Gold prices finally edged lower on Tuesday, still remaining above the threshold of $1,800 they were able to break last week. As the U.S. dollar strengthened, although worries over surging coronavirus cases globally and US – China tensions remain, spot gold was down 0.1% at $1,801.11 per ounce by 0647 GMT. U.S. gold futures fell 0.6% to $1,804.
"We are seeing pressure on risk assets given the sentiment and concerns, particularly about China and U.S. relations. But the reversal of dollar weakness is knocking gold around a little at the moment, particularly given that prices are around 9-year highs," said Michael McCarthy, chief strategist at CMC Markets.
Renewed concerns about diplomatic tension between the United States and China along with a stronger euro on news of a possible stimulus package from Brussels dented risk appetite, capping losses in bullion, which is considered a hedge against political and financial uncertainty.
Reflecting increased investor interest in gold, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.3% to 1,203.97 tonnes on Monday.
On the technical front, a bullish target of $1,831 per ounce has been aborted for spot gold as it is about to break a support at $1,796, said Reuters technical analyst Wang Tao.
Gold’s performance on the market didn’t much affect gold stocks of Canadian gold mining companies, which were busy procuring lucrative deals and securing new mining operations.
Analysts and investors reacted positively to Toronto-based miner Alamos’ $514-million expansion of its Island Gold mine in northern Ontario. The move will increase production while taking the cost per ounce of producing gold to industry leading lows, according to the Canadian gold miner.
This decision to proceed is based on a study of several options that concluded the best path forward for a mill upgrade and shaft expansion to increase ore extraction to 2,000 tonnes per day from the current 1,200 tonnes by 2025.
In a research report, analysts at Stifel GMP highlighted the planned expansion as a "low risk, low operating cost project" that would make sense even if gold prices were lower than the current multi-year highs.
They raised their target share price to $20 from $15.
Among the smaller names in the Canadian junior gold mining industry, Yamana (AUY) stock has been a strong performer. The stock has surged by 111% in the last one year. The company reported operating cash flow of $129.4 million in the first quarter, having benefited from higher gold prices.
From an investment perspective, the gold stocks of these gold mining companies can be considered for capital gains and higher dividends in the coming years regardless of where the price of gold will go from here.