Gold continues its upward journey on bleak economic outlook

By Staff Writer / May 20, 2020 / Article Link

News of more tensions between US and China and a potentially new trade war sent waves through international markets at the beginning of the week. The two world leaders are currently locked in a battle of trying to pinpoint the origin of the coronavirus that shut down whole countries, disrupted supply chains and brought to halt entire sectors, causing an economic slowdown similar to the one during the Great Depression.

Despite a disruption in production, many major and Canadian junior gold miners announced satisfactory first-quarter earnings and gold stocks climbed up, as a result. They were able to achieve outsized gold production growth bucking the global trend of slowing mine output.

Similarly, gold prices have been enjoying a bullish run as investors look for a safe haven against the backdrop of economies attempting to reopen from the COVID-19 pandemic. While many gold miner’s mines continue to face shutdowns in Q2, plenty of junior gold miners remain unaffected. As Canada and other countries are slowly beginning to lift restrictions and green-light those shuttered mines, miners will rush to make up for lost production.

Gold prices headed higher Wednesday for a second session with spot gold climbing up 0.3% to $1,748.73 per ounce by 0921 GMT. U.S. gold futures rose 0.5% to $1,753.40 per ounce. Prices are nearing a level that would mark the metal’s highest close since mid April, according to FactSet data.

Analysts see gold’s performance reflective of its growing inherent strength. Despite fluctuations in risk sentiment in the interim and significant policy easing largely expected, strategic diversification into gold remains warranted as real rates are likely to remain negative for a prolonged period,” Joni Teves, strategist at UBS wrote in a research report dated Tuesday.

Canadian gold mining stocks have rallied dramatically out of mid-March’s stock-panic lows, soaring to new bull-market highs. Recent Q1’20 operational and financial results point to a long-term gold stocks upleg despite the catastrophic economic damage from governments’ lockdowns.

The global pandemic of COVID-19 definitely pushed up operational costs for gold miners. Cash costs are the classic measure of gold-mining costs, including all cash expenses necessary to mine each ounce of gold. They are misleading as a true cost measure though, excluding big capital needed to explore for gold deposits and build mines.

In Q1’20 the GDX-top-34 gold miners reported average cash costs of $653 per ounce. That was up 6.0% YoY, and on the high side of the 16-quarter range from $591 to $679. But obviously that’s far below prevailing gold prices, proving miners have no problem keeping the lights on. Q1’s impressive $1582 average gold price soared a massive 21.4% YoY from Q1’19’s $1303! So it sure wasn’t a quarter where gold miners struggled.

The $650 per ounce they gold miners earned in Q1’20 soared 58.5% YoY from Q1’19’s $410. Putting up huge results like that should get the major gold stocks on all institutional investors’ radars.