Canada’s main stock index the TSX hovered below record highs on Monday, following comments from U.S. President Donald Trump’s that a preliminary trade deal with China would be signed “very shortly”. On Friday, Canada’s main stock index hit a record high after the U.S. House of Representatives approved a new North American trade deal.
As a result, gold price - which tends to gain during times of political or economic uncertainties - rose 0.3% and silver prices jumped 1%. That helped the materials index up about 1.5%. This contributed to gold stocks and other mining stocks continuing to mark new all-time highs.
Investors remain optimistic since gold hasn't broken the bullish trend. Gold stock prices are breaching $1,500 for the first time since early-November and gold has upheld consistent levels of support above $1,450/oz.
This marks the end of an eventful year for gold with the major highlight being the yellow metal crossing the threshold limit of $1,500 an ounce— at levels last seen in 2013. Lower interest rates the result of rate cuts by the Fed have favored the rally as the opportunity cost of holding non-yielding bullion has made gold an attractive option for investors. A sluggish manufacturing sector also drove the gold prices.
Overall, gold prices have gained about 15% globally, a striking contrast to the prior year decline of 2%. The yellow metal seems set for its strongest annual increase since 2010, wherein it had reported growth of 29.5%.
Several major deals contributed to the growth of gold stocks. Notably, Newmont Mining Corporation’s acquisition of rival Goldcorp for $10 billion, which formed Newmont Goldcorp Corporation. This follows the $5.4 billion merger between Barrick Gold Corporation and Randgold Resources Limited last year.
This trend of consolidation in the gold mining industry seems to have revived after a lull over the past few years when the companies were forced to cut debt levels and slash capital expenditure thanks to lower gold prices. As gold production is anticipated to drop in the near future, driving the scarcity of new discoveries and depleting existing resources, gold miners prefer to build up reserves through acquisitions rather than digging for new ones that are inherently risky and capital intensive.
Major markets India and China continue to sustain demand for gold. As does the use of gold across energy, healthcare and technology, which is on the rise. Moreover, the yellow metal has long been considered as a safe haven investment in times of financial or political uncertainty. Emerging market central banks are turning their attention to gold after years of exposure to the U.S. dollar.
The rising gold prices are good news for the Mining - Gold industry. The industry has outperformed both the S&P 500 Index and the Basic Material sector in a year’s time. At the end of the year, gold stocks have collectively gained 41.0%, the S&P 500 and the Basic Material Sector have rallied 27.1% and 23.6%, respectively.