Gold continues to lead metal-sector outperformance within a challenging broader commodity market, in the past week. Although gold prices dropped Thursday to post their lowest finish in three months and largest weekly percentage decline in more than a year, gold futures settled higher Wednesday, a day after the precious metal lost its grip on the psychologically significant $1,500 mark amid gains in stocks.
Equity corrections accelerated the process of the primary precious metal advancing vs. the primary industrial. This year's plunge to record lows in the U.S. Treasury 30-year yield and rally in gold vs. copper appear to be a delayed reaction to the late-2018 downdraft in the S&P 500, the index's first 20% correction in seven years.
The majority of investors continue to see gold as “range bound” in the $1,485 to $1,525 as these large dips present buying opportunities for longer-term investments. The short-term falls that were observed do not affect the longer-term outlook for gold, which remains positive. This sentiment is largely fueled by the loosening trade conditions between the US and China as the two countries agreed to lift some tariffs on one another in stages if the two countries reach a partial trade deal on Thursday. Since China is a big consumer of the precious metal, the latest developments in the US-China trade talks are likely to boost the physical demand outlook for gold both directly and indirectly via a stronger yuan.
At the same time, news from senior gold miner Barrick Gold helped Canada's main stock index edge higher on Wednesday. The Canadian miner posted an upbeat earnings report that bolstered gold mining stocks, while losses in energy shares kept a check on further gains.
The continued upwards pressure to underlying gold allocations following recent monetary policy guidance, strength in US equities, and potential trade deal headlines have introduced some uncertainty in the market, capping the upside. These trends are expected to continue, and to balance out to ongoing interest in the space with price consolidation before year-end.
Gold prices and gold stocks continue to maintain the upper hand despite copper and crude jumping at least 2%. Fed easing and U.S. unemployment the last week of October are unlikely to reverse the trend in rising prices of precious vs. industrial metals.
The materials sector added 0.4% as Barrick Gold Corp jumped 3% after beating quarterly profit estimates and raising its dividend payout, benefiting from higher production and better gold prices.
Gold miner Kinross Gold fell 11.2%, the most on the TSX. Semafo posted another drop in its gold stocks after the gold miner said five of its buses with a military escort came under fire on the road leading to its Boungou mine in the eastern region of Est in Burkina Faso.
Gold’s upside seems to be carrying junior and senior miners along for the ride although these are some concerns that small-cap miners are poised to diverge in bearish fashion from their large-cap peers. Additionally, we saw gold ETFs pushing to the upside amid increased expectations of a U.S. rate cut. Gold is believed by many investors to be inversely correlated with interest rates. As a result, rising interest rates make bonds and other fixed-income investments more attractive so that the money will flow into higher-yielding investments, such as bonds and money market funds, and away from gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs.