Most listed gold stocks continued to surge on Tuesday as the dollar bullion price rose to multi month highs above $940 an ounce. Gold bullion investors appear to be reasserting the metal once again as a high-beta investment, a characteristic shared in particular with silver and agricultural futures, commodities that tend to outperform during times of crisis, or perceived crisis.
On Tuesday gold bullion, and other precious metals prices, were again lifted by a weaker dollar, growing geopolitical concerns in the Middle East, and renewed concerns over roaring inflation as energy futures continued to trade at or close to record highs. Long dated NYMEX crude oil hit fresh records, along with benchmark Appalachian coal futures. Selected agricultural futures such as soybeans and oats were also trading at or around record highs, while cocoa set new records.
A number of wider-based commodity indices such as the Reuters/Jefferies CRB and S&P GSCI Enhanced traded at record highs as well, as investors continued to rotate investments into commodities and commodity proxies as perceived hedges against inflation, as cost-push factors from energy prices continued to dim the outlook for economic and profits performance across the world. While dollar crude oil prices have risen by around 110% in the past year, coal prices, such as the Appalachian contract, are up by 181%.
The global listed gold sector was led upwards by Goldcorp, which recently renewed its leadership of the Tier I gold grouping, followed by Newmont. South African gold counters continued to lag, despite recent sharp recoveries, as cost, reliability and political concerns continued to mount in southern Africa. Chinese gold stocks also remained relatively subdued, in line with the ongoing severe correction to stock markets in that country, where wider market indices have halved from bubble-type highs. Goldcorp traded at fresh record highs on Tuesday.
The recent lift in dollar gold bullion continues to leave the metal price well below the record $1,032.75 an ounce seen in early March, when worries over the collapse of Wall Street investment bank Bear Stearns were at highs. The recent lift in prices for most listed gold stocks, however, has pushed the global sector's performance back into respectable territory. With the dollar stuck in no man's land, and uncertainty over the future of US interest rates, gold is likely to continue benefiting from high beta characteristics for the time being.
Some so-called laggards in the commodity supercycle - potash, iron ore, coal and the mining majors - continue to outrank gold stocks in rankings for 12-month returns from listed names. Platinum stocks, driven by uncontroversial fundamentals, are now only marginally outperforming gold stocks over the past year.
Oil stocks continue to disappoint, with investors apparently preferring to invest in energy futures, or proxies for futures, such as commodity indices and exchange traded funds. This is echoed to some extent in the gold arena, where gold ETFs, which hold physical bullion, continue to outperform gold stocks, but to nowhere the same extent as oil futures are outperforming listed oil stocks.
Across the broader resources sector, the most disappointing performance has come from listed base metals stocks, despite the two biggest base metals, copper and aluminium, trading close to record highs on Tuesday. Tin, the smallest base metal, has performed well on tight supply factors pertaining to Chinese and Indonesian miners. Listed uranium and diamonds stocks remain heavily out of favour.
GLOBAL LISTED RESOURCES STOCKS
Composite weighted 12-month net price gains
* Investable market capitalisation
** IMC counted in other sub-sectors
Note: the 12-month price gains calculation assumes
1. A weighted amount of USD are invested in each of 725 stocks
2. At the stock's lowest price in the past 12 months, and
3. That each stock is still held at the current date.
Source: Analysis by Barry Sergeant