Gold bulls have been predicting a strong rally in the first quarter of the New Year for months now, and gold mining companies are reaping the benefits of this positive sentiment.
Both Newmont Goldcorp and Barrick Gold, the first- and second-largest producers of gold in the world, respectively, posted big gains in share values at the end of 2019.
Newmont Goldcorp’s share prices rose 11.2 percent in December 2019 alone, from $38.40 to $42.71. Barrick Gold’s shares rose 9.2 percent, from $16.80 to $18.37.
Analysts note that these share price gains are easily outperforming the underlying price of gold itself at the moment. Gold was up 3.5 percent at the end of December and trading above its “ceiling” of $1,500 at $1.525.91.
“The behavior of U.S. investors is starting to mimic that of investors in other countries where changing currency values has significantly enhanced the appeal of gold as an asset class removed from government interference as well as being a currency in its own right,” wrote Forbes contributor Tim Teagold.
He cited the miners’ large gains as evidence that gold could rise higher in 2020, noting that for miners, “every extra dollar on the price goes directly to the bottom line profit of the producers.”
Factors Pushing Gold Higher in 2020
As 2019 wound to a close, a number of factors that analysts had been predicting could keep gold prices high in the New Year were in evidence.
Trade tensions with China persisted despite relative investor confidence that the trade was might be entering an end phase.
This uncertainty could be due to the extended game of chicken the two countries have been playing with each other or the massive confusion surrounding the topic of whether the U.S. actually gained anything by entering into the trade policy conflict.
With media sources reporting directly conflicting information about the relative gains and losses associated with rumored terms of an agreement between the two countries, there is little solid ground for investors to stand on when it comes to feeling that the tensions are truly going to be resolved.
To further improve the gold outlook for the first quarter of the year, the House of Representatives did ultimately vote to impeach President Trump in December.
While the outcome of the impeachment trial in the Senate appears to be a foregone conclusion (the Senate is poised to vote along party lines to acquit), the ongoing political turmoil and vitriol are bad for consumer confidence and great for gold.
Finally, U.S. military airstrikes in Iraq and Syria against an Iran-backed militia group blamed for killing an American civilian contractor are also supporting gold.
Lukman Otunuga, a senior research analyst at FXTM, wrote in his weekly note, “If geopolitical tensions increase in the Middle East, there will be more reasons for investors to increase their allocation in gold.”Sources: Forbes, Marketwatch