The Question For The Ages As Markets Digest Latest Data
Gold prices were relatively unchanged on Thursday as the stock market traded flat. Growing concern about new coronavirus cases remains at the center of the discussion late in the week. Seventy-seven nations have seen an increase in new cases over the past 2 weeks. Texas plans to let schools reopen, despite a recent uptick. However, California’s governor just ordered people to wear masks as the state saw a one-day record. Meanwhile, Florida added an all-time record 3,207 coronavirus cases in one day
The number of cases has grown globally. Some of the highest tallies in the history of the pandemic were recorded this week. They were mainly driven by outbreaks in Latin America, Africa, South Asia, and the United States. Further, the U.S. in particular still posts some of the highest counts of new cases. But hope still remains for stocks with the broader markets closing green on Thursday lead by tech once again. This ended a 2-day downtrend after the S&P gapped up on Tuesday.
This doesn’t mean we’re out of the woods yet in my opinion. With counties still considering closing things back down and others halting Phased re-openings, we can’t truly say things are “back to normal” by any stretch of the imagination. Still, the Fed’s money gun and continued optimism of the Yolo-ers are helping push markets.
We’ve also got the US jobless claims to consider, which totaled 1.5 million last week. It was higher than the 1.3 million expected. The government report’s total was 58,000 lower than the previous week’s 1.56 million, which was revised up by 24,000. Also, those who have been receiving unemployment benefits for at least two weeks, slid lower to 20.5 million. That was a drop of 62,000 from the previous week. The total of those receiving benefits was 29.1 million as of May 30.
What Does This Mean For Gold Stocks?
Honestly, it’s a tug of war right now. You have a macro-economic landscape that points to increased government spending, mounting debt, geoeconomic uncertainty, quantitative easing, and a slowing (at the very least) of the “restart process”. But then you have the stock market which tells a story of unbridled momentum and upbeat sentiment that the future will be much brighter. So what do you do? For starters, look at where the money’s flowing.
Joe Foster, portfolio manager of VanEck International Investors Gold Fund has focused on valuation. Foster explained in a Kitco interview that while hares have have risen since March, valuations may still be lower than their long-term averages.
“It looks like a spectacular performance when you go from the bottom of the crash [in mining stocks] to where we are now. But you have to remember, at the lows in March, stocks were trading at about five times cash flow. They are currently trading around eight times cash flow,” Foster said.
“I’ve been in the gold-mining industry for all of my career. I don’t think I’ve ever seen it as healthy as it is today.”
Meanwhile, as Reuters reported, stock markets have “roar back from the coronavirus-led rout” but advisers to the world’s wealthy are urging them to hold more gold. They appear to be questioning the strength of the stock market rally and the long-term impact of global central banks’ cash splurge.
“Our view is that the weight of monetary supply, expansion, is going to ultimately be debasing to the dollar, and the Fed commitments, which (are) anchoring real rates, make the case for gold pretty sturdy,” said Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley.
Is It Time To Buy Gold Stocks?
This all begs the greatest question right now: Is it time to buy gold stocks? Nine private banks spoken to by Reuters, which collectively oversee around $6 trillion in assets for the world’s ultra-rich, said they had advised clients to increase their allocation to gold. Of them, four provided forecasts and all saw prices ending the year higher than they are now.
Considering that gold stocks have more or less mirrored the price of gold,
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