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Gold Stocks See Biggest 1-Day Recoveries In Months

What is one of the biggest reasons to own gold stocks? Depending on your school of thought, traditional investing has taught us gold is a store of wealth. That means investors will choose to buy gold and gold stocks during times of market & economic uncertainty because it has been historically stable. In addition to that, during these times, interest rates and currency valuations may not offer the same type of returns that gold and precious metals do.

This weekend, the U.S. Federal Reserve made another emergency rate cut while introducing more quantitative easing measures. This was in hopes of adding liquidity to the markets. What it did, however, was act as another reason for people to panic. The growing cases of coronavirus across the world haven’t helped either.

ETFSYMBOL1-Day Move
SPDR Gold TrustGLD3.9%
VanEck Gold MinersGDX37%
VanEck Junior Gold MinersGDXJ40.7%
Direxion Daily Junior Gold
Miners Index 3x Bull
JNUG112.9%

Now we’re seeing things like airlines, travel agencies, and even mom & pop businesses cut access or close entirely. The Fed also pumped over $1 trillion into the overnight repo market to pursue a cushion in the event of an economic downturn.

Businesses Slow Operations; A Good Sign For Gold Stocks?

While 2008 saw banks failing, the biggest concern right now is business continuity. The ability for companies to continue operating productively is in question. Apple shut down its stores outside of China and even Disney has closed the gates to its famous parks. During this time, investors have fled from the market and into cash. One of the sectors upholding its value was gold.

This is likely why gold prices have declined disproportionately to the market as a whole: its store of value. Investors needing to cover margin calls or find a source for cash could turn to gold to extract that value. Unlike stocks, gold has withstood most of the brunt.

Though prices declined by about 15% since 2020 highs, that doesn’t compare to the 30% drop in the S&P ETF (SPY) since hitting its 2020 high.

[Special Report] Small-Cap Gold Stocks are Providing Huge Opportunity for Investors

Gold Stocks Present The Next Opportunity

On March 16 we saw gold prices slide back to the $1,450 level for the first time in months. This was a previous level of historic support and resistance. But clearly, it has more recently acted as stronger support than anything. This case was proven on Monday after the price of gold broke down to but didn’t break below $1,450 during early morning selling. In fact, after trading around this level for nearly an hour, gold prices reversed course and managed to break back above $1,500 once again.

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Is this the base case for another bull rally for gold stocks? It could be. While the markets have deteriorated, the early signs could be showing themselves once again. Fundamentally speaking, not much as changed for the better regarding the U.S. financial position. Government debt continues to rise faster than revenue, meanwhile, we could see a massive stimulus package to counter the impact of the coronavirus.

Where does gold play a role? Financial circumstances like these don’t come along all the time. In fact, it has been moves like these which previously lead to recessionary conditions and, in turn, a bullish gold sector. While we can’t speculate on the next move of the U.S. government, it wouldn’t be surprising to see the price of gold start to price in coronavirus uncertainty.

[Special Report] Small-Cap Gold Stocks are Providing Huge Opportunity for Investors

Is Now The Time To Buy Gold Stocks?

These latest moves by the U.S. government and Federal Reserve weren’t isolated to the United States. New Zealand’s central bank also cut rates along with the Bank of Australia reporting more policy measures on Thursday. Furthermore, the Bank of Japan boosted its stimulus as well, but it didn’t fully cut rates down to negative territory as some assumed it might, previously.

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“Gold is slowly getting its groove back,” Edward Moya, a senior market analyst at Oanda Corp, said in a note. “Prices will ultimately benefit from all this global monetary and fiscal stimulus. Gold should grind its way back above $1,600 an ounce after we see all the other central banks ramp up their efforts this week.”

So is it time to start revisiting gold stocks? If you ask us, yes. With the performance of the sector as a whole, this pullback in gold stocks could be offering some opportunities for investors that think they “missed the boat”. Looking at gold stocks that have either pulled back to historic lows or ones that have managed to maintain consistent support might be good places to start. If you’re anticipating a large move in the price of gold, it might also serve you well to look at junior gold stocks.

While these may drop faster in market routs, they also fly higher in periods of a breakout. They’re typically riskier than their large-cap counterparts. But if you can stomach some volatility – which it’s likely you already have in the general market – these may be some of the top gold stocks to watch if you anticipating a gold rally soon.

[Special Report] Small-Cap Gold Stocks are Providing Huge Opportunity for Investors


Midam Ventures, LLC | (305) 928-8939 | 1501 Venera Ave, Coral Gables, FL 33146 | news@goldstocks.com
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