In the first week of May, gold prices continue to hover near $1,705, hinting at a strong probability that the yellow metal could advance towards $1800 over the coming months.
Crashing oil prices and the global coronavirus pandemic have created an opportunity for stronger Gold demand amid increased economic uncertainty and market volatility. Tuesday’s trading session saw gold prices head for a first loss in three sessions, amid optimism about the easing of business lockdowns in the U.S. and Europe.
The June gold contract was up US$2.00 at US$1,702.90 an ounce and the July copper contract was down less than a penny at US$2.31 a pound.
However, gold’s trajectory is likely to remain upward given that the global economy could take a long time to recover. Both UBS and HSBC analysts perceive gold as “having potential” to break the $1,800 an ounce threshold.
“Gold is looking like a winner at the moment, gold is the true love. In a V, gold gets destroyed, in other scenarios it does very well, gold is the asset to own,” Head of Global Foreign Exchange Strategy David Bloom told CNBC on Monday.
Gold stocks are also gaining as ‘safe haven’ as fiat currencies are being devalued by massive stimulus programs introduced by central banks and governments around the world to alleviate the worst of the coronavirus outbreak. Gold prices are reacting positively to the widespread stimulus measures from central banks because the yellow metal is widely viewed as a hedge against inflation and currency debasement.
Indicative of sentiment, holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.4% to 1,071.71 tons on Monday. Physical demand for gold has also been increasing as investors look for ways to hedge against the debasement of fiat currencies thereby triggering a huge demand for gold ingots, bars and coins.
Amid the gold bull market, several junior gold miners have attracted investor attention with a strong performance of their gold stocks. Canadian gold miner Yamana Gold expects to deliver robust cash flows in the following quarters as a result of expected higher gold prices and the successful completion of projects to enhance the capacity of the Jacobina mill in Brazil. With adjusted earnings per share of 5 cent and another 25% increase in its annual dividend to 6.25 cents per common share, the miner saw its gold stocks close at $4.89 per share on Monday.
There are good news from another Canadian gold miner Agnico Eagle Mines, which also expects to deliver higher cash flows over the following quarters. Despite lowering production guidance for 2020, the company is projecting to mine 1.63 million to 1.73 million ounces of gold and reported an increase in profit by 26.2% to $671.88 million. Agnico’s gold stock closed at a price of $63.38 per share on Monday for a market capitalization of $15.25 billion, a price-book ratio of 3.06, (versus the industry median of 1.31).
Vancouver-based junior gold miner Pretium Resources also presents a lucrative opportunity for investors with a projected strong cash flow in the range of $100 million to $170 million in 2020. As a result of higher throughput and gold prices, its adjusted EPS of 14 cents topped consensus estimates by 4 cents and revenue grew by 22.7% to $126.56 million. In Monday’s trading session, the company’s gold stock traded at $8.47 for a market cap of $1.56 billion.