Investors Are Digging Gold Again
October 18 2018 - 8:29AM
Dow Jones News
By Riva Gold
In times of market turmoil, investors often embrace gold. And
when that happens, gold-mining stocks tend to do even better.
That has certainly been the case so far this month. New York
gold futures are up 2.7% so far in October versus a 3.6% decline
for the S&P 500. Shares of many of the world's biggest gold
miners, meanwhile, have notched double-digit gains.
Companies like Toronto's Barrick Gold Corp, South Africa's
AngloGold Ashanti and Acacia Mining are all up around 15% to 18%
after a bruising summer. The VanEck Vectors Gold Miners
exchange-traded fund and the iShares MSCI Global Gold Miners fund
-- which track indexes of global gold-mining firms -- are up around
8% to 9% this month.
Gold-miner stocks allow investors to double down on bets the
gold price will rise. These companies have higher fixed-investment
costs and can become much more profitable when gold prices climb.
Many of these companies pay out hefty dividends, too.
An added bonus: Hopes for further consolidation are adding to
the momentum after Barrick Gold in September agreed to buy Randgold
Resources Ltd. for $6 billion.
Gold miners' rapid ascent during the selloff marks a turnaround
from other recent episodes of market turbulence. While gold and
related assets have historically been used as a safe place to
invest during times of economic or political stress, they found few
fans during a selloff at the start of the year or during the summer
turmoil in emerging markets.
Because concerns at the time largely centered around the
prospect of rising U.S. interest rates, investors sought shelter in
the U.S. dollar instead, in turn making gold less attractive to
overseas buyers. The ICE Dollar Index rose about 9% between
February and the middle of August, while New York gold futures fell
about 12% and the VanEck gold miner fund fell about 20%. Rising
rates also make assets like gold less attractive, because they
don't offer a yield.
And both gold and miners haven't fared so well in recent years.
From highs in 2011, prices of the metal and the VanEck ETF are down
around 35% and 70%, respectively. Meanwhile, the iShares fund has
also tumbled 70% since its inception in 2012.
This time is different. The ICE Dollar Index has barely budged
during this month's selloff, the Federal Reserve's plans for
interest rates are well telegraphed and investors have turned
skeptical that the dollar has much further room to rise.
"Given the strength of the U.S. dollar we've seen and slight
concern now about the fiscal position in the U.S. following
stimulus measures and tax reform, there's some concerns around the
U.S. dollar as an ultimate safe haven," said Roger Jones, head of
equities at London & Capital.
The U.S. government ran its largest budget deficit in six years
during the fiscal year that ended last month, totaling $779
billion.
Meanwhile, "this [selloff] is more about a growth scare than
February-March, when it was more about a rate hike scare," Mr.
Jones said. "If there's another slowdown in growth, goldmining
stocks will be at the forefront of investors' minds."
Write to Riva Gold at riva.gold@wsj.com
(END) Dow Jones Newswires
October 18, 2018 08:14 ET (12:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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