Gold prices have reached a record high, driven by multiple factors such as declining bond yields, a weaker U.S. dollar, and heightened geopolitical risks. This surge in gold prices has brought much-needed relief to gold miners and other stocks linked to gold. Past trends suggest that this rally is far from over.
On Thursday, gold traded above $2,060 per ounce, surpassing its previous record of $2,051.50 set in August 2020. With a 13% increase in 2023, most of the gains have been achieved in the last two months. In early October, gold was being traded around $1,830 per ounce, but it has since experienced a substantial growth of 12%.
Recent events like the outbreak of war in the Middle East and the reversal of bond yields have contributed to the upward trajectory of gold prices. Global turbulence tends to drive investors towards gold as a safe-haven asset, while the decrease in yields is making gold more attractive compared to low-interest or dividend-paying investments. Additionally, silver has also seen an upward trend after enduring nearly eight months of decline.
Share prices of gold miners have not been able to keep up with the price of the precious metal they produce, although there are some promising signs. The widely followed VanEck Gold Miners exchange-traded fund has seen an approximately 9% increase year-to-date, with a remarkable surge of 16% since the beginning of October. On the other hand, Newmont stock has experienced a decline of 14% in 2023.
The significant divergence between gold prices and gold-mining stocks, along with related technical indicators, suggest that there is potential for a catch-up rally by these stocks. Dean Christians, senior research analyst at SentimenTrader, noted that the current situation is quite unique, stating that gold futures have closed higher than 91% of all other prices over the trailing three years, while the gold mining index has remained in the bottom half of its range, with a reading of 36%.
In conclusion, the soaring rise of gold has created opportunities and challenges for investors. While gold prices continue to break records, the performance of gold miners is gradually gaining momentum. The future of gold-mining stocks looks promising as they strive to bridge the gap with the precious metal’s remarkable ascent.
The Ups and Downs of Gold Mining Stocks
In the world of investing, timing is everything. And when it comes to gold mining stocks, that timing can make or break your portfolio. Recent data from Christians shows that when the price of gold is near the upper end of its three-year range and miners are near the bottom, the latter group tends to outperform six months later. In fact, the median return for gold-mining companies that don’t hedge their production, as tracked by the NYSE Arca Gold BUGS index, is an impressive 22.5% over such periods.
But what about the gold price itself? Well, historically, the subsequent returns haven’t been quite as robust. Flight-to-safety trades can only last so long, and much of the recent rally in gold has been fueled by expectations of a shift in Federal Reserve policy and a decline in interest rates. Once those expectations become reality, we may see a “sell-the-news” event for gold as investors shift their focus to other non-yield-producing investments such as growth stocks.
Christians points out that commodity-based assets, like gold mining stocks, often face challenges in maintaining long-term upward trends due to the mean-reverting nature of commodities. This means that adopting a buy-and-hold strategy can be challenging. However, during cyclical upswings, returns can be spectacular over a short period.
So, what does all this mean for investors? The divergence between the gold price and miners’ stocks this year, coupled with the recent momentum in the latter group, suggests that we may be in one of those periodic upswings. But it’s important to remember not to get too attached to the gold-miner trade. Treat it like a casual relationship rather than a long-term commitment.
Investing in gold mining stocks can be a roller coaster ride, with highs and lows that can test even the most seasoned investors. Timing is crucial, and being aware of the broader market dynamics can help you navigate these ups and downs. Stay informed, stay flexible, and remember to always approach gold mining stocks with caution.