What happened
Almost 10 million Americans have filed for unemployment in the last two weeks as a consequence of the 2020 coronavirus pandemic. The United States has never lost more than 1.4 million jobs in any other two-week stretch in modern history.
As investors come to grips with the sobering economic reality of the pandemic and efforts to slow its spread, they're giving gold and silver stocks a closer look. Shares of Coeur Mining (CDE -1.73%) rose as much as 24.6% today, while shares of New Gold (NGD) and B2Gold (BTG -1.17%) rose over 18.5% and nearly 11%, respectively.
Image source: Getty Images.
So what
In early March, investors weren't quite sure how to forecast the uncertainty wrought by the 2020 coronavirus pandemic. Stocks, bonds, precious metals, and cryptocurrencies all fell as investors sold everything to buy themselves time to get their bearings. While everyone is still working with incomplete data, investors have run back into gold and silver in recent weeks.
The price of gold fell from nearly $1,700 per ounce to below $1,500 per ounce, but has since climbed back above $1,610 per ounce. The precious metal is now up 23% in the last year. Silver has been more volatile, tumbling from $18 per ounce to below $12 per ounce. It recovered to $14.50 per ounce in early April.
Gold and silver stocks fell victim to the initial confusion of investors, but have since bounced back from recent lows. While plunging selling prices in March and disruptions to mining operations from local social-distancing orders are likely to take a toll on the first-quarter 2020 operating results of many producers, investors are hopeful that elevated prices could provide a tailwind in the second quarter and beyond.
Coeur Mining leaned on higher gold prices and a slew of operating efficiency improvements to significantly strengthen its balance sheet in 2019. The business ended the year with three consecutive quarters of positive and increasing free cash flow, which helped the company to reduce total debt by $160 million over the course of the year. Considering that over 69% of total revenue was generated from gold sales last year, the company is well-positioned for the current environment.
New Gold only produces gold and copper, which suggests the company is similarly well-positioned. However, operating interruptions are likely to impact the business. The company suspended operations at its Rainy River mine near the U.S.-Canada border to adhere to social distancing measures in both countries. The asset is responsible for 76% of full-year 2020 gold production guidance.
Meanwhile, B2Gold has been spared from major interruptions to date. It expects to meet or exceed consolidated gold production guidance for the first quarter of 2020.
The business has updated investors weekly on its COVID-19 response plan, but hasn't announced the suspension or reduction of operations. The company operates in the Philippines, Namibia, and Nicaragua, which have been less impacted by the pandemic (according to detected and reported cases, anyway) and have not implemented strict self-isolation measures as seen in more developed nations.
Now what
Investors have to prepare for a prolonged period of uncertainty and volatility. As U.S. jobless claims demonstrate, there's no precedent for the economic consequences of the 2020 coronavirus pandemic. While rising gold and silver prices could help precious metals producers turn in relatively solid results in the first half of 2020, gold and silver stocks have rarely outperformed the S&P 500 over long periods of time. Investors with a long-term mindset should keep that in mind.
