Gold is doing its job in an economic crisis - Franklin Templeton
(Kitco News) - Although the gold market this past month has suffered from massive volatility one firm says that the yellow metal has done its job amidst a health and economic crisis.
Steve Land, co-head Franklin Templeton's Franklin Gold and Precious Metals Fund
In a report Wednesday, Steve Land, co-head Franklin Templeton's Franklin Gold and Precious Metals Fund, said that gold is one of only a handful of assets that is positive on the year. This week alone, the gold market has seen strong gains, retracing most of its loses from early March. April gold futures last traded at $1,652 an ounce, up more than 1% on the day. Gold price are up more than 8% since the start of the year.
“During a global crisis to the scale of which the world is currently facing, we would think of a safe haven as something that can provided orderly liquidity at times when other assets may not. With this in mind, gold has performed very well,” said Land.
Land added that investors should look through the short-term volatility and focus on the long-term prospects for the precious metal.
“We believe that the volatility is creating interesting long-term buying opportunities,” he said. “We still believe gold and gold equites can play an important role as part of a diversified portfolio, as golds long history as an asset not tied to any one country’s financial system can often provide some relative stability in time of growing uncertainty.”
As market volatility has fallen from its recent highs, long-term bullish sentiment has returned to the marketplace. In particular, investors have become bullish on gold as central banks and governments continue to flood financial markets with liquidity.
Monday, the Federal Reserve launched an open-ended quantitative easing program in its third emergency announcement this month. Late Wednesday, the U.S. Senate passed a $2 trillion economic aid package to help people and businesses weather the economic storm. It is expected that spending to combat the effects of the coronavirus could rise to $6 trillion.
Along with a bullish outlook for gold, Land said that investors shouldn’t ignore a growing opportunity in the mining sector.
Although miners across the world are being forced to temporarily halt operations to slow the spreading coronavirus, Land noted that the sector is in a relatively good shape. He added that a higher gold price and lower energy costs should lead to strong first-quarter earnings.
“We believe the significant underperformance of gold equities relative to physical gold in the past two weeks have created a very interesting opportunity for anyone looking to gain longer-term exposure to the gold space. Historically, this type of dislocation does not last long, so although we would expect further volatility, we believe it is a very interesting time to look at investment opportunities in gold equities,” he said. “The Q1 YTD average gold price and current spot gold are both well above the $1489/oz average in Q4 2019, implying earnings and cash flow should continue to move higher with Q1 2020 results.”