Gold prices surged to a nine-year high on Tuesday while the dollar weakened after European Union leaders reached an unprecedented $2 trillion stimulus package agreement.
This boosted investor sentiment as the unprecedented stimulus package is likely to push real interest rates even lower, fueling a boom for non-yielding assets such as gold. A new surge in COVID-19 cases threatens to derail the economic recovery further increasing the demand for safe-havens.
Spot gold was up 0.8% at $1,856.13 per ounce, after hitting its highest since September 2011 at $1,865.35 earlier, according to Reuters.
As a result, hedge funds and institutional investors are turning to gold ETFs, gold stocks and bond fixed-income ETFs. Some like Diego Parrilla who manages the $450m Spanish-based Quadriga Igneo fund, who returned 47% in 2020 by investing in gold and Treasuries, says the next decade will be marked by inflation that central banks are unable to control. He describes a scenario where gold continues to rise, pushing beyond $3,000 and even $5,000 an ounce in the next three to five years, up from the current price of $1,800. The yellow metal has always performed well in times of severe economic duress and the coronavirus pandemic has been unprecedented in its effect on capital markets and the global economy.
For the moment, it seems his projections may not be without merit as the current Gold (XAU/USD) bulls remain unstoppable. The persistent weakness seen in the US dollar across the board continued to bode well for gold, as the yellow metal rallied nearly $15 in a matter of 15 minutes. The spot refreshed the highest levels in nine years at $1866.90.
The bullish run of gold has been affecting the gold stocks of Canadian junior miners as big companies alike. This week, Canadian gold miner Yamana Gold announced its upcoming listing on the London Stock Exchange. Backed by its strong performance in “friendly mining jurisdictions”, the gold producer plans on tapping into a larger pool of capital through the listing.
The move comes after the biggest and most successful gold company on the exchange last year, Randgold Resources, delisted after being acquired by Barrick Gold. This has opened the space for a Canadian gold miner that has the scale and performance record to appeal to mainstream investors — who also expect to receive dividends.
Yamaha Gold has five operating mines in the Americas, is a nice differentiator from other Canadian junior gold miners who mainly operate in countries with a high degree of political risk. The almost $1bn in dividends that Yamaha has paid shareholders since 2007 will likely appeal to investors looking for exposure to the rising gold price.
Analysts highlight the current time as a prime opportunity to trade gold and gold stocks. Gold has risen almost 20% since the start of 2020 to a nine-year high of more than $1,800 an ounce, boosted by worries over the global pandemic and rising tensions between US and China ahead of the upcoming US presidential elections.