NEM - Gold Prices Back On The Move As Oil Price Slides
The price of gold has run into a bigger patch of volatility over the last few days. With the economy seemingly back on track and ready to reopen, safe-havens aren’t as sought after right now; or are they? While oil prices soared last week, there’s a much different tone during April’s final days. There was a big dip in crude oil prices overnight that continued well into the Monday session.
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In light of this, gold futures rebounded during latte evening and early morning trade. However, when it came to the general market session, the price of gold was a bit muted by the rising price of stocks. Needless to say, the stock market today continues to ebb with headline risk playing a leading role.
Market sentiment remains on a razor’s edge with shifting outlooks every day. But something we do know is that with continued oil production, lacking oil demand, and fewer places for storage, oil could face a big problem. With that, the price of gold and gold mining stocks could benefit.
Since some mines are coming back online, obviously production figures for Q1 and Q2 would likely be less than expected. However, we also need to keep in mind that production costs could be lower. This theoretically could lead to higher margins for these companies. How could costs be lower?
Oil & Gold Stocks
When it comes to oil and the price of gold, we should look at costs of production. One of the main costs is mining itself. The energy-intensive process also employs the use of fossil fuels to run generators, heavy machinery, and the like. With a lower price of oil, that could free up space when it comes to meeting or exceeding expectations on the bottom line of the financial statement.
And the physical gold market could also suggest pent up demand coming down the pike. According to a Bloomberg article, consumers who want to buy gold coins typically have to pay more than the per-ounce prices quoted on financial markets in London and New York. That premium has jumped to $135, more than tripling from two months ago, said Robert Higgins, chief executive officer at Argent Asset Group LLC in Wilmington, Delaware.
“Until the world catches up with the imbalance and gets back to a normal balance of supply and demand, the premiums will stay,” Higgins said. This is much different than we saw last year. According to the World Gold Council, the demand for gold bars and gold coins dropped by 20%. These were the lowest levels since 2009. Furthermore, the lasting effects of coronavirus could see far more stimulus measures down the road.
“Even when the lockdown is lifted, the world will still be far from any kind of normality. In fact, the bigger risk then is economic collapse, as indicated by the disastrous economic indicators virtually everywhere. To counter this, governments around the globe are likely to continue spending unparalleled sums of money — most of which will be created by the central banks,” said Carsten Fritsch, an analyst at Commerzbank in a note.
Gold Stock Hold Gains On Monday
While the gold futures remain in somewhat of a state of limbo, several gold stocks continue to hold gains from last week. Moreover, these same gold stocks have held most of their gains from the month of April. These last few weeks have seen major issuers like Barrick Gold stock (GOLD Stock Report), Newmont gold stock (NEM Stock Report), and even Kinross gold stock (KGC Stock Report) reach fresh highs for the year.
Even higher-priced gold stocks like Franco-Nevada (FNV Stock Report) reached new highs during premarket trading on Monday. Despite the intra-day pullback, where do you think the price of gold is headed during Q2? Leave a comment below and let us know your predictions.