The price of gold has pulled back in 2020, but analysts say investor appetite remains strong to finance venture firms and projects in the gold sector, in part given expectations for mergers and acquisitions in the mining industry.

Gold dropped near $1,700 per ounce in recent trading, down almost $200/oz, or 9.8%, since the beginning of 2021. The precious metal ended 2020 at $1,897.77/oz and traded for $1,711.05/oz as of March 29, continuing a downward trend following a multiyear high exceeding $2,000/oz in early August 2020.

"While there is generally that positive relationship between price and financing levels, financings looked strong in February and so far look that way for March too," S&P Global Market Intelligence analyst Christopher Galbraith said in an email. "So even with some pullback on the gold price, investor interest remains there for gold projects."

Gold financings hit a seven-month high in February with $689 million raised through 106 financings, Galbraith wrote in a March 15 research report. The surge in gold financings came across all global markets, and combined, February and January financings hit $1.00 billion to double year over year.

"As an additional indicator of the strong outlook for gold, there were four IPOs for gold during the month, collectively raising $20 million," Galbraith said in the report.

Joe Mazumdar, an analyst and investor with Exploration Insights, also said the potential for M&A activity is a crucial support in maintaining investor appetite for gold equities. While the gold price has pulled back, it remains at historically high levels and continues to underpin fat margins for gold producers, positioning them well for acquisitions. Further, major mining companies may be more willing to deploy cash in takeovers or asset acquisitions than they were in the past, Mazumdar said.

"Now that their equities are, they think, not fully valued, they're not afraid to use cash," Mazumdar said in a March 30 interview. "It's a different world for them. They're still in M&A mode." Mazumdar noted that the position of strength compares to periods within the past five years or so when gold traded under $1,200/oz and profit margins for gold miners were slim.

Nervous investors

Still, gold's pullback has created a reason for pause among some investors, Haywood Securities analyst Kerry Smith said.

"People are getting nervous, for sure," Smith told Market Intelligence. "I think it's also getting more difficult to raise money."

Funding for earlier-stage gold projects and venture companies looks decent but will likely slow, given the recent price performance, according to Brent Cook, a long-time mining sector investor and former head of Exploration Insights.

"I don't see much to take gold higher in the near term with U.S. GDP heading way up, COVID-19 way down and a sense of stability in this administration, etcetera," Cook told Market Intelligence. "For the retail crowd, they seem to be losing interest from what I see."

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Strength in the base and specialty metals markets may be one factor diverting attention from gold, with Mazumdar expressing more interest in companies targeting commodities such as lithium and nickel compared to precious metals equities.

"We've seen a lot of other metals go off," Mazumdar said. "And so there's been an increase in nongold financings."

Prices for copper and certain other industrial metals have performed well in recent quarters, and that looks to have translated into a pickup in financings. Copper financings totaled $505 million in January and $396 million in February, compared to $1.20 billion for the whole of 2020, Galbraith noted March 15.

To Kai Hoffmann, CEO of Oreninc, it looks like investors are partly rotating out of precious metals, with increasing focus on specialty metals such as uranium. Oreninc tracks financings by junior companies in the commodities industry.

"That doesn't mean interest has completely disappeared," Hoffmann said. "The majors showing some strength right now is helping."