Gold futures broke a considerable line on Tuesday as they edged higher, driven by a weakening US dollar and fears of a second wave of coronavirus infections.
As government bond yields headed lower, the precious metal to make an assault on a record close above the $2,000 threshold.
Analysts are optimistic about bullion surging by 50% over the next 18 months to around $3,000 an ounce and see other precious metals benefiting in the COVID-19 environment.
On Tuesday, December gold futures rose $34.70, or 1.7%, at $2,021 an ounce, after notching a less-than 0.1% gain on Monday and starting out with meager gains on Tuesday.
Commodity experts say that investors are looking towards the Federal Reserve for signs of monetary stimulus as Congressional lawmakers debate a further coronavirus fiscal package in the US, which could serve as a catalyst for the next move in gold.
“When you’re looking at what [DXY, 10 year real yields] levels we would need to see gold at $2500 per ounce, it is combinations like the DXY at 90 and real rates at minus 2,” said Michael Widmer, metals strategist in comments included in an Aug. 3 research note, citing a July 30 call with clients featuring Widmer and commodity research analyst Francisco Blanch.
The increased demand for gold has been going strong for a few years now. It continues to keep upward pressure on gold. Once inflation picks up, gold will likely become even more appealing. Gold stocks have also benefited from the recent gold bull market. Canadian gold miners like Yamana Gold (AUY) and Wheaton Precious Metals (WPM) remain top picks of investors and analysts alike.
The shares of Canadian junior gold miners are starting to outperform the seniors for the first time in a long time. Indexes like the Junior Gold Miners ETF (GDXJ) rose 4.9% since they represent a good entry point for investors who are unsure which junior gold miner is better than others.
In the last week, the gold stocks of Canadian mid-tier gold operator Alamos Gold Inc and junior gold miner Kinross Gold Corp picked up and now hold a ‘buy’ rating from Wall Street analysts. Both companies mostly operate in the Americas, although Alamos Gold also has mines in West Africa and Russia. Except for the Russia region, which is still seen as a tough business environment for North American companies, the other two do not pose any particular obstacle to the execution of mining activities.
After 2019 was a record production year for many junior mines, the COVID-19 pandemic forced some to temporarily suspend key operations, which disrupted supply at a time when demand is at an all-time high. But it's exactly a situation like this when liquidity (a strong cash position with manageable debt) can help a junior mining companies ride out the storm.