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Comparing gold futures with the Nasdaq, Dow and Russell 2000 is an interesting study. Over the last 5 years, you see both positive and negative correlations between the markets and gold futures.
This doesn’t seem to make sense at first because in general, gold is considered a safe haven. In bearish markets, people tend to prefer real assets like gold, which supports gold prices and makes it a safer investment. But if the downturn is related to inflation and interest-rate hikes, the opportunity cost of gold increases, i.e., you lose the interest on the money you invest in gold, which is a non-interest-bearing asset.
So, we could reasonably assume that if interest rates continue to rise, people would be less willing to invest in gold, thus bringing down prices again. Which would limit gold’s value as a safe haven.
In comparing with the major indexes, we also see that while gold futures returned around 48% over the last five years (same as the Dow), the Russell 2000 returned 25% while the S&P 500 returned 61%. This seems to indicate that small caps aren’t nearly as good as gold when it comes to preserving value while large caps are somewhat better.
During the same time period, the tech-heavy Nasdaq returned 89%, indicating that investing in technological innovation is far more rewarding than preserving value in gold. And because we have seen a lot of tech innovation in the last five years, more money is likely to have flowed into tech during the downturn (when the pandemic hit in March 2020), thus containing the rise in gold prices.
Let’s see what appears to be happening today.
In addition to the interest rate hikes and value in tech phenomena described above, there is the strong dollar and softer demand from the largest consumer China (because it now has economic issues of its own). These are downward pressures on the yellow metal.
But there are also some supporting factors. The G-7 nations have decided to stop buying Russian gold, which could raise prices. A more significant factor that isn’t great news for the economy is the increasing possibility of a big recession, not only in the U.S but globally.
The likelihood of this happening is increasing every day, which means that putting at least some of your money into gold and related assets while prices are not too high seems wise. For those wanting to go that route, here are a few gold-mining stocks worth buying today:
Headquartered in Vancouver, Canada, Galiano Gold (formerly known as Asanko Gold Inc.) explores and develops gold fields. Its primary asset is in the Asanko Gold Mine in Ghana, West Africa. We have a Zacks Rank #1 (Strong Buy) rating on the shares. It’s also worth noting that insiders have been buying more than selling the stock over the past 12 months.
Denver, Colorado-based Gold Resource explores for, develops and produces gold and silver projects in Mexico and the United States. The company also explores for copper, lead and zinc deposits. Its principal asset is the fully-owned Back Forty project in Menominee county, Michigan. The shares carry a Zacks Rank #2 (Buy) rating.
Vancouver, Canada-based Gold Royalty Corp provides financing solutions to the metals and mining industry. It acquires royalties, revenue streams and interests at varying stages of the mine life cycle. Its portfolio of 17 gold properties in the Americas offers near, medium and longer-term returns to investors. The shares carry a Zacks #2 rank.
One-Year Price Performance
Image Source: Zacks Investment Research
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Is Gold Losing Its Safe-Haven Status?
Comparing gold futures with the Nasdaq, Dow and Russell 2000 is an interesting study. Over the last 5 years, you see both positive and negative correlations between the markets and gold futures.
This doesn’t seem to make sense at first because in general, gold is considered a safe haven. In bearish markets, people tend to prefer real assets like gold, which supports gold prices and makes it a safer investment. But if the downturn is related to inflation and interest-rate hikes, the opportunity cost of gold increases, i.e., you lose the interest on the money you invest in gold, which is a non-interest-bearing asset.
So, we could reasonably assume that if interest rates continue to rise, people would be less willing to invest in gold, thus bringing down prices again. Which would limit gold’s value as a safe haven.
In comparing with the major indexes, we also see that while gold futures returned around 48% over the last five years (same as the Dow), the Russell 2000 returned 25% while the S&P 500 returned 61%. This seems to indicate that small caps aren’t nearly as good as gold when it comes to preserving value while large caps are somewhat better.
During the same time period, the tech-heavy Nasdaq returned 89%, indicating that investing in technological innovation is far more rewarding than preserving value in gold. And because we have seen a lot of tech innovation in the last five years, more money is likely to have flowed into tech during the downturn (when the pandemic hit in March 2020), thus containing the rise in gold prices.
Let’s see what appears to be happening today.
In addition to the interest rate hikes and value in tech phenomena described above, there is the strong dollar and softer demand from the largest consumer China (because it now has economic issues of its own). These are downward pressures on the yellow metal.
But there are also some supporting factors. The G-7 nations have decided to stop buying Russian gold, which could raise prices. A more significant factor that isn’t great news for the economy is the increasing possibility of a big recession, not only in the U.S but globally.
The likelihood of this happening is increasing every day, which means that putting at least some of your money into gold and related assets while prices are not too high seems wise. For those wanting to go that route, here are a few gold-mining stocks worth buying today:
Galiano Gold Inc. (GAU - Free Report)
Headquartered in Vancouver, Canada, Galiano Gold (formerly known as Asanko Gold Inc.) explores and develops gold fields. Its primary asset is in the Asanko Gold Mine in Ghana, West Africa. We have a Zacks Rank #1 (Strong Buy) rating on the shares. It’s also worth noting that insiders have been buying more than selling the stock over the past 12 months.
Gold Resource Corp. (GORO - Free Report)
Denver, Colorado-based Gold Resource explores for, develops and produces gold and silver projects in Mexico and the United States. The company also explores for copper, lead and zinc deposits. Its principal asset is the fully-owned Back Forty project in Menominee county, Michigan. The shares carry a Zacks Rank #2 (Buy) rating.
Gold Royalty Corp. (GROY - Free Report)
Vancouver, Canada-based Gold Royalty Corp provides financing solutions to the metals and mining industry. It acquires royalties, revenue streams and interests at varying stages of the mine life cycle. Its portfolio of 17 gold properties in the Americas offers near, medium and longer-term returns to investors. The shares carry a Zacks #2 rank.
One-Year Price Performance
Image Source: Zacks Investment Research