Now might be an advantageous time for investors to strike gold. With energy prices lower, it’s cheaper to mine gold and gold mining companies are seeing opportunity ahead to expand operations. If the price of gold goes higher, that’s a bonus, but it isn’t necessary in order for the mining companies to still have respectable performance in the quarters ahead.
In fact, gold mining companies showed a significant one-day rebound Wednesday even as volatility in prices refused to subside back to its previously complacent levels. Price action for both GDX and GDXJ, two ETFs that track an index of gold mining stocks and junior gold mining companies, respectively, engulfed the previous day’s action as both share prices rose more than three percent (see chart below).
There are plenty of reasons for investors to like the prospects of gold mining companies right now. In general share prices of the larger gold mining companies, such as Barrick Gold Corporation (ABX), Newmont Mining Corporation (NEM), and Goldcorp, Inc. (GG) have been trading with a mild uptrend over the past couple of months. As uncertainty surrounding the Euro mounts, investors have shuffled closer to gold as a safe haven investment.
It seems evident that many investors have begun to ease away from the anticipation of riding GLD higher (the gold-price tracking ETF), but gold miners may capture institutional investor interest over the next several weeks. News of an improving economy may cause the Fed to consider raising interest rates, which in theory could negatively impact the price of gold in the coming months, but if investors recognize that prospects are good for an improving economy, they will anticipate a boost in gold prices. The demand for gold jewelry is heavily correlated to strong economic conditions, and this could only be enhanced by Asian countries growing middle classes. No matter which way the outlook appears, gold miners are positioned to benefit.
