KGC - How Much Higher Are Gold Prices Going?
Gold Prices Reached A Fresh All-Time High On August 5th
Gold prices per ounce inched higher on Wednesday. The precious metals hit a new, all-time high of $2,070.30 but some analysts think this could be a bad sign. This isn’t necessarily a negative for gold but for the underlying stock market itself. Stocks are soaring right now. Tech has lead the charge with top tech names like Apple, Amazon, and others pushing boundaries in the stock market.
Despite this as the case, continuous government spending, quantitative easing, and, of course, the low rate environment have confused some investors. The scenario is historically positive for gold but typically disadvantageous for the financial markets. At some point there will be inflation and coupled with the current situation could make for interesting times.
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Needless to say, investors don’t seem phased. Traders continue piling into equities. Aside from technology, healthcare stocks and consumer cyclicals are favored right now. However, several analysts are seeing the potential writing on the walls with gold’s latest surge. Matthew Miller is an equity analyst at CFRA Research with a focus on metals and mining. He has explained recently that, “A lot of the stock market gains this year have just assumed that everything is going to be fine. If that doesn’t happen, we think the stock market gains that happened are certainly at risk.”
“There is an opportunity cost of holding gold,” Miller said. This is in light of the fact that unlike stocks, gold doesn’t give a dividend nor is there interest. However, in a low rate environment, this opportunity cost leans in favor of gold above other types of investment vehicles.
Other analysts like Giles Coghlan think that “the market is not confident that we have witnessed the end of the coronavirus outbreak.” Coghlan is the chief currency analyst at U.K.-based brokerage, HYCM.
Can Gold Prices Head Higher In 2020?
The U.S. President has hurt the U.S. in an economic stance. A trade war with China and spats with other nations has all but closed off the country to the world stage. That has translated to a weak dollar.
“There are a lot of skeptics out there looking at the stock market and saying, there are a lot of cracks in the real economy. It’s a matter of, what does the real economy look like when you take away all the stimulus that’s out there,” said Miller. However, due to the supposed “cracks” the gold trade could begin to grow more volatile.
“Even if you thought gold was a hedge against inflation or chaos, it’s an extremely volatile asset. It’s not like a bond,” said Bryan Routledge, associate professor of finance at Carnegie Mellon University.
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Obviously, long-term investors want to protect the portfolio values that they’ve built. But in reality, the coronavirus pandemic has changed investment strategy in a dramatic way. There are both macro and micro risks at play. Specifically, production levels are much lower as a direct result of consumption figures getting slashed. In light of this, safe-havens are in high demand. But as we saw in March, even the safe-havens like gold are vulnerable to a market meltdown.
Gold Stocks Reach New Highs As Gold Prices Spark Momentum
Despite the risks, gold stocks are performing very well right now. As the price of gold surged on August 5th, so too did a number of gold stocks.
Kinross Gold (NYSE:KGC)
Kinross Gold stock (KGC Stock Report) hit a high of $10.21 on Wednesday. the stock saw some of its highest trading volume since April. This not only comes on the heels of a higher gold price but also following the company’s latest earnings.
J. Paul Rollinson, President, and CEO made the following comments in relation to 2020 second-quarter results, “Kinross had a strong second quarter, as we generated robust free cash flow, more than doubled earnings year-over-year, and continued to strengthen our investment-grade balance sheet. Our margins increased 53% year-over-year, well above the 31% increase in the average realized gold price. Our portfolio of mines performed well and continued production during the quarter, with our three largest producing mines — Paracatu, Kupol and Tasiast — delivering the lowest costs.”
Freeport-McMoRan Inc. (NYSE:FCX)
Shares of Freeport-McMoRan Inc. (FCX Stock Report) also reached fresh highs on August 5th. FCX stock hit $14.43 during the Wednesday morning session. This puts the gold stock up nearly 180% since its drop in March.
Late last month Freeport reported an earnings beat on EPS. Unfortunately it missed on sales figures. However, in his commmentary, CEO Richard Adkerson explained that he believed the biggest risk at its Grasberg Mine Expansion are behind the company. He expects a strong financial position in 2021. Based on that, Adkerson says he expects to reinstate the company’s dividend. Further to these results, FCX stock saw several analysts jockeying their outlook on the company.
Barrick Gold Stock (NYSE:GOLD)
One of the top names in the gold sector also eeked out new 52-week highs on Wednesday. Barrick Gold Stock (GOLD Stock Report) reached $30.69 during the first 30 minutes of trading. Not only has it climbed more than 130% since March, Barrick Gold stock is up more than 180% over the past 2 years. Similar to Kinross and Freeport, Barrick also recently reported results.
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Earlier in July, the company reported preliminary second-quarter sales of 1.22 million ounces of gold and 123 million pounds of copper. It also reported preliminary second-quarter production of 1.15 million ounces of gold and 120 million pounds of copper.
Group gold production for the first six months of 2020 was 2.4 million ounces, at the midpoint of the company’s 4.6 to 5.0 million ounce guided range for the year.