To say that gold had a great 2019 is a massive understatement, but it looks like 2020 might be even better.
Gold prices started the year off around $1,200/oz before a
strong summer rally sent prices up 30%. After September the metal stabilized around $1,500/oz and in November dropped back towards $1,450/oz.
But experts and companies alike seem to have a lot of faith in
gold prices climbing back up to end 2019 and into the start of the new year. The target is set at $1,700/oz and beyond, with some having $2,000/oz set in their sights for the long-term.
Put into context, recent moves in the gold market start to make a lot of sense. Take
Kirkland Lake Gold Ltd. (
TSX:KL,
Forum) and the company’s
recent acquisition of higher-cost miner
Detour Gold Corp. (
TSX:DGC,
Forum). In the short-term the market was baffled and KL shares dropped accordingly, but as more are considering the long-term profitability of higher gold prices, the acquisition starts to look like a bargain.
But why do many experts have so much faith in the precious metal heading into next year on a positive note? We posed the question to noted mining journalist and expert Gwen Preston of
Resource Maven, and her response highlights the larger economic forces at play.
“The fundamentals for gold are stronger than they have been in decades,” Preston told Stockhouse Editorial. “The most important driver for gold is negative real interest rates; that’s where we are now and that's where we’re going to stay for some time.”
Gold Price (USD/oz)
Gold investors often think of the relationship of gold prices to the US dollar (incorrectly at that), but what they should be looking at instead is the real interest rate. According to Preston, negative real interest rates are continuously linked to boosting gold prices.
Another important factor for Preston is that uncertainty in the global economy looks like it’s only going to get worse. Slowing global growth alongside a trade war that increasingly looks like it won’t have a resolution any time soon, while other safe havens like the bond market are in disarray.
Putting everything together, you have many factors that are driving demand for gold. On a good note for gold companies, Preston sees that investors will start moving their focus away from the metal and towards the miners invested in it.
“So far money has flowed into physical, which is why we got such a nice price gain this summer, but stocks will be next,” said Preston. “When generalist investors start buying gold mining stocks the gains are amazing because it’s a lot of dollars squeezing into a small sector.”
If you’re looking for some gold stocks to watch in addition to Kirkland Lake, Preston recently recommended EMX Royalty Corp. (TSX-V:EMX, Forum) at the Metals Investor Forum, and we’re keeping our eyes on Great Bear Resources Ltd. (TSX-V:GBR, Forum).
New to investing in Gold? Check out Stockhouse tips on How to Invest in Gold Stocks and some of our Top Gold Stocks.
For more of the latest info on Gold, check out the Gold Trending News hub on Stockhouse.