By the end of 2023, gold prices had risen well above the key $2,000 per ounce mark. As we entered 2024, the upward trend in gold has shown no signs of slowing, reaching new milestones each quarter. In September, following a 50 basis point rate cut announced by the Federal Reserve, gold prices soared past $2,600, setting a new all-time high. However, gold stocks have yet to deliver the outsized gains that investors have been hoping for.
As of October 1, gold prices are up about 30% for the year. Meanwhile, the two major gold stock exchange-traded funds (ETFs), VanEck Gold Miners ETF (ARCA:GDX) and VanEck Junior Gold Miners ETF (ARCA:GDXJ), have increased by 32% and 33% respectively over the same period.
While this performance might seem decent, it’s important to remember the “leverage effect” or “amplified effect” that gold stocks often have compared to the actual metal. When gold prices rise, gold stocks typically see even greater price increases. Therefore, in the current market where gold prices have been rising rapidly, the performance of gold stocks might still leave investors wanting more.
So, is now a good time to invest in gold stocks?
Many experts believe that $2,600 is just the beginning of an upward trend in gold prices over the next few months, with some even predicting prices could hit $3,000. Although current prices are high, September marks the beginning of the gold season, with upcoming Indian festivals, Christmas, and Chinese New Year driving physical demand. Additionally, gold tends to perform well when the Federal Reserve starts cutting rates.
Thus, gold remains a strong investment opportunity, whether or not the economy goes into recession.
Here are four key factors that will support momentum in the gold market:
In recent years, technology and cryptocurrencies have overshadowed mining companies, including gold miners, which have not received much attention from general investors. Investment interest in the mining sector has declined across the board, with resource stocks hitting historical lows compared to the S&P 500 index. However, with rising gold prices, many industry experts believe that gold stocks are undervalued, and a return of generalist investors seems inevitable.
In fact, mid-sized and large gold producers have already seen significant gains. Since the February low when gold prices hit $1,895, large gold producers have gained 45% to 80%, while mid-sized companies have seen increases ranging from 50% to 132%.
This pattern is typical of a gold bull market: once gold prices start rising, large gold miners and gold royalty and streaming companies lead the charge, followed by developers and junior miners. With the amount of money flowing into the gold sector, enthusiasm for investing in juniors has been rekindled, altering the fundamentals for producers. Additionally, merger and acquisition activity in the junior mining sector is expected to surge.
