Why gold prices may still rise despite big gains last year
Why gold prices may still rise despite big gains last year by Aoyon Ashraf for Live Mint
- Gold prices have surged by about a third since August
- Many fund managers see the rally in gold extending further this year
Gold’s blistering rally isn’t over, according to fund managers who see another leg up for the precious metal. Lower-for-longer interest rates, a weaker dollar and the U.S. presidential election will provide multiple catalysts for gains, even as tentative trade peace breaks out between China and the U.S. Gold has surged by about a third since August 2018 and is up more than 2% this year, hovering near the highest in almost seven years.
The price increase, combined with capital discipline among the larger miners, is generating a bonanza of free cash flow while mergers could spark share gains among smaller players, according to five precious metals fund managers interviewed by Bloomberg.
“I have covered the sector for more than 20 years and I have never seen this kind of cash flow generation,” RBC Global Asset Management’s Chris Beer said.
In fact, the ratio of share price-to-free cash flow among senior miners, an indicator of valuation, still hasn’t caught up to the gold price, suggesting more room to run for stocks. After more than $20 billion in mergers and acquisitions among large-cap miners last year, small and medium-sized companies could be next, providing another reason to buy.
“It would be hard to eclipse the dollar value of M&A of last year, given there were some large deals, but we will likely see a higher number of deals this year,” Sprott Inc. CEO Peter Grosskopf said.
Here’s the view from gold investors:
Jon Case, CI Investments Inc.
Gold likely to see some downside in the first half of the year as bond yields are expected to find a bottom. However, trade war and election rhetoric may heat up in the second half, supporting the price.