Keeping an Eye on gold
If you have been following the price of gold over the past 12 months like myself, the precious metal has had a great set up as it has risen over $1500 per ounce. With both the ECB and the Fed signaling further interest rate cuts and the global economy showing growing signs of weakness, these factors has been great for the price of gold. When global interest rates remain low, especially for as long as they have been throughout the bull market, gold has less competition from other yield bearing assets like treasury securities. And with the economy beginning to falter, Gold can become an all to helpful store of value when countries’ economies are falling.
Now for many investors, this appreciation has been a huge tailwind for their portfolios, but the one stakeholder who doesn’t seem to be too excited are the gold miners themselves. In the past few upcycles for the precious metal, miners have far overpaid on deals and new mine developments. If the last 12 months have been any indication, it does not appear that this bull market will look quite the same. During the beginning of the last bull market in gold, miners took on massive amounts of leverage too development mines that wouldn’t begin producing any minerals until many years out. So when the price of gold collapsed prior to any economic benefits from their new developments, many giants in the industry had their share price collapse. In 2010, miners spent nearly $ 40 Billion on M&A transactions, alternatively, in 2019 only 19.2 Billion has been spent. This comes even with Newmont’s 10 Billion dollar offer to take over rival Goldcorp in January. It appears that gold miners have finally begun to learn from their failings of the past, and instead have dedicated their businesses to returning shareholder value and solidifying their balance sheets. With the price of gold attempting a long term breakout, one of the greatest beneficiaries of this will be those that own the gold miners.