Global market swoon giving Canadian gold miners a boost
As North American markets limp through declines not seen since February, investors are scurrying to park their money in a familiar “safe haven”: gold.
The yellow metal has undergone a mini rally since last Wednesday, when the Dow Jones Industrial Average shed more than 800 points amid a bout of global market skittishness.
Last Thursday, the price of gold jumped to US$1,227.60/oz from $1,193.40 and, after a small dip Friday, prices continued to rise Monday, surpassing US$1,230/oz as the Toronto Stock Exchange closed. Canadian gold miners have seen their share prices soar as a result.
Since markets closed on Oct. 9, Barrick Gold Corp. has seen its shares increase by 12.76 per cent to $16.52, while Kirkland Lake Gold Ltd.’s shares shot up by 12.15 per cent to $27.32. Goldcorp Inc, meanwhile, gained 9.41 per cent as its shares rose to $14.27.
Gold has traditionally offered investors an escape from the volatility of equities markets, said Jasper Lawler, head of research at London Research Group. Recently, however, its underperformance has seen investors turn to the U.S. dollar instead.
But with the U.S. dollar now also under pressure — the U.S. Dollar Index, which measures the international value of the currency, has taken a 0.72 per cent hit since last Monday — and continuing to soften due to poor retail sales data, investors may have sought another solution.
“We do seem to have shifted into a new era in which gold is the preferred haven,” Lawler said.
“And so we’d expect if there is another blow in equities ... there will be increased volatility.”
The dollar “lost credibility,” Lawler said, after U.S. President Donald Trump called the Federal Reserve “loco” for increasing interest rates. It’s unlikely, but investors may have ditched the dollar in fear that Trump’s comments could influence the Fed, he said.
Alfonso Esparza, a senior market analyst with currency trader Oanda Corporation, said Trump’s comments created a “perfect storm” for gold prices to inflate.
“We have a sitting president that’s very critical of the Fed,” Esparza said. “The Fed is one of the things that keeps the gold price under pressure. Right now, they ’re under pressure.”
The surge in gold came after the National Bank of Canada slashed its gold price assumption to $1,200/oz from $1255/oz for the fourth quarter.
The bank, which remains overweight on the sector, also reduced its target prices on more than a dozen gold companies, according to a note for investors.
Esparza said that gold hadn’t been performing well and wasn’t getting traction as a result of the political storms brewing in China and the U.S.
Gold usually performs well when the economy doesn’t, Lawler said. He doesn’t expect the boom to be short-lived, but that could quickly change.
“If equities rally from here, gold will struggle,” Lawler said.