Gold Mining Mergers Taking Off What It Means For Gold Bugs

Deal flow among gold and silver stocks is increasing

, and were likely to get more consolidation in the precious metals sector. Even though spot gold is around $1,750 and spot silver is $33.00 an ounce, mining companies are running out of money.

It takes a bull market in precious metal prices and gold and silver stocks to get institutional investors to pile money into the sector. If gold and silver stocks are going up, they can sell more shares, raising money for development and exploration. But, we had a meaningful correction in gold and silver stocks earlier this year, and it took quite a bit of wind out of the sector. Gold and silver stocks have come back, of course, but new financings have been lacking, and this is why were likely to see more consolidation as mining companies pool resources.

One great example of this new trend is Prodigy Gold Inc. (TSXV/PDG), which is a development-stage gold penny stock. The company is at the evaluation stage of developing a large, open pit gold mine. In a friendly deal, Prodigy Gold agreed to get purchased by Argonaut Gold Inc. (TSX/AR) in a transaction worth over CDN$340 million. Prodigy Golds stock chart is below:

If the appetite for financing junior mining companies has slowed among institutional investors, companies will engage in mergers to get their projects off the ground. There is still a perception problem about investing in individual gold and silver stocks, and its why many institutional investors would rather just purchase an exchange-traded fund (ETF) if they feel like expressing a position in these precious metals. No doubt it is a specialized sector, similar in scope to the expertise required in biotechnology stocks.

Gold and silver stocks are still a great place to be for risk-capital, speculative investors. Right now, Im advocating that investors wait before considering new positions in large-caps, but there are select opportunities in precious metals right now. The one thing we dont have in this market at this time is the interest among institutional investors to pile into the sector, and thats because gold and silver prices havent begun a new upward trend as yet. Theyve recovered from their recent price corrections, but I think its fair to assume that were not in a new bull market for gold and silver just yet.

Other sectors of the stock market are doing better than gold and silver stocks currently, and large investors are focused on this momentum. One of the best new entry points for gold and silver stocks was the recent spot price correction in May. Now were in wait-and-see mode. In order for gold and silver prices to advance meaningfully from their current levels, a major new catalyst must develop.

by: Penny Stock Detectives

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