Global instability has provided a huge boost to the gold market. Now things are going to get even better thanks to a deal between the Rio Tinto Group (NYSE: RIO) Emgold Mining Corporation (TSXV: EMR.V / OTC: EGMCF / EMLM WKN: A2DW2K / ISIN: CA2909284077). Investors are likely to find gold companies even more enticing in light of global events and breakthrough news.
The global economy is entering a turbulent period after a series of natural disasters and shocking news globally. This is bad news for many businesses but great news for gold investors and gold companies like the Rio Tinto Group (NYSE: RIO) and the Emgold Mining Corporation (TSXV: EMR.V / OTC: EGMCF / EMLM WKN: A2DW2K / ISIN: CA2909284077).
To help understand why gold is set to explode we’ve broken down events from the last two months and explained their economic impact.
Down Under burns
The Australian wildfires have taken the lives of 28 people and half a billion animals, as well as destroyed thousands of properties. New South Wales was most devastated with more than 100 fires, but almost every state in the country has had its share. Per CNN, the “massive infernos” were a punishing challenge for firefighters, as Australia faced what is said to be “one of its worst droughts in decades.”
Even citizens in more urban places like Sydney and Melbourne were not able to escape the hazardous air quality because of the thick smoke from nearby burning forests and parks. Strong winds and the extreme weather condition also led to more fatalities.
Moreover, it didn’t help that in 2019, Prime Minister Scott Morrison was urged to prepare for the eventuality of a climate crisis. The Sydney Morning Herald reported that Morrison, an advocate for the coal industry, “dismissed the idea that ‘a single policy, climate or otherwise’ could completely insure against fires in Australia.”
He faced further criticism when it was later found out that he was on a holiday in Hawaii while whole communities evacuated and thousands of animals perished in the raging fires. AP News described the mounting public frustration over the Prime Minister’s “lethargic wildfire response” as similar to then U.S. President George W. Bush’s “clumsy response” to the aftermath of Hurricane Katrina.
Meanwhile, Qantas Airways Limited (ASX:QAN) was also confronted by tumbling shares after having to cancel flights due to bushfire smoke. Bloomberg described a 2.6% drop for the airline, while shares of Costa Group Holdings (ASX:CGC) slid 3.2% after the fires affected its Tumbarumba berry farm.
U.S. and Iran stun with acts of war
At the beginning of the year, the United States assassinated Major General Qassem Soleimani, a top commander of Iran’s elite Islamic Revolutionary Guards Corps (IRGC). President Trump apparently ordered a drone strike that killed Soleimani at Baghdad airport, where he was said to be in the middle of a negotiation with Saudi Arabia.
Al Jazeera revealed that the order “sent shockwaves through the Middle East and beyond, triggering fears of an all-out war between Washington and Tehran.” Supreme Leader Ali Hosseini Khamenei went so far as to vow revenge, and a few days later the IRGC responded by firing rockets at U.S. military bases situated in nearby Iraq. “This move was one of the manifestations of our capabilities,” said Ali Fadavi, deputy general of the Revolutionary Guards. Tragically, two missiles mistakenly hit a Ukrainian jet—killing 176 passengers onboard, most of them Iranian.
The markets plunged as citizens and the rest of the world tried to make sense of the violence and the increasing tension. Casualties include Japan’s Nikkei 225 (2.4%), South Korea’s Kospi Index (1.2%), S&P 500 (1.3%), and Dow futures (350 points).
Various global leaders and personalities called for the two nations to calm down. Mohammad Javad Zarif, Iranian Foreign Minister, said that his country “concluded proportionate measures in self-defense,” according to the New Yorker. President Trump, on the other hand, was suspected by his critics as employing war to distract Americans from his own upcoming impeachment.
Coronavirus outbreak from Wuhan, China
The World Health Organization (WHO) has declared a public health emergency as a new strain of novel coronavirus spread quickly and has been confirmed in more than 20 countries. Officially named 2019-nCoV, the virus originated from China and can cause severe pneumonia, pulmonary oedema, and multiple organ failure.
Wuhan is reported to be the “epicenter of the outbreak” per the United Nations, with more than 20,000 illnesses and more than 400 deaths. WHO Chief Tedros Gebreyesus warned the public about human-to-human transmission and urged countries with a “weaker health system” to take extra precautions.
Common symptoms to watch out for are fever and cough, as well as shortness of breath. The Lancet details of initial patients being exposed to a seafood market in Huanan, Wuhan: “Coronaviruses can cause multiple system infections in various animals and mainly respiratory tract infections in humans, such as severe acute respiratory syndrome (SARS) and Middle East respiratory syndrome (MERS).”
Fears of the virus spreading gripped governments, businesses, and investors. While healthcare stocks soar, other industries were not as lucky, as observed by the BBC. The Shanghai Composite Index took a hit, as did China’s tourism and travel sectors.
Neighboring Asian markets are also affected with shares dropping: Hong Kong’s Hang Seng (9.5%), Malaysia’s FTSE KLCI (5.8%), India’s Sensex (5.5%), Japan’s Nikkei 225 (4.4%), Singapore’s SES (6.4%), Taiwan’s Dow Jones (6.6%), Korea’s Kospi (8.5%), Philippines’ MSCI (7.3%), and Thailand’s SET Index (9%), respectively.
Gold gains and remains in positive territory
Safe-haven investors now turn to precious metals as volatile markets respond to growing issues afflicting nations. MarketWatch noted that the price of gold increased by 18.4% while demand decreased by 1%, and that ETF holdings climbed at an all-time high of 16% (2,886 tons).
Russia and China, with their central banks, continue to buy gold as a hedge to local currency but also to gain exposure to the U.S. dollar. Moreover, the fallout from the 2019-nCoV pushed the People’s Bank of China into injecting the market with $21.7 billion in an effort to remain liquid.
Kitco disclosed that some experts are looking at prices shooting up to as much as $1,600 an ounce in the near future. Says FXTM senior research analyst Lukman Otunuga: “Growing fears over the coronavirus outbreak and negative impacts it may have on global economic growth should stimulate appetite for gold…[It] is trading around $1,585 as of writing and could target $1,600 in the short to medium term as risk aversion remains a dominant market theme.”
This is good news for mining stock companies. The yellow metal is more attractive than ever, especially during turbulent times. Consider other commodities like oil—prices plummeted by almost 5% (below $60 a barrel) following the U.S.-Iran military strikes.
For Emgold Mining Corporation (TSXV: EMR.V / OTC: EGMCF / EMLM WKN: A2DW2K / ISIN: CA2909284077), the year ahead shines bright as it focuses on expanding its portfolio of assets in Nevada and Quebec. Its potential to scale production gives investors an opportunity for long-term growth and exposure to gold.
Emgold recently signed a joint venture agreement with Kennecott Exploration Company (“Kennecott“), a subsidiary of Rio Tinto PLC (RIO:L) (RIO.AX) (RIO.N), for the New York Canyon property in Nevada. The property has access to rich deposits of gold.
The agreement provides the Rio subsidiary with the right to make exploration and discovery decisions. The company will be able to earn up to a 75% in the property by completing $22.5 million in exploration expenditures. Kennecott has staked 265 unpatented mining claims and 21 patented mining claims. These will be merged with Emgold’s 152 unpatented mining claims and 21 patented mining claims. The 417 unpatented claims and 21 unpatented claims.
This deal has the potential to provide a big opportunity for gold investors.
The global economy faces off with more natural disasters
As reality becomes more inundated with political and financial uncertainty, environmental disasters also took center stage in other countries: overnight rain in Jakarta, Indonesia resulted to flash floods that displaced 60,000 and left at least 66 dead; the Batangas province in the Philippines has declared a state of emergency, with ashfall from the rumbling Taal Volcano affecting more than 400,000; and heavy snow in Pakistan killed at least 41.
In the past few years alone, the world has transformed drastically in every aspect that matters—from scientific discoveries to technological breakthroughs, from political climates to weather disturbances, from never-before-seen space journeys to never-heard-before diseases.
Civilizations are converging, and yet the divergences in perspectives lead nations further into conflict. Governments and their people walk the tension of the opposites, and in the landscape of business and finance, questions precede conversations: which of these issues matters most to commerce? What should industries be planning for? What is the reaction of the market?
The first month of the new decade is rife with uncertainty, yet one shouldn’t be deterred by these events. It may not be easy to invest when it seems like the world is in the middle of a crisis, but risk is a twin of opportunity—you get what you give.
