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Gold Prices Gain 13% in Q2 on Coronavirus Concerns

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Gold prices have gained around 13% in second-quarter 2020 — the largest quarterly percentage increase since first-quarter 2016 when it had posted a rise of 14.6%. In fact, on the last day of the second quarter, gold crossed the $1,800 mark and hit a high of $1,804 an ounce. Gold’s rally in the quarter has primarily been driven by the global uncertainty fueled by the COVID-19 pandemic.

The pandemic and its devastating impact on the global economy has impacted investor’s risk appetite and boosted safe haven demand for gold. Further, the low interest rates scenario make stocks, government bonds and other investments less appealing, making investors opt for gold. Renewed U.S.-China tensions and the civil unrest in the United States also pushed prices north.

Backed by the trend, the Gold Mining industry appreciated 50.9% in the second quarter outperforming the S&P 500’s growth of 25.1%. The industry falls under the broader Basic Material sector, which gained 40% in the quarter under review.

Northern Dynasty Minerals, Ltd. (NAK - Free Report) and DRDGOLD Limited (DRD - Free Report) have been the major gainers during the second quarter, logging gains of 271% and 194%, respectively.

The gold mining industry currently carries a Zacks Industry Rank #70, which places it at the top 28% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Gold stocks are poised for a strong performance in their upcoming second-quarter releases, as higher gold prices will drive the top line. Meanwhile, lower oil prices, which make up around 50% of their production costs, will aid margins. Kirkland Lake Gold Ltd. (KL - Free Report) and Sandstorm Gold Ltd (SAND - Free Report) are worth mentioning with their Zacks Consensus Estimate for second-quarter earnings indicating year-over-year growth of 32% and 300%, respectively.

While Kirkland Lake Gold sports a Zacks Rank #1 (Strong Buy), Sandstorm Gold carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Gold to Gain as Coronavirus Shows no Signs of Letting Up

The momentum has continued in the ongoing quarter as well, with gold trading near $1,800 levels. Gold futures for August delivery settled at $1,793.50 an ounce on Jul 6, after touching a high of $1,799 an ounce.

Per the World Health Organization, global coronavirus cases stand at $11.3 million with a death toll of 532,340 as of Jul 6, 2020. In the United States, cases have surpassed the $2.8 million mark with the death toll currently standing at 129,408. Over the past few days, the country has been reporting an alarming 50,000 new cases daily.

Dr. Anthony S. Fauci, the director of the National Institute of Allergy and Infectious Diseases, blamed "a series of circumstances associated with various states and cities trying to open up" for the surge. Fauci had earlier cautioned that the United States could record as many as 100,000 new cases and the death toll “is going to be very disturbing” if the situation is not managed properly.
 
Other parts of the world are also reeling under apprehensions of a spike in coronavirus cases as governments begin to ease restrictions and reopen their economies. With the pandemic showing no signs of dying down any time soon, the uncertainty regarding its impact on the global economy will continue to trigger safe haven demand for gold. Meanwhile, gold supply is expected to be impacted this year as miners had to shut down their operations amid the pandemic. This demand supply imbalance will fuel gold prices.

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