After ending 2023 well above the important US$2,000 per ounce mark, gold has stayed on an upward trajectory in 2024, continuing to hit new price milestones quarter after quarter.
In September, gold achieved a new record high above US$2,600 after the US Federal Reserve cut its benchmark interest rate for the first time since it began a rapid hiking cycle in 2022.
While this rise has excited market watchers, some are disappointed that gold stocks haven’t outpaced the metal’s meteoric climb. What’s weighing on gold stocks, and is now a good time to invest?
How are gold stocks performing compared to gold?
As of October 1, the gold price was up around 30 percent year-to-date.
Meanwhile, the VanEck Gold Miners ETF (ARCA:GDX) and the VanEck Junior Gold Miners ETF (ARCA:GDXJ), two widely tracked gold stock exchange-traded funds, were up about 32 and 33 percent, respectively, in the same period.
Gold equities are generally expected to provide outsized gains compared to the metal, leaving market participants understandably disappointed with their performance so far this year.
But as John Kaiser of Kaiser Research pointed out, there’s some nuance to the situation.
Watch the interview above for more from Kaiser, including the stocks he’s watching.
‘It’s not the case that the gold producers, the majors and intermediates, have failed to respond. The gold majors, not counting the ones that have problems, they’re up 45 to 90 percent from where they were when gold bottomed in February, and the intermediates are up from 50 percent to 132 percent,’ he explained.
This type of movement is typically what’s seen in a gold bull market — once the metal itself starts rising, major gold miners are the first to follow, along with gold royalty and streaming companies, followed by developers and juniors.
With those first categories gaining momentum, gains for juniors should be building.
Is now a good time to buy gold stocks?
Gold stocks have begun to respond to a higher gold price, but what happens if there’s a recession in the US?
“The other thing that I find very interesting is that the gold stocks outperform the S&P 500 (INDEXSP:.INX) in every recession,” Day added. “If you expect a recession coming, particularly if you expect a stagflationary period, then you definitely want to have gold, you definitely don’t want to be in the S&P and you probably want to be in gold stocks.”
Watch the interview above for more from Durrett on gold and gold stocks.
“As the US economy goes into a recession you’re going to have a lot of foreign money pulling out of the US,” he said, noting that 40 percent of the US stock market is foreign investors, and that figure is about 30 percent for US bonds.
Once those foreign buyers become sellers, there will be downward pressure on the US dollar. Durrett said this is not only price positive for gold, but those investors will also most likely reallocate their funds to the metal.
What does this mean for investors looking to time their buying of gold stocks?
Durrett, who feels that the bottom for gold stocks came in February of this year, said he is watching the HUI Gold Index (INDEXNYSEGIS:HUI), also known as the NYSE Arca Gold BUGS Index, which tracks 16 gold companies.
When the index is trading between US$225 to US$300, it’s a clear sign of a buying opportunity in the gold-mining sector. Once the index is in the US$300 to US$325 range, Durrett warned ‘the train is about to leave the station’ as a bull market is imminent. When the HUI Gold Index is in the US$350 to US$400 range, it signals “a last chance” for investors.
Durrett said that he believes investors will see that last chance in the fourth quarter of this year.
As of October 1, the HUI Gold Index was trading at US$325.67, up more than 36 percent year-to-date.
John Feneck of Feneck Consulting also thinks the time is ripe for gold stocks.
Watch the interview above for more from Feneck on his stock picks.
Ongoing economic uncertainty and geopolitical tensions will continue to plague the markets, and this bodes well for a sector rotation out of the broader equities into safe-haven gold.
Feneck is keen on the VanEck Gold Miners ETF as a way to get exposure to gold stocks, and pointed out that about a third of its assets under management consist of Agnico Eagle Mines (TSX:AEM,NYSE:AEM), Newmont (TSX:NGT,ASX:NEM,NYSE:NEM) and Barrick Gold (TSX:ABX,NYSE:GOLD), which all released excellent earnings in the most recent quarter, including huge margins given record gold prices.
“This is just like printing money for these companies,” he said.
The missing puzzle piece for gold stocks
He suggested that if Republican presidential candidate Donald Trump loses the US election and doesn’t accept the outcome, that could be a possible trigger for investor interest in gold and gold stocks.
“There is also the ongoing geopolitical conflict between the global east squaring off against the global west, and the global south looking around at who butters their bread better,’ he said.
‘And right now China can butter everybody’s bread better than America can or will. So regardless of the outcome (of the election) we’re going to see gold trend higher, and that’s I think what’s going to be the trigger.”
Feneck suggested a catalyst could be a broad market selloff of at least 10 to 15 percent. But he does see signs already that generalist investors are beginning to come back to gold.
”Now that gold is at US$2,500, it’s catching the attention of a lot of portfolio managers, hedge funds and private equity,” he explained. “People that were not even interested in gold or gold stocks at the beginning of the year are starting to really take notice of our sector, which I think is the most bullish thing we can say.”
Investor takeaway
While gold stocks as a group aren’t yet outperforming gold itself, experts remain optimistic about the sector, with many believing that current gold company valuations present good entry points for investors.
However, market participants should continue to do their own research before jumping into the sector, and should keep in mind that it may be difficult for gold stocks to gain momentum without interest from generalist investors.
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
