As TSX slips from record high, gold stocks weigh

By Staff Writer / January 26, 2020 / Article Link

Canada's main stock index saw it last session end in gains on Tuesday, as energy and gold stocks fell following an increasing global panic due to concerns over a virus outbreak in China.

Markets worldwide fell with the materials sector losing 1.3% as gold futures falling 0.2% to $1,555.1 an ounce. The price of gold lost 0.15% on Tuesday, extending its short-term consolidation. This comes after last week’s Wednesday’s record-breaking advance above the $1,600 mark that ended with a sharp intraday downturn. The market got close to the $1,570 level yesterday, before getting back below the resistance level of $1,560.However, safe-haven demand capped losses for the yellow metal.

The price of gold continues to retrace the decline from earlier this month and holds above the January low ($1517). The latest developments in the trade talks between the US and China and the virus outbreak are now causing a mixed outlook as the precious metal tries to retain the upward trend from December.

These movements in the gold price chart an almost two-week long consolidation. The overall short-term risk-on action on the financial markets is a direct response to last week’s U.S. and China Phase One trade deal. The price of gold is currently 0.1% lower, so it is extending the consolidation.

Still, the broader outlook for gold prices remains constructive, with the reaction to the former-resistance zone around $1447 (38.2% expansion) to $1457 (100% expansion). Investors are seeing this as an indication that there is no threat of a Head-and-Shoulders formation as senior and junior gold miners’ stocks act as support.

The end of 2019 saw the gold sector undergo serous reconfiguration with Newmont Goldcorp and Barrick Gold participating in a pair of mergers that rearranged the gold production sector. Among other notable Canadian gold miners was Kirkland Lake Gold, which gained more than 600%. The company’s gold stock was one of 2019’s best-performing Canadian stocks in terms of share price appreciation. Centamin is another gold miner with a high yield, currently around 4.37%, after ditching more than 7% on the back of a merger termination.

The latest drop in gold prices was not favorable for Alacer Gold Corp. The Canadian gold miner was the second-biggest decliner on the TSX with its shares falling down 6.6% after it provided its 2020 forecast.

It is still too early on in the year to assume that the pullback in recent days can possible mean an end to the 2020 rally of gold prices. The overall sentiment among investors is that the yellow metal is just taking a pause before another run to new multi-year highs. As such, interest in acquiring gold stocks and bullion for some exposure to gold as part of building a balanced portfolio is still high.