Gold prices reached their highest level in more than seven years on Tuesday due to growing concerns over the global economic slowdown as a result of the coronavirus pandemic. A wave of stimulus measures from central banks and governments lifted bullion’s appeal and, consequently, gold stocks value rose as well.
The largest percentage gainer on the TSX was Torex Gold Resources, which jumped 9.3%, and MAG Silver Corp followed with a 6.9% rise. The materials sector rose 2.6% helped by higher gold prices. Gold jumped $11.90 to $1756.70 an ounce for the April Comex contract on Tuesday, the highest since Oct. 12, 2012. That’s also less than 7% shy of the record of $1888.70 reached on Aug. 12, 2011.
So far, gold prices have gained 15% this year and surpassed the $1,700 an ounce threshold for the first time in seven years. Investors have increasingly been looking for safe-haven assets like gold amid crashing markets and growing economic uncertainty due to the global pandemic. Lower interest rates made gold an attractive option for investors holding other currencies. Lower oil prices and fears of supply crunch with miners halting also contributed to the price movement.
The $5.4 billion merger between Barrick Gold Corporation and Randgold Resources Limited last year followed by Newmont Mining Corporation’s acquisition of rival Goldcorp for $10 billion form Newmont Goldcorp Corporation (NEM), marked a new trend of consolidation in the gold mining sector. However, junior gold mining companies were forced to cut debt levels and slash capital expenditure due to the international lockdown in attempts to contain the spread of coronavirus. As a result, gold production is anticipated to drop eventually owing to scarcity of new discoveries and depleting existing resources. Brokers are already reporting running out of bullion due to high demand and limited supply.
The Mining- Gold Industry managed to outperform both the S&P 500 Index and the Basic Material sector in a year’s time. While gold stocks have collectively advanced 40.7%, the S&P 500 has declined 4.6%. Meanwhile, the sector has slumped 25.8%.
Investors have flocked to funds that track gold, which attracted some $2.6 billion in the latest week, according to Bank of America Securities. The strongest performers have been exchange-traded funds that track mining stocks, such as the VanEck Vectors Gold Miners ETF (ticker: GDX) or the VanEck Vectors Junior Gold Miners ETF (GDXJ), which are up about 50% and 100%, respectively, from their March lows.