Gold Stocks Steady Amide Dollar’s Bullish Move
Sunday marked a potential tipping point for gold but there still may be a waiting period before the next bull market. Futures pointed to a higher open as coronavirus concerned remained a focus for Wall Street. However, Monday morning saw the U.S. dollar gain steam after the recent stimulus was passed in the U.S.
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The government aims to soften the blow that the recent pandemic is bound to have on the economy. Under the stimulus, individuals will receive up to $1,200 and couples will receive up to $2,400 — plus $500 per child. But there are certain riders that go along with it. Needless to say, the plan, in total will reach some $2 trillion. This doesn’t include the “unlimited quantitative easing” (QE) that the Federal Reserve implemented earlier this month. So it’s curious as to what the U.S. dollar’s strength means right now.
“You’re starting to see other central banks being active, with Singapore, for instance, delivering an adjustment to its band,” said Edward Moya, senior market strategist at OANDA in New York. “All this follow-through easing around the world is providing a temporary dollar rebound.”
What’s Next For Gold Stocks?
But herein lies the potential “secret”. The fact that analysts are pinpointing a “temporary” factor could indicate what’s to come for gold. Traditionally a lower rate environment, increased QE, and overall economic slowdowns can lead to a strong gold price. But if the U.S. dollar is strong, gold usually takes a back seat. Considering the fact that Moya and others view the dollar’s latest move as temporary might suggest further expectations for a bull rally in gold.
While the likes of Barrick gold stock (GOLD), Newmont gold stock (NEM) and Yamana gold stock (AUY) all stutter-stepped on Monday, it didn’t result in a huge pullback like we saw earlier in March. If you remember, around the middle of the month, stocks crashed and dragged down gold with it. Some stocks, including Barrick gold stock saw lows not traded at since last year.
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So, while the U.S. dollar may have strengthened, for the time being, it hasn’t capped the gold sector’s momentum. Currently, the price of gold remains above $1,600, which was a key point of resistance earlier this year. You can also compare it to the $1,450 level that acted as a previous level of support/resistance that gold pivoted from. Since trading around and bouncing back from its 200-day moving average of around $1,500, the price of gold has managed to hold this $1,600+ level for almost 1 week straight.
Can Barrick Gold Stock Lead The Charge?
Now, this might boil down to specific gold stocks leading the charge. This weekend we discussed how Barrick gold stock has managed to rally strongly over the last few weeks. Furthermore, it’s worth mentioning that leading with the JV with Newmont, the company aims to begin its decade of growth. The ultimate goal is to become the industry leader and most valuable gold company.
“The work we did in 2019 has equipped us well to take Barrick to the next level. We stand on the strong foundation of our enormous organic growth potential, which will support a positive production profile and a very robust business, capable of generating a substantial cash flow for at least the next decade. There are also opportunities for growth outside our current ambit which we continue to explore,” stated Mark Bristow, Barrick Gold CEO, in a recent press release.
It’s also important to keep a few other things in mind that might not be in the mainstream quite yet. If you check on the market for physical gold, you’re likely to find much higher prices per ounce. Gold demand has recently surged amid all of the easing. Meanwhile, you’ve got companies pausing operations at certain stages as precautionary measures against the coronavirus.
This creates a high demand/low supply environment. Even considering a high dollar valuation, the temporary status may not be enough to keep gold prices down for long. That’s especially true since countries like the U.S. have further extended the social distancing plan to the end of April.
Gold Companies Implement New COVID-19 Measures
This week, B2Gold (BTG) was the latest gold company to implement further measures to protect against the spread of COVID-19. These measures include the movement of people and goods, hygiene and cleanliness, social distancing and remote working, isolation procedures at B2Gold sites in the event of higher risk personnel, working with surrounding communities and contingency plans for potential disruptions including increases of supplies.
In light of this, however, the company hasn’t shut down completely. On the contrary, it has resumed some of its operations including ones at its Masbate Mine in the Phillippines. The company also continues mining and million at its Fekola Mine in Mali as well as the Otjikoto Mine in Namibia.
On the other hand, Eldorado Gold (EGO) has announced a partial drawdown from its credit facility to hedge against the unknowns. “We are continuing to take proactive steps to protect our people and our business and have commenced task observations at our operations to ensure that work is being done appropriately with respect to control measures such as social distancing,” said George Burns, President, and CEO. “Further, although we have no immediate need for the funds, drawing on our credit facility is financially prudent at this time.”
Burns further stated that “Procedures will be modified where necessary to create distance.” He also explained that “tasks that cannot be effectively modified will be discontinued until an appropriate change is implemented.”
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