Precious metals investors must be wondering when gold stocks will catch up while the price of gold hovers near all-time highs, and will the huge disconnect between gold stocks and gold trends disappear in 2024? Is now a good time to invest in gold stocks?
Adrian Day of Adrian Day Asset Management says gold investors and gold companies are understandably frustrated by the lagging performance of gold stocks. There has indeed been a huge disconnect between gold and gold stocks over the past 11 years, and this disconnect has been particularly acute over the past two years.
He notes that gold’s strong performance has been driven by central bank buying. The continued outflows from gold exchange-traded funds are further evidence that gold prices are largely supported by central banks.
Willem Middelkoop of the Commodity Discovery Fund argues that gold stocks are undervalued to an unprecedented degree compared to gold. This is typical of the end of a bear market. Investors can therefore expect a really strong rally in gold stocks once the market understands that gold is in a new bull market.
Day expresses a similar view. He noted that gold stocks often languish for a period of time, but when they start to take off, they do so suddenly and almost without warning, and the return on investment can be substantial. Asked if this is a good year to invest in gold stocks, market experts agree that 2024 is likely to be the year that troubled gold stocks see a recovery.
Day pointed out that gold stocks have weathered multiple recessions since the 1960s. In three of those recessions, gold stocks fell between 2% and 5%; however, when gold stocks rose several recessions, they rose between 30% and 187%. And in every recession, gold stocks have outperformed the S&P 500.
Resource Maven’s Gwen Preston, on the other hand, believes that the gold market will begin to see a real turnaround in the second half of 2024, when the Federal Reserve is likely to turn to rate cuts, and Jeff Clark of TheGoldAdvisor.com agrees that a Fed rate cut would be a catalyst for a rise in gold stocks. He notes that lower interest rates have caused gold stocks to double or triple in value over the past three easing cycles.
Experts agree that a major reason why gold stocks have not been strong is that retail investors have been slow to enter the space.
Clark points out that retail investors need to see a breakout in the gold price to stand above $2,100 per ounce that is sustainable, which is entirely possible in 2024.
Preston, on the other hand, points out that when gold breaks out and starts to attract some interest from the average investor, the first stocks to move will be producers, high-margin or those with high-grade mines, or scale producers, because that’s where the big money will go.
Those with large, advanced-stage assets that are under construction or fairly close to completion, those companies’ stocks will be the first to strengthen when the price of gold breaks out.
