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Higher gold prices to trigger spike in M&A activity in 2020 — Fitch Solutions
(Kitco News) As investors are embracing gold as a safe haven asset, boosting the precious metal’s prices, gold mining’s M&A activity is likely to see a spike higher throughout this year, Fitch Solutions said in a report.
Gold prices have been on the rise since the COVID-19 outbreak hit the markets and the economic fallout from the crisis is just beginning to make its impact on the global economy.
“With the global economy slowing and the subsequent rout in markets on the back of the outbreak of the Covid-19 pandemic, investors are running for 'safe haven' assets such as gold,” the report stated. “As a result, the M&A market in the mining sub-sector is set to see a spike in activity across the course of 2020.”
Fitch Solutions has a bullish outlook on gold prices this year, recently revising its forecast to the upside. “Since the turn of the year, the spike in macroeconomic uncertainties has provided a boost to gold prices. As a result, we have revised our outlook for 2020 gold prices upwards to an average level of USD1,680/oz, up from USD1,450/oz previously,” the report said.
The report added that there is also an upside risk to the $1,680 an ounce forecast in light of all the monetary policy stimulus introduced around the world to help fight the COVID-19 crisis.
The COVID-19 outbreak, without a doubt, will leave an impact on the gold mining industry, but it is still well positioned to survive this crisis, especially with higher gold prices at play.
“Higher [gold] prices translate into higher revenues, boosting mining stocks and investor returns,” Fitch Solutions wrote on Wednesday. “While the industry will inevitably see some production go offline in line with government restrictions, it will largely be able to remain ‘open for business’ over the coming months and quarters. This will likely see investors willing to overpay for deals in the fragmented industry, which is ripe for deals to be made as inorganic growth remains easier and cheaper than expanding reserves through exploration.”