Fed Rate Cut Sparks Record Gold Price Amid Global Uncertainty
October 09, 2024
Read Time 4 MIN
Monthly gold market and economic insights from Imaru Casanova, Portfolio Manager, featuring her unique views on mining and gold’s portfolio benefits.
Fed Rate Cut Sparks Record Gold Price Amid Global Uncertainty
The long awaited first interest rate cut by the U.S. Federal Reserve (the “Fed”) was no doubt the focus of market participants during September. The Fed initiated its easing cycle with a larger-than-expected 50 basis point rate cut. Gold responded as expected, with the spot price jumping to a new all-time high of $2,685 per ounce (intraday) and $2,672 (at-the-close) on September 26. Gold’s upward trajectory continues to be supported by significant conflict escalation in the Middle East. In addition, the rather unexpected and substantial monetary and fiscal stimulus measures announced by China, boosted the broader metals and mining sector. Gold recorded a 5.24% ($169 per ounce) gain during the month, closing at $2,634.58 on September 30.
Positive Sentiments in the Gold Sector
With gold reaching fresh highs almost every month so far this year, it is not surprising that the mood at the well-attended Gold Forum Americas and Precious Metals Summit, both hosted each September in Colorado, was positive and upbeat.
There are reasons for gold mining companies and gold equity investors to be excited:
- Record gold prices are translating to record margins and free-cash-flow generation for gold producers
- Supporting continuing debt reductions
- Increasing dividends and share buybacks
- Increasing exploration activities
- Improved ability to fund growth projects
Strong Financial Performance
The sector has been in solid footing for several years. The most recent inflationary cost pressures had a negative impact, primarily due to companies not anticipating it. This caused them to miss their cost targets and disappoint markets, as was mostly evident in 2022. However, the sector remained focused on internal cost reduction and optimization initiatives to help offset the external cost increases. Subsequently, as inflationary pressures subsided, operating costs appeared to be under control.
As the gold price rises, so do margins. Gold averaged a new record quarterly price in Q3 2024 of $2,474 per ounce. This compares with a Q3 2023 average of $1,927 per ounce and represents approximately a 100% margin expansion relative to Q3 2023. It is certainly reason for gold equity market participants to be enthusiastic.
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Strategic Focus and Confidence
We met and attended presentations with over 50 companies at the Gold Forum Americas, and another 35 companies at the Precious Metals Summit. The message from the producers has not changed much over the last couple of years:
- Focus on value creation through cost control
- Operational efficiencies
- Disciplined deployment of growth capital
- Commitment to shareholder returns
The key distinction this time around was that the management teams appeared more confident in their abilities to carry out their strategies and more comfortable discussing growth plans. All of this was afforded by the benefits of a much higher gold price. Companies continue to emphasize their focus on quality over quantity and on value over volumes, which to us is a very positive signal.
Sector M&A Likely as Juniors Seek Consolidation
The junior companies (developers and emerging producers) were busy meeting with other companies at the conferences, which could lead to an increase in sector M&A. This is good news, as we believe the gold sector is very much in need of consolidation. At these gold prices, more projects are viable, leading to potential expansion of the junior investment universe. However, permitting timelines have not improved, and this has significantly impacted the single asset, smaller companies, in development stage. Projects simply take longer to build, while the market is unwilling to wait. With gold at all-time highs, the focus is on cash flow generation in the short and medium term. The companies with long timelines to production have generally underperformed.
Response Lacking Despite Strong Performance
The number one question at these conferences seemed to be: “Why haven’t we seen a stronger response from gold stocks this year?” For example, in September, gold was up over 5%, while the NYSE Arca Gold Miners Index (GDMNTR) was up only 3.07% during the month. The MVIS Global Juniors Gold Miners Index (MVGDXJTR) was up 6.62%, which outperformed gold, but not as much as expected. Gold and gold stocks are among the best performing assets in 2024. Gold stocks are up 28% year to date, which is in line with the metal, but below our expectations, given their strong leverage to the gold price.
Investor Concerns: Is There Still Room For Gains In Gold Equities?
With most investors still on the gold market sidelines, the number one question they are currently asking after such strong performance this year: “Is there still room for more gains for the gold equities from here? Did we miss it?” Gold equities as a group (GDMNTR) are trading at the same level as they were in 2020. Back then the gold price was $600 lower, and well below the historical highs reached in 2011. We reiterate our view that as market demand for gold assets increases, driven by the need to diversify and protect portfolios, the gold equities will offer the safety of gold with the potential for higher returns relative to the metal. This is based not only on their gold price leverage and our outlook for higher gold prices in the medium and longer term, but also on the companies’ strong fundamentals and the expectation of a market rerating that reflects the sector’s improved health, profitability and sustainability.
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IMPORTANT DISCLOSURE
All company, sector, and sub-industry weightings as of September 30, 2024, unless otherwise noted.
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this communication.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results.
Please note that the information herein represents the opinion of the author, but not necessarily those of VanEck, and this opinion may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
Diversification does not assure a profit or protect against loss.
Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold. MVIS Global Junior Gold Miners Index (MVGDXJTR) is a rules-based, modified market capitalization-weighted, float-adjusted index comprised of a global universe of publicly traded small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining, hold real property that has the potential to produce at least 50% of the company’s revenue from gold or silver mining when developed, or primarily invest in gold or silver.
Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of a Fund’s performance. Indices are not securities in which investments can be made.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
NYSE Arca Gold Miners Index is a service mark of ICE Data Indices, LLC or its affiliates (“ICE Data”) and has been licensed for use by Van Eck Associates Corporation (“VanEck”). VanEck products are not sponsored, endorsed, sold or promoted by ICE Data. ICE Data makes no representations or warranties regarding VanEck products or the ability of the NYSE Arca Gold Miners Index to track general stock market performance.
ICE DATA MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE NYSE ARCA GOLD MINERS INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL ICE DATA HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
MVIS Global Junior Gold Miners Index (the “Index”) is the exclusive property of MarketVector Indexes GmbH (a wholly owned subsidiary of Van Eck Associates Corporation), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MarketVector Indexes GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. VanEck products are not sponsored, endorsed, sold or promoted by MarketVector Indexes GmbH and MarketVector Indexes GmbH makes no representation regarding the advisability of investing in VanEck products.
The S&P 500® Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spglobal.com/spdji/en/. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
Gold investments are subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. Investments in gold may decline in value due to developments specific to the gold industry. Foreign gold security investments involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. Gold investments are subject to risks associated with investments in U.S. and non-U.S. issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, gold-mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non-diversification, operational, regulatory, small- and medium-capitalization companies and subsidiary risks.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.
© Van Eck Associates Corporation
IMPORTANT DISCLOSURE
All company, sector, and sub-industry weightings as of September 30, 2024, unless otherwise noted.
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this communication.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results.
Please note that the information herein represents the opinion of the author, but not necessarily those of VanEck, and this opinion may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
Diversification does not assure a profit or protect against loss.
Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold. MVIS Global Junior Gold Miners Index (MVGDXJTR) is a rules-based, modified market capitalization-weighted, float-adjusted index comprised of a global universe of publicly traded small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining, hold real property that has the potential to produce at least 50% of the company’s revenue from gold or silver mining when developed, or primarily invest in gold or silver.
Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of a Fund’s performance. Indices are not securities in which investments can be made.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
NYSE Arca Gold Miners Index is a service mark of ICE Data Indices, LLC or its affiliates (“ICE Data”) and has been licensed for use by Van Eck Associates Corporation (“VanEck”). VanEck products are not sponsored, endorsed, sold or promoted by ICE Data. ICE Data makes no representations or warranties regarding VanEck products or the ability of the NYSE Arca Gold Miners Index to track general stock market performance.
ICE DATA MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE NYSE ARCA GOLD MINERS INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL ICE DATA HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
MVIS Global Junior Gold Miners Index (the “Index”) is the exclusive property of MarketVector Indexes GmbH (a wholly owned subsidiary of Van Eck Associates Corporation), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MarketVector Indexes GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. VanEck products are not sponsored, endorsed, sold or promoted by MarketVector Indexes GmbH and MarketVector Indexes GmbH makes no representation regarding the advisability of investing in VanEck products.
The S&P 500® Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spglobal.com/spdji/en/. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
Gold investments are subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. Investments in gold may decline in value due to developments specific to the gold industry. Foreign gold security investments involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. Gold investments are subject to risks associated with investments in U.S. and non-U.S. issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, gold-mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non-diversification, operational, regulatory, small- and medium-capitalization companies and subsidiary risks.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.
© Van Eck Associates Corporation