Is gold on track to hit $5,000?

By Staff Writer / December 02, 2020 / Article Link

Futures for TSX jumped on Tuesday driven by higher gold. This marked the end of the roughly five-month low to log the sharpest one-day gain in more than three weeks, supported by a sharp decline in the U.S. dollar.

The yellow metal rebounded with a “little bargain shopping” that was a bit “like Black Friday/Cyber Monday in the gold sector,” commented Jeff Wright, executive vice president of GoldMining Inc.

This marks the continuation of a trend where investors have increasingly been allocating to gold in the current market environment. Junior Canadian gold miners and junior miners, in general, have demonstrated the most positive capital appreciation and diversification potential. Given the current economic situation and outlook mid-tier and small exploratory gold producers can’t be ignored.

As a result, junior gold mining ETFs are rising in popularity as they include both gold stocks and silver mining stocks. Their diversification means they are not overly allocated to large-cap stocks as well.

ETFs are going strong on the March – July rally of gold mining stocks with many junior miners registering major gains. Eldorado Gold (EGO) and Yamana Gold (AUY) are two of the mining stocks in the sector that generated hefty returns for investors and are poised to gain further if the gold rally continues.

Additionally, gold miners have put cost controls in place as the price of the underlying metal rose to new all-time highs. This has resulted in record free cash flow, according to Metals Focus. As costs have been contained, companies can now remain focused on maintaining operating and capital cost discipline to maximize value from their [existing] mines.

This is very good news for investors as this may mean higher shareholder payouts in the future.

With gold surging 6.5% ever since the Brexit decision and retaining its rally in the months preceding the US Presidential election and through the global pandemic, the yellow metal has only been climbing higher by each day. Many analysts believe that there are serious grounds to believe the price of gold will surge by at least 260% at $5,000 an ounce by the year 2020. The prediction is quite bold and certain catalysts must be present to actually help gold reach this peak.

Bank of America Merrill Lynch says it expects gold to hit $3,000 by early 2022 while Citigroup and billionaire Thomas Kaplan, founder of New York-based asset management firm Electrum Group, believe that $5,000 is in the crosshairs.

Even with the Covid-19 situation improving and economies slowly returning to pre-pandemic levels, hedge funds, Wall Street, and investors alike continue being extremely bullish about gold.