Gold markets have seen some incredible rallies over the last few years, and miners are seeing a bull run of their own.
Goldcorp Inc. (GG, Financial) is no exception. Earlier this month, GoldCorp stock closed above $16 from the $11.86 seen at the start of the year, indicating a rise of more than 35% year to date. During the same period, the underlying price of gold has gone up from $1,075.19 to $1,327.69, a rise of 23%, while Standard & Poor's 500 has moved to 2,128 from 1,952, showing a rise of 9%. With this in mind, we can see that Goldcorp has outperformed physical gold as well as the S&P 500 by a wide margin.
Macro environment
We can add to this the fact that the current environment provides a favorable opportunity for gold to shine and rally further.
Gold investors consider the metal to be a key selection to use as a safe haven during periods of economic uncertainty. In other words, when investors are unable to digest the gyration of the stock market, they usually turn to gold for support. In the current fiscal year, the major catalyst for gold was the Brexit event as none of the EU members had ever invoked article 50 to leave the European Union.
Overall, this increased the uncertainties present in the market and economic conditions, favoring gold prices and, by extension, gold miners stock prices. For those looking to implement strategies using robo advisors, it is important to conduct a wealth front review in order to ensure that you are exposed to the right types of asset classes.
It should also be understood that some currencies and gold have an inversely correlated relationship. If these currencies become stronger, gold prices tend to drift lower. During the last quarter of 2015, and the first quarter of 2016, the dollar remained weak on the back of slower than expected GDP growth and an easing job market. This weakness in the dollar against major currency counterparts favors the rise of gold prices, and this is supporting the outlook for gold miners’ stock prices. As long as this continues, we can expect to see strength in companies like GoldCorp.
Gold demand
According to the World Gold Council, gold demand rose by 21% during the first quarter, which is the largest growth in gold demand ever recorded. Demand remained strong for the second quarter from jewelers, central banks and industry, and the widespread increases in demand helped the gold price shine during the period.
Another important factor for the rise in gold prices has been the difference in long-term yields, as many developed economies are running with negative bond yields (supporting gold prices favorably).
With this backdrop, global gold prices remained at higher levels, and this will continue supporting mining revenue prospects and the stock price of Goldcorp into the end of the year. It is true that the recent developments in a class action suit filed by Khang & Khang LLP could restrain upward price movement in Goldcorp stock, but so far the globally supportive backdrop has had the greater influence.
Disclosure: The author has no position in any asset mentioned.
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