By Patturaja Murugaboopathy and Gaurav Dogra
(Reuters) – Shares of gold miners and funds dealing in the precious metal have rallied in recent weeks as the coronavirus crisis rocked global markets and investors raced to buy safe-haven assets.
Spot gold
As investors debate whether the lasting effect of the virus, which has infected more than 2.6 million people and led to worldwide lockdowns, will be deflationary or inflationary, and as governments throw trillions of dollars at their shuttered economies, gold has emerged as the safe asset of choice.
Graphic – Gold’s performance against other assets: https://fingfx.thomsonreuters.com/gfx/mkt/jbyvryowpeo/SP%20TSX%20Global%20Gold%20Index.jpg
Despite most gold-miners shuttering production under the lockdowns and curfews, their shares have outpaced broader stock indexes this year.
S&P/TSX’s Global Gold index <.SPTTGD>, which tracks producers of gold and related products, including companies that mine or process gold globally, has gained about 20% this year.
Ned Naylor-Leyland, who manages a gold and silver fund at Merian Global Investors in London, expects a boost to gold miners’ operating margins from a rise in the U.S. dollar and the fall in oil prices, which he says comprise 30-40% of miners’ costs.
“That is just a pure margin expansion benefit for the company,” he said.
Barrick Gold Corp
Barrick’s shares have gained about 46% this year, and another producer Polyus PAO
However, analysts have been cutting gold miners’ 2020 profit estimates, albeit marginally when compared with other sectors.
Graphic – Top gold producers change in 2020 profit estimates this year: https://fingfx.thomsonreuters.com/gfx/mkt/ygdvzxwwvwa/Top%20gold%20producers%20change%20in%202020%20profit%20estimates%20this%20year.jpg
Graphic – Gold companies vs countries’ corporate profit estimates change: https://fingfx.thomsonreuters.com/gfx/mkt/xklvywgevgd/Gold%20companies%20profit%20estimates%20change.jpg
On the back of the rally in gold prices, gold ETFs (exchange-traded funds) saw about $7 billion worth of inflows in March, the highest in more than 8 years, data from Refinitiv Lipper showed. On the other hand, bond ETFs and equity ETFs experienced outflows.
Graphic – Comparison of Gold ETFs with ETFs in other asset class: https://fingfx.thomsonreuters.com/gfx/mkt/jznpnwxdvlm/Comparision%20of%20Gold%20ETFs%20performance%20with%20other%20ETFs.jpg
ZKB Gold ETF AA CHF
Graphic – Top performing Gold ETFs this year: https://fingfx.thomsonreuters.com/gfx/mkt/yxmpjmolvrz/Top%20performing%20Gold%20ETFs%20this%20year.jpg
Total holdings in gold-backed ETFs
Graphic – ETFs’ total gold physical holdings: https://fingfx.thomsonreuters.com/gfx/mkt/azgpogkypdx/ETF%20total%20gold%20physical%20holdings.jpg
However, spot gold prices are expected to consolidate below recent highs as increased investor demand is offset by the dollar’s strength and weak retail consumption, a Reuters poll showed.
“Only the investment side and ETF buying is supporting gold, which is offsetting the lower physical demand. But I don’t know how long that can be sustained. People are putting money into the ETFs and if they run out, gold could go down,” said Ronald Leung, chief dealer, Lee Cheong Gold Dealers in Hong Kong.
Dealers in China sold gold at massive discounts of up to $70 an ounce over benchmark prices last week. [GOL/AS]
Graphic – Change in gold prices compared with the VIX Index: https://fingfx.thomsonreuters.com/gfx/mkt/nmopaejepab/Change%20in%20gold%20prices%20compared%20with%20the%20VIX%20Index.jpg
(Reporting by Patturaja Murugaboopathy, Gaurav Dogra and Arpan Varghese in Bengaluru; Editing by Vidya Ranganathan and Kirsten Donovan)
