Towards the end of 2018, I’d discussed bullish signs for gold as we looked ahead to the New Year. The yellow metal has generated huge momentum in 2019 due in large part to the two factors I went over. At the time of this writing, gold is holding steady above the $1,550 mark, which seemed an impenetrable ceiling over the past several years.
The United States Federal Reserve opted to cut rates in its late July meeting. U.S economic data has been strong but concerns over the trade war with China and slowing global growth have put pressure on policy makers to make preemptive cuts. Many experts expect the Fed to move ahead with another rate cut in roughly two weeks’ time.
Europe’s central bank has also telegraphed a rate cut in September in response to global pressures. The German economy, long thought of as the engine of Europe, is now one more quarterly contraction away from a technical recession. And, of course, there is still anxiety over how Brexit will shake out with the October 31st deadline looming large.
Gold equities like Kirkland Lake Gold (TSX:KL)(NYSE:KL) and Barrick Gold (TSX: ABX)(NYSE: GOLD) have benefited enormously from the uptick in the spot price. Back in late March, I’d recommended that investors consider stacking gold equities after a worrying yield curve inversion. Months and several yield inversions later, and the gold trade is growing in popularity.
Kirkland Lake stock has climbed 89% in 2019 as of close on September 4. In the second quarter, Kirkland reported strong net earnings of $104.2 million, or $0.50 per share, compared to $61.5 million, or $0.29 per share, in the prior year. EBITDA rose 50% year over year to $185.8 million. In the year-to-date period, its production has increased 43% to 446,472 ounces.
Barrick is one of the two largest gold producers in the world. Shares of Barrick have increased 43% in 2019 at the time of this writing. The company posted disappointing results in the second quarter, but Barrick reported a 27% increase in gold production to 1.353 million ounces after strong performance at its Argentina and Mali-based mines. Averaged realized gold price was still below $1,320 in the quarter, so more positive results are on the horizon for Barrick with these much higher prices.
How can gold get to $2,000?
Global economic uncertainty is unlikely to subside by the end of 2019. The United States and China will re-start trade talks in October, but both sides seem to be drifting farther apart the longer talks go on. Historically low rates look like they are here to stay, at least for the next few years. Couple that with slowing growth on a global scale, and you have a nice recipe for the yellow metal as we look forward.
Investors who want to get in on the gold rush should consider stocks like Kirkland Lake Gold and Barrick Gold in early September. The run-up in the spot price has not translated to a comparable spike for equities, which means that retail investors may have some catching up to do. It also means that it is not too late to get in on the party.
