Gold prices are 14% higher for the year, and in effect, that should be able to push up gold miners, though that hasn’t necessarily been the case. However, less inflationary pressures on the horizon could eventually push miners higher, thereby increasing trade opportunities.
Furthermore, the big players in the gold mining industry are starting to show signs of strength. For example, Newmont and Barrick are seeing strength in what’s been a relatively slow start to the second quarter for the broader stock market.
“An index of the largest gold producers has increased 28% since March 1. Newmont and Barrick have closed at higher prices for more than a week straight,” Live Mint reported.
Gold, of course, has been corroborating with an “everything rally,” rising alongside other traditional assets like stocks and bonds. All assets benefit from the prospect of looming interest rate cuts, giving gold another reason to rally while geopolitical concerns remain a catalyst for gold demand.
The report added, “It has rallied sharply since mid-February as tensions escalate in the Middle East and Ukraine and uncertainties linger about China’s economy and US Federal Reserve policy.”
However, hotter-than-expected inflation is continuing when the capital markets are hoping for interest rate cuts to continue providing momentum for the current market rally. The U.S. FedU.S. Reserve has been more data-dependent and measured rather than cutting rates swiftly as inflation remains hot, continuously feeding into the higher-for-longer interest rate/inflation narrative. That, in effect, is putting a cap on miners that should benefit from gold’s rise.
“Miners have seen margins shrink as inflationary pressures persist, with most companies spending more on labor, equipment, and processing than expected,” the Live Mint report added.
Early Signs of Progress
As mentioned, there are signs of progress, and more upsides could be ahead for miners as inflationary pressures slowly ease. When rate cuts do finally happen, the proverbial floodgates could open to more gains for gold miners.
“A lot of these inflationary pressures are now starting to ease,” said Robert Crayfourd, who co-manages the CQS Natural Resources Growth & Income fund and the Golden Prospect Precious Metals fund.
“It’s starting to move from headwind to tailwind,” Crayfourd added.
Indeed, signs of strength have been apparent in the Direxion Daily Gold Miners Bull 2X ETF (NUGT), which is up 11% year-to-date as it spiked near the end of March. The aforementioned names, like Newmont and Barrick, are the top holdings in the fund, which offers 200% exposure to the NYSE Arca Gold Miners Index (GDMNTR).
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