Gold Stock Rally’s Market Cap Bias May Surprise You

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Investors’ interest in Canadian gold stocks has nearly doubled over the past 30 days, yet not all market caps are favoured equally. Our findings could have interesting implications as to what will happen next.

Alex Cutulenco | Ubika Research Analyst | March 24, 2016: Investors are once again starting to pile money into promising gold stocks in anticipation that the bullion price will continue its rise – and who controls the price in this type of an environment? The seller.

Investors’ interest in Canadian gold stocks has nearly doubled over the past 30 days, as seen by an average increase of 97% in daily traded volume. However, an interesting contrast occurs when you segregate the stocks based on market cap levels, and compare the volumes then.

There seems to be a heavier preference amongst investors towards the mid-cap range ($100mm – $500mm Market Cap), as seen by the large volume increase, relative to the other two brackets. Volume change was calculated using the last 30 days of average daily traded volume, as a percentage increase over the last 200-day average daily traded volume.

It is also interesting to note that while the precious metal has only increased 19% year to date, mining stocks averaged a 56% return over the same time frame – almost three times the upside. Obviously, gold investors expected gold prices to rise in the short-medium term.

The chart above compares the market cap vs. the year to date price % changes. Golden Star Resources Ltd. (TSX: GSC) was an obvious standout, with its 173% return. Interesting to note that only four gold stocks were are seeing red this year.

Some of the companies that fit within the mid-cap range level, but which have not received the same type of volume gains are: Continental Gold (TSX: CNL) with only 15% increase in volume, and Banro Corp. (TSX: BAA) with a 16% increase in volume. In the past, gold stock rallies have often started with the big-cap players and worked its way down to the junior, more speculative names. It will be interesting to see if history repeats itself this time around.

See SmallCapPower’s interview with Continental Gold’s CEO here >>

Alex can be reach at: alex@gravitasfinancial.com

Read more analyst insights from Alex Cutulenco

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