Gold is almost not connected in the economic chain with most other assets, at the same time as a precious metal it has a value in any case. The weakening of the dollar and uncertainties regarding traditional stocks result in the escalation of gold prices and in turn, gold stocks. As a consequence, gold mining companies' revenues and stock prices rise in a crisis.
There are many benefits to buying gold stocks instead of the physical metal. Gold companies can likely generate higher total returns than simply an investment in physical gold because, when the price of gold rises, these companies can expand their operations and their profits. This growth should enable their stocks to outperform the price of gold.
According to a report by McKinsey & Company, the gold mining industry brought in 33% of returns to shareholders in 2020. Despite the rise in prices and solid earnings, in 2020 had many challenges, with the worst of them being the global pandemic which had a major negative impact on global markets, putting over 8 million ounces of gold production in grave peril. However, it was a great year for gold. The precious metal rallied courtesy of increased demand resulting from investors who used it as a safe haven. According to Mining.com, gold production is projected to grow at a CAGR of 2.9% at over 124.1 million ounces by 2024. The growth rate of mining can certainly accelerate the precious metals and gold prices, resulting in some fruitful investments.
Fiat currencies such as the U.S dollar became extremely volatile in 2020 as a result of the pandemic. Gold’s performance remain steady during times of economic disruption.
Gold’s performance will largely depend on economic performance and whether the coronavirus will continue to be a problem. Investors will likely start shifting their attention to riskier investments if the coronavirus is eliminated, but on the other hand, the demand for gold will remain high if more variants make the pandemic difficult to eliminate. In case things do not pan out, investing in gold will remain a good idea.
During the period 1973 and 1974 gold posted 60% gains, compared to 20% loss in S&P 500 Index. It posted a return of 24% in 2020, best so far since 2010, hitting a high of $2,075 an ounce in August. Since then it has consolidated and trading in the range of $1,800 and $2,000 and lost 17%.
Gold has gained popularity ever since the pandemic hit, and so has its demand thanks to investors looking to protect their wealth from economic uncertainties. One of the most liquid ways of taking advantage of the demand for gold is by buying gold mine stocks.
Investing in gold-mining stocks is, to a large extent, a leveraged bet that the price of gold will keep rising. That's because a higher gold price can have a dramatic impact on the profitability of gold miners. However, the growth and return in the stock depend on the expected future earnings of the company, not just on the value of gold. Factors such as effective management, production costs, reserves, mine exploration and project development, and hedging activities are some of the factors to consider when deciding whether to buy gold mining stocks.