Gold isn’t boring anymore—now we can see the bottom, and it’s cheaper than it’s been since 2015, hitting below $1,200 last week after another fed rate hike boosted the dollar.
We’re looking at six straight months of decline, but this is a nearly three-decade losing streak that could be at its end.
The bears are, of course, celebrating—but the bulls see the bottom more clearly now.
For the bears, there is reason—on paper—to keep trudging along. After all, the dollar is uber strong and investment rates are higher. The stock market is still looking great, even if some are waiting for the other boot to drop. The fact is, record buybacks are keeping the equities market alive.
Analysts are expecting low to negative share supply this year as buybacks, cash-funded mergers and acquisitions and company de-listings continue to shrink the share pool.
Thomson Reuters data shows that from January through August, $126 billion in primary listing shares were added to the pool, compared to a potential $1 trillion in buybacks by the end of this year.
And we haven’t started feeling the pain from the U.S.-China trade war yet, while a new NAFTA deal this week for the U.S., Canada and Mexico has further boosted stocks.
But no party last forever. Related: Markets Near Record Highs Following NAFTA Deal
True, looking at gold mining stocks doesn’t give you much optimism: The big boys, including Barrick Gold (NYSE:ABX), GoldCorp (NYSE:GG) and Newmont Mining (NYSE:NEM), among others—have lost in the neighborhood of 20-25 percent this year.
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It also means, though, that we’re seeing the FTSE Gold Mines Index at its biggest discount in over two decades:
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Source: Bloomberg via Forbes
That makes for some attractive stocks at a time when there have been some very interesting developments, including a major $6.5-billion tie-up between Barrick Gold and Randgold, creating the largest gold miner in the world. Someone’s feeling optimistic …
And they’re not alone.
“We think gold’s bottomed here, the U.S. dollar’s been unusually strong, things don’t stay the same forever, so I think it’s important for the industry to re-position itself through smart M&A,” Sea Boyd, CEO of Agnico Eagle, told Kitco News on the sidelines of the Denver Gold Forum.
Forbes suggests gold is “poised to pop like a jack-in-the-box” and characterizes the net position of “professional futures market traders” who are betting big on gold dropping more as “highly unusual”.
Citing a report from Macro Risk Advisors, Forbes says “the decision of so many more speculators to bet on a decline versus an increase in prices is now more than two standard deviations from the average”.
When an extreme such as this happens, so the logic goes, the opposite reality usually takes shape, setting the stage for gold prices to rise.
The heightened speculation has left us in a position in which even a small weakening of the U.S. dollar at this point could mean a rally for gold.
By David Craggen for Safehaven.com
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