Gold prices have reached new highs due to weakness in the dollar, and the metal may soon hit $ 2,000 per ounce level.
On Monday, gold rose $ 33.70, to $ 1,931.00 an ounce. The old peak set in August 2011 was around $ 1,900 an ounce. Gold is now around 27% this year, making it one of the better asset classes.
Investment demand remains strong. According to Bloomberg data, gold volume in exchange-traded funds reached a new high of 106.7 million ounces on Friday, up more than three million ounces so far in July, and up 30% this year. The largest ETF, SPDR Gold Shares (ticker: GLD), was on record for 39.5 million ounces on Friday.
Mining stocks were high. The Van AK Vectors Gold Minors Exchange-traded (GDX) fund was up 4.8% at $ 43.84, Newmont (NEM) was up $ 2.29, or 3.4%, at $ 69.04, and Barrick Gold (Gold) was up 5.2% at $ 29.91. Barrick and Newmont are the two major gold mining stocks.
Mining stocks may have more room to rally as their profits are levied on gold prices. According to the company’s presentation, Newmont’s free cash flow increases gold prices by $ 400 million annually for every $ 100 movement, with a base of $ 1 billion in free cash flow.
At current gold prices, Newmont’s annual free cash would be more than $ 3.8 billion based on that analysis. The company has a market value of about $ 55 billion.
Baron’s Gold and mining stocks have been on the upswing, including a cover story in 2018 and an article in March. Earlier this month, our up and down Wall Street columnist Randall Forsythe was also a gold booster.
Silver moved up $ 1.67 an ounce, or 7.3%, to $ 24.48 an ounce on the gold move. Silver, which is generally more volatile than gold, has weighed more than a third in this month. The gold / silver ratio continues to decline and has fallen from a peak of around 125 in March to around 80 now.
Pan American Silver (PAAS), one of the leaders, has a relatively low silver parity of 5% Monday to $ 38.77. Pan American Silver received more than half of its revenue from gold last year. The Global X Silver Miners ETF (SIL) is up 6.6% to $ 49.99. Silver is commonly found in mines along with other metals such as gold.
Gold reverses with the dollar and the dollar weakens with the US dollar index closing at 0.78 to 93.66, its lowest level since 2018. The dollar index is down about 10% from its March peak.
Gold in the US is also supported by nominal US interest rates and negative real rates. The yield on 10-year Treasury inflation-protected securities is about 1%.
Mark Heffel, chief investment officer of UBS Global Wealth Management, wrote on Friday that he is pushing the price of gold to $ 2,000 an ounce and that it provides the benefits of metal diversification and protection from market volatility.
“While we feel that gold will continue to be supported by geo-political tension, we think the primary driver of the gold price is its negative correlation to real interest rates and the dollar. We think these three factors combine with limited supply growth.” As miners continue to control prior expenditures, gold prices will increase more, ”Haffel wrote.
The new mining supply of gold is less than 2% annualized in the above shares. There is an estimated 6 billion ounces of gold in the world. Compare that with the sharp expansion in the Federal Reserve’s balance sheet.
Write Andrew Barry at [email protected]