Despite Markets Rallying, Gold Continues To Hold Its Own
When it comes to gold stocks and the price of gold per ounce, there’s a general inverse relationship to stocks. While this isn’t always the case, bullish S&P tends to be a bearish tone set for gold. However, considering this recent anomaly, should gold stocks take more precedent right now? What I’m referring to is the fact that the S&P and NASDAQ are surging on Monday. Gold prices haven’t much wavered. Therefore, you can’t ignore that the typical inverse relationship to safe-havens and broad sector stocks isn’t in play.
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In this case, what should investors be paying more attention to? We’ve seen surging coronavirus cases and even another round of shutdowns. Communities that were “reopening” are now “reclosing” thanks to new record cases. Many southern states in particular have felt the pressure on a larger scale. Meanwhile, the markets are even hotter.
Joni Teves, precious metals strategist at UBS recently said that economists at UBS don’t see any new scenario for sharp global economic recovery. This environment will remain supportive for gold.
“US real rates have fallen deeper into negative territory — US 5y and 10y TIPS have declined as much as 40+ bp since the highs in early June. With infection rates flaring up in the US, the implications on growth and corresponding policy response are reinforcing the argument to add gold to investor portfolios as a hedge and diversifier.”
Where Does This Leave Gold Stocks?
Last week gold prices reached highs not seen since 2011. While there weren’t new record highs, they were above $1,800; $1,807.70 to be exact. Did those prices dip since then? Yes, but as most have already seen with gold, there is an organic consolidation following new highs. That’s at least as far as this year has been concerned. Needless to say, this hasn’t put a damper on gold stocks whatsoever.
In fact, some have reached new 2020 highs this week. Look at Harmony Gold Mining (HMY Stock Report) for instance. Last week, HMY stock reached $4.67 before the long weekend. On July 6, shares hit $4.75 during the morning session. This is the highest the gold stock has traded since August of 2016.
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That was also the time that Harmony gold stock set its 5-year high of $4.87. Late last month the company said that it intends to raise about $200 million in gross proceeds from the sale of ordinary shares to qualified investors. The proceeds will be used to part-finance the company’s Feb. 12 agreement to acquire AngloGold Ashanti’s (AU Stock Report) South African assets — Mponeng and Mine Waste Solutions.
Gold Fields Ltd. (GFI Stock Report) is another one of the gold stocks setting new records for 2020, this month. At the end of the week last week, GFI stock hit a high of $9.60 and came within 3 cents of testing that again on Monday. Gold Fields stock hasn’t traded this high since early 2013. One of its projects is a 50:50 venture with Galiano Gold Inc. (GAU Stock Report) which recently gave an update at the start of July.
The previously announced 2020 exploration program at the Asanko Gold Mine has been underway with four drill rigs. It is now approximately 40% completed according to Galiano. Asanko Gold Mine consists of roughly 36,000m of Diamond and Reverse Circulation drilling according to the company.
UBS Still Bullish On Gold
Outside of the short-term spikes in the stocks market, firms like UBS remain bullish on gold for now. “Does the market currently have the energy to extend the move even further towards the all-time highs; or will investors who have been long gold for some time take the opportunity to take some profits off the table? We think the risk-reward at this point probably favors the latter,” Teves said.
Furthermore, she explained that, “Real rates are already around the lowest levels in seven years – this raises the risk that any bounce from recent lows takes a bit of shine off gold, triggering some unwinding at least in the near-term.”
Will this extend the runway for gold bulls? Leave us a comment below and let us know what you think.
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