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Gold Mining Stocks are Faring Better, But Not Much

gold mining stocks

 

Gold Mining Stocks Trending News

A recent article at MINING.com highlighted a new report on the gold industry, published by McKinsey & Company, the global management consulting firm based in New York City. The report reveals gold mining stocks and gold aren't performing to their expected level thus far in 2019. McKinsey argues this trend stems from the fact that the top 20 gold mining companies have discontinued or greatly reduced exploration by as much as 70 percent, resulting in a 26 percent decrease in reserves since 2012; reserves now lie below 2007 levels.

MINING.com attributed the slight increase in gold mining stocks as a result of a "recent flurry" of mergers and acquisitions which generated more interest in the sector. Zacks shares the merger between Barrick Gold Corporation and Randgold Resources Limited was the specific spark to the industry.

Although the slow growth of gold mining stock offers reasons to be pessimistic, other expert analysis suggests reasons to continue to run with the bulls on gold and gold-mining investments.

Global Economic Fears Driving Gold Mining Stocks

Forbes gold guru, Frank Holmes, argues that gold mining stocks are surging as a result of global economic fears. Historically, gold and gold mining stocks have had an inverse relationship to treasury yields. Bond yields in Germany, Japan, Australia, New Zealand, and other major markets have crashed in recent weeks.

Holmes shares that in the United States, 10-year Treasury note yields fell and inverted for the first time since the end of 2006. According to Holmes, a yield curve inversion signals that market investors anticipate an interest rate cut, a sign of slowed economic growth.

Ultimately, when yields are low, investors look for a safe haven to put their money, so gold and gold-mining stocks do well. In contrast, high yields eliminate the need for a safe haven leading to a negative effect on the gold sector.

If yields continue to stay low, and gold and gold mining stocks follow historical trends, investors have a reason to remain bullish on gold mining stocks, at least in the short-term. 

Gold Mining Industry Happenings

Changes in the price of gold affect gold mining stocks. Zacks argues several factors in the industry that have affected the price of gold and gold-mining stocks in the past year:

  • Strong U.S. dollar
  • Interest rate increases
  • Worries about US-China trade war
  • Increasing costs of production such as electricity, labor, water, and materials

Zacks also points that gold mining companies lack of control over gold prices has forced companies to deal with increased production costs in the following ways:

  • Improve sales
  • Increase cost-effectiveness
  • Improve operation efficiency
  • Lower debt

These actions coupled with the unlikeliness that the Fed will maintain interest rates and a resolution in the U.S.-China trade dispute might slow the appreciation of the dollar, elevating the price of gold.

Continued Market Demand, Especially from India and China

India and China have consistently bolstered the demand for gold, with increasing numbers over the last decade. Expanding middle classes in both countries will increase demand, as well as increased use of gold across other sectors such as energy, healthcare, and technology.

These continued and rapid changes will result in an eventual disruption of a supply-demand equilibrium, positively impacting the price of gold and gold-mining stocks.  

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At Resource Erectors we match skilled engineers, operations managers, and tech professionals with North America's best companies. If you are an experienced professional seeking a career move or an employer looking for new team members, we invite you to contact us and learn how we can assist you. 

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About Author

Dan Duszynski
Dan Duszynski

CEO and President of Resource Erectors, Inc.. A search and recruitment firm serving the mining and mineral processing, engineering, and civil construction industries of North America.

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