Mining stocks herald better days for gold

By on April 22, 2021 0

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Overshadowed by the wild swings in Bitcoin and other cryptocurrencies, the original counterpoint to paper money – gold – has quietly seen an ascent this month.

Even more than the metal, gold miners’ stocks rebounded and gained relative strength against the broader stock market. Gold mining stocks tend to be a leading indicator for bullion given their leverage over the metal’s movements.

the

VanEck Vectors Gold Miners Exchange Traded Fund

(ticker: GDX) is up 18.31% from its low at the end of March. The rebound follows a genuine 35.4% bear market drop from the ETF’s 52-week high in August last year to its 52-week low in March. But over the past month, the Gold Equity ETF rose 8.7% from a 5.7% gain in the

S&P 500,

according to Yahoo Finance.

The yellow metal itself has come down from the carpet in recent weeks, rising to $ 1,795 per ounce, close to a two-month high and up 6.51% from its low in late March. This is still well down from its recent high of $ 1,951 an ounce in early January. In a client note released Wednesday night, Bespoke Investment Group said gold had passed its 50-day moving average.

The recovery in the barbarian relic, as John Maynard Keynes called the metal, has been overshadowed by the whirlwinds of Bitcoin, including last weekend’s flash crash, and other cryptocurrencies, as well as the public debut of

Coinbase

(symbol: COIN.) Doge Day turned out to be a bust because the bulls backing the single cryptocurrency joke failed to push it to $ 1. Most important,

JP Morgan

Quantitative and derivatives strategists suggest a shift in Bitcoin futures after the cryptocurrency does not exceed $ 60,000, showing traders are reducing their positions.

Beyond Bitcoin, other recent bond market indicators have worked in gold’s favor. Specifically, as long-term real interest rates – bond yields adjusted for inflation – have fallen, the metal has rallied.

The fall in real rates is reflected in the yields of inflation-protected Treasury securities. TIPS pay a real return while their principal value is adjusted according to the consumer price index. The real yield on 10-year TIPS had risen sharply earlier in the year, falling from less than 1.06% in February to less than 0.56% in mid-March. Since then, the bond market has rallied, with the 10-year TIPS yield falling deeper into negative territory to minus 0.78%.

The best relative performance of gold mining stocks such as

Barrick Gold

(ticker: GOLD) is another bright spot for the metal. Gold stocks tend to be more volatile than metal since stocks offer leverage. But mining stocks can also provide dividend income. This is because Barrick’s dividend yield of 1.58% matches that of the benchmark 10-year Treasury bill, while providing inflation protection that bonds cannot.

Inflation remains the main concern of most investors. The Federal Reserve’s stated goal of raising inflation “moderately above” its 2% target appears to be secured by its very easy policies of near zero interest rates and widening its balance sheet at a rate. more than $ 1.4 trillion annually. At the same time, the federal budget deficit is projected by the Congressional Budget Office at $ 2.3 trillion for fiscal 2021, or 10.3% of gross domestic product. It would be the second largest deficit since 1945 after last year’s 14.9% of GDP. Against this monetary and fiscal backdrop, it’s no surprise that investors are baffled by falling bond yields.

Either way, cheap and plentiful silver is once again raising gold and mining shares even as cryptocurrencies are spitting out for now.

Write to Randall W. Forsyth at [email protected]