the ground.

This means that miners are now able to operate at a much lower cost than they could just a few short months ago when the price of oil was higher.

For most miners, this point is moot, as demand for many commodities is suffering alongside oil. However, gold bullion is not one of these commodities. In fact, the demand for physical gold bullion is through the roof.

The reason for this, of course, is the vital role gold bullion has played for over 10,000 years in our financial history, acting as a safe haven asset in times of need, strife, and economic crisis—which most definitely describes our current time period.

This is why you are seeing the paper chart prices for both gold and silver bullion remain at healthy levels, even while everything else seemingly turns to mud.

However, when looking at the physical precious metals markets, you see a much different picture being painted, as premiums continue to remain at elevated levels, disconnecting themselves from the largely fraudulent and easily manipulated paper price.

These premiums are due to the incredible demand that physical metals have experienced since this crisis kicked off in earnest. I believe it is a trend that is only going gain traction the longer COVID-19 remains a threat to society.

Because of this, gold bullion miners who have the capital to continue operations throughout this crisis—most notably the titans of the industry, such as Barrick and Newmont—will uniquely benefit and thus continue to increase in price as they reap the dual benefit of increased demand and lower mining costs.

Opportunity still exists, even in these dire times.

Stay safe and keep stacking.

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About the Author

Nathan McDonald is a libertarian, entrepreneur and precious metals enthusiast. He has always taken a keen interest in free markets and economics since an early age, which naturally led him to become a true believer in precious metals and all that they stand for.

Nathan served eight years in the Royal Canadian Navy as an electronics technician, seeing the true state of the world, before starting his first successful business. He has since gone on to create a number of businesses, all of which are still in operation and growing.

In addition to this, Nathan runs a network of successful precious metals blogs, and a growing newsletter that has attracted readers from all around the world. He is a regular and highlighted writer for the highly respected Sprott Money Blog, which covers world events, geopolitics and of course precious metals.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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