With some resistance in the $1850-1880 USD/oz region gold has bottomed onto a still very high gold price. However, since Donald Trump announced to stall new stimulus talks until after the election, gold stocks dropped significantly. This is a sign that new governmental stimulus was already partly priced in. These short term losses don’t change the long run perspective and even if Jerome Powell already stated twice that the ball is in the court of Congress, the FED won’t rise rates for at least two to three years. And the longer the necessary new stimulus is stalled, the larger the permanent damage to the economy, which will only boost safe-haven demand for gold. The current consolidation in gold equities seems to be a great buying opportunity.
Amid the bad news for gold, the board of Gold Resource Corporation (GORO), a small/mid-cap gold miner, announced an intent to spin-off its Nevada gold mine to create two separate entities. This creates a high dividend paying mine and a riskier but potentially more profitable Oaxaca Mining Unit in Mexico. Where initially Gold Resource Corporation stock offered both growth potential with their Mexican mine and relatively stable dividend yield from the Nevada mine, it has now created two riskier separate companies. While pre-market the stock surged on the news, many investors decided to drop the stock during regular trading hours. On 6 October the stock dropped a massive 16% on the news, triggering a short selling halt by SEC. The SEC imposed the uptick rule on Gold Resource Corporation stock because the stock lost more than 10% from the previous day’s close. Despite the short selling ban, their shares lost even more ground today. With a share price in the 2.70 area Gold Resource Corporation stock approaches its March lows again. This provides the ultimate buying opportunity for investors speculating on a long run rise in gold prices. However, as the balance within the company is destroyed with this move, at these prices the higher risk is offset by the lower share prices.
The short selling ban will be lifted on 8 October, it will be interesting to see what will happen after that. On the short run U.S. Election and coronavirus volatility will pose a risk to gold prices which could hurt the stock even more. Despite this risk, at current price their seems still seems to be a great long run gold outlook, so there is still some hope for this tanking stock. This is a typical high risk, high reward gold investment opportunity for investors looking to increase gold leverage within their portfolios. Only time will tell if this spin-off will prove as successful as the PayPal (PYPL) spin-off from eBay Inc (EBAY).
Disclaimer: The writer of this article holds Gold Resources Corporation (GORO) stock, this article should not be interpreted as investment advice or anything like that.