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Summary
- Gold spot has been a stallion so far across the international front with prices climbing the ladder swiftly to a record high of USD 1,981.13 per ounce.
- The surge in gold prices is supported by a large inflow from global gold-backed ETFs and demand from central banks to hedge against the falling U.S. dollar.
- The dovish approach of the U.S. Federal Reserve has led to a large injection of cash into the system, pulling the valuation of the dollar down and leading the dollar index near a two-year low.
- ASX-listed Gold Stocks- The Emerging Preferred Vehicle to Park Investment in Gold
- Eight ASX-listed gold stocks under sentiment splash
ASX-listed gold stocks have emerged as one of the top-performing assets with returns from some such as Saracen Mineral Holdings Limited (ASX:SAR) even outperforming gold on a YTD basis. On the other hand, some ASX-listed gold stocks such as Northern Star Resources Limited (ASX:NST) are gaining momentum over high exposure in the gold spot. Gold spot is currently trading at record value of USD 1,981.13 per ounce (as on 28 July 2020 11:41 AM AEST), crossing its 7-year-old high recently.
To Know More, Do Read: Gold Rush and Gold Outperformers- Northern Star, and Newcrest Mining
The higher inflow from the global gold-backed ETFs along with hedging of central banks against the tumbling U.S. dollar is fanning the gold spot. The U.S. dollar index, which typically tracks the performance of the U.S. dollar against a set bucket of currencies has headed south with the index reaching near the two-year low of 93.48 (intraday low on 27 July 2020).
Extreme Printing Taking Dollar to the South
- The dovish approach of the U.S. Federal Reserve has led to a large injection of cash into the system, pulling the valuation of the dollar down and leading the index near a two-year low.
- The Main Street Lending of the United States Federal Reserve has now ballooned to USD 14 million with the recent funding of USD 2 million in emergency loans to weak businesses struggling to survive the COVD-19 fuelled market turmoil.
- The Main Street Lending along with many other monetary stimuli has prompted the U.S. Fed to print abundance of money, leading to a lower valuation, which coupled with many pending swaps from other central banks, has propelled the demand for gold.
- As per the recent weekly disclosure of the balance sheet by the Fed, the size of the total balance sheet has swelled to USD 7.01 trillion (as on 22 July 2020) over the continued purchase of Treasuries and mortgage-backed securities. Furthermore, some independent analysts even anticipate that the balance sheet could further build to reach USD 9.4 trillion by the end of the year while climbing further to USD 11.0 trillion by the end of the next year.
Gold Contouring Record Highs
While dollar prices have been taking a hit, gold has been contouring record highs, and some large investment banks such as Goldman Sachs even assess that the gold spot could reach USD 2,000 per ounce in the short-run, which at current prices does not seem like a stretch.
Also Read: Gold Vaults to Highest Levels Since October 2012; Trade Trends and Data Divergence
Furthermore, the uncertainty about global economic recovery is also fanning the safe-haven prices. Many economists are taking down on columns to express their opinion on how the global economy is all set to recover; however, conjointly many economic forecasts are reflecting on the fact that the recovery may come in various shapes.
The COVID-19 pandemic is having a devastating impact on the global economy, and moreover, many prominent organisations such as the International Monetary Fund (or IMF) assess that the global economy would deteriorate ahead, leading to a high level of unemployment and wealth destruction across the globe.
Such anticipation along with the recently surfacing optimism in various economists columns is suggesting that the upcoming recovery is morphing into a W-shaped recovery, which is posing a lot of market uncertainty for investors, leading to a rush towards safe-haven asset such as gold and even bitcoin.
Correspondingly, the gush in gold is further diverting attention of many market participants towards ASX-listed gold stocks, prompting some of them to climb a record high and some to clinch multi-period highs.
ASX-listed Gold Stocks- The proxy to Gold
Gold stocks or buying shares of a company directly engaged in exploration and selling of gold is now emerging as the most preferred route to take exposure in the bullion rally.
Why that So?
While there has a been a lot of uncertainty in the market, many participants especially retail investors are looking to take exposure in the gold rally, and thanks to expensive gold along with high margin requirements (considering the recent volatility) in taking exposure into futures contracts- a primary medium to take direct exposure in the gold market, gold stocks are witnessing a large influx.
Such an influx has pushed gold stocks to uncharted waters and coupled with prevailing market sentiments, have ignited a rally in gold stocks.
- ASX Gold Stocks Under Sentiment Splash
Also Read: Commodity Stocks Making Their Way To The Top
