Metals Update: Global Macro Risks Support Gold
By Richard Cox
Global financial markets continue to face a period of deep uncertainty and many expert analysts have suggested that this is an excellent environment for gold, silver, and platinum to reach new highs. Gold has staged some of the most impressive rallies and this has led the other components of the precious metals complex to rise, as well. Currently, gold prices trade near long-term highs and this is a substantial indication that investors as looking for protection in safe-haven assets.
Overall, geopolitical tensions of been working in conjunction with deterioration in macroeconomic fundamentals. The yield curve has shown signs of inversion in both the U.S. and in the U.K. It is somewhat abnormal to see this type of event occur in more than one of the worldâ€™s major economies, so the warning signs here have led many investors out of riskier assets in the stock market.
Gold prices have essentially led the way in the precious metals space, with a strong rally unfolding since the beginning of August. It is not surprising to see gold work as something of a â€śleading indicatorâ€ť in the precious metals space and this seems to be occurring again this year.
Movements in Gold Stocks
One of the primary gold stocks impacted by these moves has been the VanEck Vectors Gold Miners ETF, which is the largest exchange-traded fund in the metals mining market. It is not surprising that this fund has moved higher after all of these events which have positively influenced gold prices. Essentially, gold miners tend to benefit whenever gold prices increase because their level of available assets also increases in value.
One of the key factors to watch when assessing exchange-traded funds is the amount of money it costs each gold miners to produce an ounce of gold. Of course, this price will fluctuate from one gold miner to another. However, these costs are generally lower than the market price of gold itself. In this way, exchange-traded funds will often offer access to gold assets at a discount. Although, this is an â€śindirectâ€ť discount because it does not directly involve the purchase of gold bullion.
Overall, these are strong trends that are currently visible in the market. In recent weeks, gold stocks have actually outperformed the stock values of traditional companies. Some experts have argued that a deep change is currently happening in the market. But, of course, only time will tell us if this is actually the case.