Bottom in GDX may signal gold rally - Saxo Bank
(Kitco News) - For some investors, gold has been a disappointing safe-haven asset, but one market analysts said he is keeping an eye on mining stocks to signal a turnaround in the precious metal.
In a report published Tuesday, Ole Hansen, head of commodity strategy at Saxo Bank, said that gold’s price action – a nearly 14% decline from the recent seven-year high – is reminiscent of the 2008 financial crisis, in which the precious metal declined by 20%. April gold last traded at $1,484.50 an ounce, up 0.45% on the day.
“The correction has obviously once again raised the question of whether gold is worth its tag as a safe-haven and diversifier,” Hansen said. “We believe the long-term reasons for holding gold has if anything been strengthened by current developments.”
As to when the gold market will bounce back and react to the trillions of dollars governments and central banks are pumping into the global economy, Hansen said that he is watching the mining sector.
“[In 2009,] the rally started in gold-mining stocks before moving to gold and it took another few months before the stock market finally bottomed out. With this in mind, we are keeping a close eye on gold mining stocks, through the VanEck Major Gold Miners (NYSE: GDX),” he said.
Although GDX saw a sharp rally earlier in the week, price are back down near their recent 1.5-year low. GDX last traded at $20.45 per share, up more than 4% on the day.
Although gold prices have dropped dramatically since the start of the month, Hansen said that he doesn’t expect margins for gold producers to suffer as costs, especially for oil, have dropped significantly as well.
Along with the mining sector, Hansen said that he also continues to watch U.S. bond yields. He noted that gold has suffered recently as bond yields have jumped more than 100% from their lows, with yields now back above 1%.
“We believe this direction is unsustainable and that real yields eventually will move back into a deeper negative territory,” he said.