Gold has certainly been off the radar of traders and investors the past several years, as stocks continue one of the best bull runs in history. Unfortunately for gold bugs, the “risk on” environment broke gold’s multi-decade bull market rally, which effectively ended in April 2011, when the price of gold hit an all time high of $1,923. Since then, gold has sunk to a range of roughly $1000-$1300 since 2011. However, Sterne Agee analysts believe it the time may be near for gold’s resurgence. One major aspect that analysts are seeing is that demand for gold as an investment is rebounding, particularly after the Greece vote and with the impending showdown that ultimately could lead to a Greek default.
Worldwide central bank easing
As the US Federal Reserve continues to look for an optimum opportunity to tighten policy by raising interest rates, the rest of the world has been busy propping up their markets by continuing to deploy easing policies. The Eurozone’s recent bout of new QE program will flood billions of euros into the market, in an effort to stomp out deflation and revive growth. China also has been busy with easing, as it cut bank cash reserve requirements for the first time since 2012. In other words, Chinese banks now do not need to hold as much cash on hand and can now use extra funds to use in operations. Australia’s central bank cut interest rates from 2.5% to 2.25% last week, and the list goes on. Tie all of this into the possibility of a “Grexit” or Greek exit from Eurozone and massive debt write-offs, there is a lot of uncertainty out there that is making investors extremely nervous.
Michael Mauboussin: Challenges and Opportunities in Active Management And Using BAIT #MICUS
Michael Mauboussin's notes from his presentation at the 2020 Morningstar Investment Conference, held on September 16th and 17th. Q2 2020 hedge fund letters, conferences and more Michael Mauboussin: Challenges and Opportunities in Active Management Michael Mauboussin is Head of Consilient Research at Counterpoint Global in New York. Previously, he was Director of Research BlueMountain Capital, Read More
Gold miners get boost from energy savings
Gold miners are having a great 2015 so far. The Market Vectors Gold Miners ETF (GDX) is up nearly 17.50% year to date and the Market Vectors Junior Gold Miners ETF (GDXJ) is up 13.12% during the same period. Being that gold’s spot price has roughly not moved around a whole lot, what could be the reasoning for these gains?
When looking at the largest costs for gold miners, you will find that energy racks up 20-30% of total costs for operations. With the massive fall in crude oil, gold miners are seeing big savings and the fact that it is cheaper to conduct operations. Another huge cost aspect up to 50% of total costs, in some cases, are labor and local administration costs. However, being that mining conducted in Australia, Canada, Mexico, etc, miners based in the US have seen US Dollar strengthen against these other currencies by as much as 10% to 15%.
Sterne Agee analysts currently rate Agnico Eagle Mines Ltd, Coeur Mining Inc, Gold Resource Corporation, and Newmont Mining Corp as Buys. Barrick Gold Corporation, Hecla Mining Company, and Pan American Silver Corp are currently rated as Holds, according to Sterne Agee.
Overall, with uncertainty lingering around the world and the continued delay of US interest rate hike, gold should continue to see demand. Miners will benefit from this strength in gold and from continued international currency weakness and energy costs fall.