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Gold prices have rebounded to new highs, helped by renewed weakness in the dollar, and the metal may soon be on the verge of reaching $ 2,000 an ounce.
Gold rose $ 35 to $ 1,937 an ounce in early trading on Monday. The old peak set in August 2011 was around $ 1,900 an ounce. Gold is now up 27% this year, making it one of the best asset classes.
Investment demand continues to be strong. The amount of gold in exchange-traded funds rose to a new high of 106.7 million ounces on Friday, more than three million ounces so far in July and 30% so far this year, according to Bloomberg data. The largest ETF, the SPDR Gold Stock (ticker: GLD), had a record 39.5 million ounces on Friday.
Mining stocks were higher. Publicly traded fund Van Eck Vectors Gold Miners (GDX) rose 5% to $ 43.95, Newmont (NEM) rose $ 2.77, or 4.2% to $ 69.55, and Barrick Gold (GOLD) rose 5.5% to $ 30. Barrick and Newmont are the two main gold mining towns.
There could be more room for mining stocks to recover as their profits take advantage of gold prices. Newmont’s free cash flow increases $ 400 million annually for every $ 100 move in gold prices based on $ 1 billion of free cash flow at $ 1,200 an ounce, according to a company presentation.
At current gold prices, Newmont’s annual free cash would be more than $ 3.8 billion annually, according to that analysis. The company’s market value is approximately $ 55 billion.
Barron’s He’s been bullish on gold and mining stocks, including a cover story in 2018 and an article in March. Our up and down Wall Street columnist Randall Forsyth was also bullish on gold earlier this month.
The gold movement is helping silver, which rose $ 1.55 an ounce, or nearly 7%, to $ 24.32 an ounce. Silver, which is generally more volatile than gold, has recovered by more than a third this month. The gold / silver ratio continues to contract and is now around 80, below a peak of around 125 in March.
Silver shares are relatively rare with one of the leaders, Pan American Silver (PAAS), which rose more than 5% on Monday at $ 38.69. Pan American Silver made more than half of its gold income last year. The Global X Silver Miners (SIL) ETF has gained 6.6% at $ 50. Silver is normally found in mines with other metals such as gold.
Gold tends to move inversely with the dollar and the dollar has continued to weaken with the US dollar index from 0.78 to 93.65, its lowest level since 2018. The dollar index has fallen nearly 10% from its March peak.
Gold is also underpinned by ultra-low nominal interest rates in the US and negative real rates in the US.
Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote Friday that he sees gold heading toward $ 2,000 an ounce and that the metal offers diversification benefits and protection against market volatility.
“While we believe that gold will continue to be supported by mounting geopolitical tensions, in our opinion, the main drivers of the price of gold are its negative correlation with real interest rates and the dollar. We believe that these three factors, combined with limited supply growth as miners continue to tighten the ex-spending cap, will drive gold prices higher, ”Haefele wrote.
The new supply of mined gold adds less than 2% per year to air stocks. There are an estimated 6 billion ounces of gold in the world. Compare that to the sharp expansion in the Federal Reserve’s balance sheet.
Write to Andrew Bary at [email protected]
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