Gold $Gold - main 2412(GCmain)$ has been smashing record highs left and right. As we closed 2023, prices soared well above the $2,000 per ounce mark, and let’s just say, 2024 has kept that momentum going strong. After the Fed's 50 basis point rate cut this September, gold shot past $2,600 an ounce, setting a new historical high. But here’s the kicker—gold stocks haven’t yet delivered the explosive returns investors were betting on.
As of October 1, gold prices are up around 30% this year. Meanwhile, the mainstream gold stock ETFs, $VanEck Gold Miners ETF(GDX)$ and $VanEck Junior Gold Miners ETF(GDXJ)$ , have climbed 32% and 33%, respectively.
Sounds decent, right? But hold on, because gold stocks are supposed to be like gold on steroids. They typically outperform the metal itself thanks to their ‘leverage effect.’ So given this sky-high rise in gold prices, it's no wonder gold investors, despite making a tidy profit, are grumbling about the stocks’ lukewarm performance.
So, the million-dollar questions are buzzing: Is now the time to dive into gold stocks? And just how high can gold prices soar in 2024?
Many experts believe that $2,600 is just the appetizer for what’s coming in the next few months, with some even eyeing a mouth-watering target of $3,000. High gold prices have kicked off what’s traditionally the golden season in September, with upcoming festivals in India, Christmas, and Chinese New Year all likely to boost physical demand for the shiny stuff. Plus, gold typically performs well when the Fed starts slashing rates.
So, recession or not, gold seems like a glittering opportunity.
Here are four solid reasons why gold's shine isn't fading anytime soon:
- Central banks can’t get enough of gold.
- The dollar’s been a bit of a slouch since the beginning of the year.
- Bond yields have been sagging since 2024 started, making gold even more attractive.
- Historically, the start of rate-cut cycles has been a green light for gold prices.
When will gold stocks explode?
In recent years, tech and cryptocurrencies have been hogging all the spotlight, leaving miners, including gold diggers, in the shadows. The enthusiasm for mining investments has cooled off, with resource stocks scraping historical lows against the $S&P 500(.SPX)$ . However, as gold prices climb, many industry insiders think gold stocks are undervalued and ripe for a comeback.
Indeed, mid to large-scale gold producers have already seen substantial gains. Since gold hit a floor at $1,895 in mid-February, shares of the big boys in gold mining have risen between 45% and 80%, while mid-sized players have registered increases between 50% and 132%.
That’s a classic sign of a gold bull market: once prices start rising, the big miners along with gold royalty and streaming companies lead the charge, followed by developers and junior miners.
With cash flooding into the sector, the fervor for investing in junior mining companies is fiery hot, fundamentally shifting the landscape for producers and sparking a surge in mergers and acquisitions in the junior mining arena.
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