Gold prices soared on Aug 5, extending a superb run for the yellow metal that logged gains for the fourth straight trading session.
The metal has climbed more than 20% so far this year, surpassing the 22.5% year-to-date rally of the Nasdaq Composite Index that predominantly comprises high-flying tech stocks. Nonetheless, yesterday’s gains helped gold prices notch the seventh record close in eight sessions, the maximum number of record closes since April 2011, per Dow Jones Market data. Gold prices, in fact, rose $34.70 or 1.4% to $2,049.30 an ounce on Aug 5 and has already gained nearly 3.3% so far this week.
What’s more, Jan van Eck whose father John launched the first American gold fund in 1956, believes that gold may touch $3,400 in the near term, representing a roughly 68% upside from the current level. At the same time, analysts at BofA Global Research expect the yellow metal to soar 50% in the next 18-month period to around $3,000.
But what’s driving the metal and the optimism that it will continue to hit record highs? The answer is a low interest rate environment and a weak dollar.
Lower interest rates tend to make bonds and other fixed-income investments less attractive. Thus, money flowed out of bonds and money market funds into gold. The Fed, incidentally, kept its benchmark short-term interest rate near zero last month and vowed to use its tools to revive the economy battered by the coronavirus pandemic. The Fed’s federal fund rate remains within a range of 0% to 0.25%.
By the way, when the value of dollar drops relative to other currencies, the price of gold tends to rise in dollar terms. But why is the U.S. dollar weakening? Primarily, the dollar has been more or less 20% overvalued before May, which eventually led to the slide in the past three months. What’s more, fresh spike in coronavirus cases in some of the states and the struggle to contain the spread have dashed hopes of a V-shaped recovery, eventually impacting the greenback.
To make matters worse, a weaker-than-expected reading in private-sector payrolls for the month of July boosted the yellow metal’s safe-haven appeal. Rising coronavirus infection rates slowed down the pace of U.S. private sector jobs, according to Automatic Data Processing Inc. (ADP - Free Report
) . Job gains came in at 167,000, way less than analyst expectations of 1.9 million gains.
3 Gold Mining Stocks to Gain Traction
Thanks to a weakening U.S. dollar, the Fed’s holding of interest rates at an all-time low and discouraging private sector job additions amid the pandemic, the appeal for gold has increased.
And as the bullion metal glitters, gold mining stocks have a fair chance to gain. We have, thus, highlighted three stocks that are worth keeping an eye on.
Barrick Gold Corporation
(GOLD - Free Report
) engages in the exploration, mine development, production and sale of gold properties. It has ownership interests in old mines that are located in many parts of the world, including the United States.
Barrick Gold is poised to gain from actions to cut debt and progress of its key projects. Moreover, the merger with Randgold and joint venture with Newmont provide additional upside.
Equinox Gold Corp
. (EQX - Free Report
) engages in the acquisition, exploration, and development of mineral deposits. The company primarily explores gold deposits. One of its principal properties is the Castle Mountain property in California.
Equinox Gold currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings has risen more than 100% over the past 60 days. The company’s expected earnings growth rate for the current year is 255.2%.
Kinross Gold Corporation
(KGC - Free Report
) engages in the acquisition, exploration and development of gold properties, principally in Canada and the United States.
Kinross Gold is making steady progress in advancing the projects that give it a strong growth profile among leading gold producers. The Tasiast expansion is expected to contribute to growth. Tasiast is an operating mine and further expansion of the project will naturally boost productivity. It is also likely to gain from organic development projects and opportunities in the Americas. The Gilmore project is a low-cost brownfield expansion with low risk.
Kinross Gold currently has a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings has moved 10.9% north over the past 60 days. The company’s expected earnings growth rate for the current year is 79.4%.
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