Making the most of declining junior miners
Miners are underperforming gold despite getting support from the stock market.
Gold futures posted their biggest weekly gain in more than four years as lingering concerns about the spread of the coronavirus permeated markets.
Prices neared a seven-year high before a massive sell-off in equities forced investors to cash in gains in gold to cover losses in the stock market. The S&P 500 pushed its two-day rout to more than 6%, while sovereign bonds signaled the world is in crisis mode as policy makers struggle to contain the economic fallout from the coronavirus.
Bullion still gained nearly 7% this week, fulfilling its role as insurance at a time when the outbreak is shaking investor confidence. Global central bankers are cutting interest rates beyond their global financial crisis-era lows, boosting the appeal of the non-interest bearing bullion.
“Gold is behaving as you would expect it to,” Caroline Bain, chief commodities economist at Capital Economics, said by phone from London. “We’ve obviously seen safe-haven buying for gold. I don’t think there’s anything unusual in the way gold is reacting to possibly a pandemic.”
Citigroup Inc. reiterated its forecast that the metal could climb to $2,000, breaching its previous record, on monetary policy easing and safe haven inflows.
The outbreak and efforts to contain it may slash about $320 billion off global trade each quarter while it lasts, delivering a much bigger hit than the U.S.- China trade war, according to Allianz SE. Infections around the world have already topped 100,000.
Gold futures for April delivery rose 0.3% to settle at $1,672.40 an ounce. The precious metal swung from a loss of 1.5% earlier that was fueled by investors seeking to raise cash to cover their margin calls in the stock market.
“With equity markets trading this low, you always have the risk of forced liquidation as people sell the winners to cover for the losers,” Daniel Ghali, a commodities strategist at TD Securities, said by phone. “I believe that’s what we’re seeing in gold.”
Bullion is one of the standout winners from the outbreak, with Goldman Sachs Group Inc. saying the commodity “has immunity to the virus.” Money manager Jeffrey Gundlach told CNBC that gold is the best thing to own now and is headed to new highs.
(By Justina Vasquez)
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