Wednesday’s trading session saw gold markets quiet down after peeking through the $1700 level on Tuesday. By giving back gains the way the market has, the yellow metal ended up forming the shooting star during the Tuesday session which analysts see as a negative sign. The outlook for the market remains positive as investors continue to be attracted to the safety of gold. Furthermore, the central banks around the world continue to loosen monetary policy, so that of course will drive up demand for gold eventually.
June gold GCM20, 3.69% was at $1,687 an ounce in electronic trading early Wednesday. It settled at $1,684.30 an ounce on Comex Wednesday, up 60 cents, or 0.04%. May SIK20, 4.67% settled 27.5 cents, or 1.8%, lower at $15.205 an ounce.
The improving market sentiment and a weaker USD allowed gold to gain traction. The fundamental backdrop for the gold market remains bullish as gold prices form a solid initial support band between roughly $1,605 and $1,660 on the daily chart.
With the Fed taking steps to ease the strain on the economy and business due to the negative impact of the global COVID-19 pandemic, analysts expect gold prices to continue edging higher albeit in continued volatile trading in the weeks and likely months ahead.
The Fed has slashed interest rates to zero and announced plans to buy at least $700 billion in government and mortgage-related bonds in an attempt to protect the economy from the impact of the coronavirus outbreak. This unprecedented move by the U.S. central bank is reminiscent of the 2008 financial crisis that also saw gold prices spike as the yellow metal attracts buyers in a low interest-rate environment.
Since the start of 2020, the Gold Mining industry has rallied 23.5% against the S&P 500’s decline of 14.2%. However, the broader Basic Material sector declined 36.7%. The current volatility of the market creates good opportunities to invest in some Canadian junior gold miners stocks. Junior gold miner Alamos Gold Inc (AGI) announced first-quarter earnings in 2020 that indicates year-over-year growth of 30%. Kinross Gold Corporation KGC saw its earnings move up 7% in the past 60 days, indicating year-over-year growth of 38%. The company has a trailing four-quarter positive earnings surprise of 182.5%, on average. Pretium Resources Inc. PVG is another Canadian junior gold miner whose earnings for the current fiscal suggest a year-over-year growth of 7.3%. The company has a trailing four-quarter positive earnings surprise of 32.1%, on average.
The last week registered an acceleration of gold stocks and gold prices. Investors are starting to realize that central banks will be forced to print a huge amount of money to fight the coronavirus-induced crisis, so they are turning towards real-value assets.