Are Gold Prices Set For New Highs This Week?
We saw a very strong close to the week for gold stocks and the price of gold last week. With 2020 highs for the precious metal sitting at $1,788.80, this last week-long push saw it come one step closer to retesting that level. Highs on Friday were $1,761.20 and with that, a number of gold stocks rallied along the way.
As Andrew Addison at Barron’s put it, “now the more bullish story is in the gold-mining stocks rather than bullion. From now until year-end, my work projects that the gold miners will outperform the S&P 500 index by a considerable margin.”
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Citing the dramatic fiscal moves taken by the Federal reserve, Addison and others think gold could shine bright in 2020. But there are also different ways investors are gaining exposure to gold right now. Not only are gold mining stocks skyrocketing, so are gold streaming stocks.
What Is Gold Streaming?
The general consensus for average retail traders when it comes to gold stocks is the thought of gaining exposure to physical gold. But unless you’re already invested in a gold streaming stock, you might not be aware of what that actually means. Precious metals streaming is a term for when a company makes an agreement with a mining company to purchase all or part of their precious metals production at a predetermined price to which both parties agree. This material is usually a by-product of what the mining company’s business is based on, typically base metals.
One of the largest gold streaming companies, Royal Gold (RGLD Stock Report) broke it down with an actual example:
An example of a metal stream held by Royal Gold is the acquisition of 35% of the payable gold and 18.75% of the payable copper from the Mount Milligan copper/gold mine in British Columbia, Canada. Precious metal streams are typically paid in two components. First, we committed to pay approximately $782 million prior to commercial production, as financing for the mine construction.
Second, we pay $435 per ounce of gold, and 15% of the spot price per metric tonne of copper delivered to us over the life of the mine. In return for this investment, Royal Gold will be delivered 35% of all gold produced and 18.75% of all copper at Mount Milligan. At December 31, 2018, there were 4.74 million ounces of gold reserves and 1.84 billion pounds of copper reserves at this property.
Gold Stocks To Watch This Week
While gold streamers rarely “get their hands dirty,” there are obvious advantages to investing in gold mining stocks as well. There’s obviously going to be risks as well. However, based on your personal approach, gold mining stocks and gold streaming stocks are two ways investors are gaining exposure to gold right now.
In light of companies like Royal Gold, Franco-Nevada (FNV Stock Report) is another gold streaming stock to watch. Shares reached new highs of $152.36 on Friday. Analysts at Zack’s reported that “This combination of strong price performance and favorable technical, could suggest that the stock may be on the right path.”
Franco-Nevada recently came out with quarterly earnings of $0.58 per share. This beat the Zacks Consensus Estimate of $0.55 per share. It also compares to earnings of $0.35 per share a year ago. Since mid-March, FNV stock has nearly doubled in price. At the time, shares were trading under $80. This was the first time FNV stock traded that low since the early part of summer in 2019. FNV stock has an average hold rating among analysts, with an average price target of $146.
Then you’ve got Wheaton Precious Metals (WPM Stock Report), another gold streamer. Wheaton is a multinational precious metals streaming company. It produces over 26 million ounces and sells over 29 million ounces of silver. This is mined by other companies as a by-product of their main operations.
The company currently has streaming agreements for 20 operating mines and 9 development stage projects. Its production profile is driven by a portfolio of low-cost, long-life assets. This includes a gold stream on Vale’s Salobo mine. It also has silver streams on Glencore’s Antamina mine and Newmont Goldcorp’s Peñasquito mine.
What’s Driving Gold Stocks Right Now?
Fear in the market has typically been a driving force behind a bull market for gold stocks. Throw on low or even no rates along with growing economic stimulus and it could be the perfect climate for strong gold right now.
[Read More] Gold Stock Prices Rally As Precious Metals Climb
Previously seen as a sort of theoretical thought experiment and a line that should never be crossed, some countries have experimented with setting negative interest rates. Recently, the U.S. President has been warming up to the idea.
“As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the ‘GIFT.’ Big numbers!” Trump recently tweeted. Arguing against this idea, William Isaac, a former Federal Deposit Insurance Corporation chairman, explained the potential ramifications of such a move. “The central banks of the world have gotten into a very bad place, beginning with highly unorthodox monetary policies during the crisis of 2008-2010. They don’t have many tools left to stimulate economic activity.”
“Negative interest rates are intended as a disincentive for people to hold cash instead of using money to purchase goods and spend money.”
Then you’ve got to remember that we’re still in a trade war with China. Presumably, that “war” won’t end before the next election especially at this rate. CNBC’s Jim Cramer said Friday that the U.S. should not take on China as the world faces unprecedented economic calamity from the coronavirus pandemic. Before leaving for Camp David, the president recently displayed his annoyance. “The trade deal, I don’t know…Somehow, I lost a little flavor for it.”
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