Dynacor Group Inc T.DNG

Ink Research

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Market Report: Investors finally take a shine to gold miners 

February 22, 2022

Overview

February 22, 2022 - Investors have been increasing their gold exposure in 2022 with the SPDR Gold ETF (GLD) attracting 48 tonnes worth of gold inflows year-to-date according to BullionVault. Gold stocks are also starting to shine with investors. The S&P/TSX Composite Gold Index is now up 9.3% year-to-date, thanks to a 6.9% jump last week. While it still lags the TSX Capped Energy Index (+20.5% YTD), it is beating the INK Canadian Insider Index which is up 5.8% and the S&P 500 which is off 8.8%.

Insiders could well be forgiven for asking investors, "what took you so long?" Insiders have been upbeat on gold for more than a year with our INK Gold Indicator never dipping below 100%. In other words, for the past year, there has never been a time when there were more stocks with key insider selling than there were with buying. The buyers always dominated. Currently, the indicator stands at 360%! That means there are 3.6 stocks with key insider buying for every one with selling.

Although there may be some concerns that gold could lose its lustre if the Russia-Ukraine conflict settles down, we would view any pullback as a buying opportunity. The market still has to deal with the risk that the Fed could make a policy error as it seeks to start raising interest rates. In particular, investors will likely worry that the Fed could hike rates too much thereby triggering a recession.

At this point, the market currently expects the Fed will raise rates to between 2.25% and 2.5% over the next two and a half years based on the Atlanta Fed's probability tracker. Jitters in the capital markets have been on the rise as investors come to grips with those expected rate hikes. As volatility continues, gold may attract more investor capital to help smooth the ride. If so, gold stocks should benefit.

At this point, we are in the early days. If bullion's breakout continues, gold shares should also break out of their current ranges and many value situations could quickly disappear.