Editorial: Gold, Barrick come out of gates strong in 2019

If the first week of trading in 2019 is auspicious for the rest of the year, gold bugs are going to be in for a fun ride.

Amidst broad market turmoil headlined by plunging and volatile global stock markets and increased U.S.-China trade tensions, the yellow metal lived up to its safe haven status over the holiday period and into the first few days of 2019, powering forward to just shy of US$1,300 per oz. at press time.

Spot gold prices are up a healthy US$47 per oz. — or 3.8% — in the last 30 days, and are trading at levels not seen since mid-2018.

The 60-day chart looks even more impressive, with spot prices rising off a low of US$1,197.55 per oz. on Nov. 13 to US$1,293.90 at press time for a gain of US$96.35 per oz., or 8% in less than eight weeks.

The S&P/TSX Global Gold Index had risen to 183.35 at press time versus 156.97 on Nov. 13, 2018, or a 16.8% jump — showing that gold equities these days are once again becoming an even better leverage on gold prices than bullion.

While the five-year chart of the S&P Global Gold Index still shows a decline from the peak above 270 in mid-2016, the index has been showing strong performance since hitting lows around 150 in mid-September, and looks ready for a breakout from the major downtrend that began in mid-2016. With gold stocks having taken such a beating in 2018, there is also less downside for new speculative money rotating into the gold sector.

While rocky stock markets and trade tensions have triggered safe haven buying in the gold sector in recent weeks, equally important is the outlook for interest rates in the U.S. and the European Union.

The market consensus has been shifting towards a view that the U.S. Federal Reserve will be less hawkish in setting interest rates this year — which will at least put some kind of cap on downward pressure on gold prices, even if the U.S. dollar remains resilient on any more modest interest rate increases.

In Europe, ongoing political and economic uncertainty in 2019 makes it equally unlikely the European Central Bank will engage in any dramatic interest rate hikes this year.

Silver prices have march upwards in lockstep with gold prices over the past 60 days, rising from US$13.97 per oz. on Nov. 13 to US$15.71 at press time, for a US$1.74 per oz., or 12.4% gain. Silver’s relatively more muted rise compared to gold is exciting silver bugs, who are commonly predicting US$20 per oz. silver in the mid-term.

Platinum and palladium prices have also been on the uptick, though platinum supply and demand fundamentals still draw concern from market watchers, as compared to far rosier outlooks for palladium.

While stock market leadership amongst gold miners has shifted between Barrick Gold and Newmont Mining in recent years as their market caps and production took turns in the number-one spot, the new year brings with it Barrick’s re-ascension as undisputed leader in the markets, as the merger between Barrick Gold and Randgold Resources took effect on New Year’s Day.

To reflect the enlarged company, Barrick has dropped the word “Gold” from its name and  has taken on the “GOLD” ticker that Randgold used on the New York Stock Exchange, while keeping ABX in Toronto trading.

While in many ways Barrick is a shell of its old self and has lost much of its Canadian character — after years of divestures and layoffs — the Barrick of 2019 is still a formidable gold producer, with a US$24-billion market cap and the largest production profile and reserve base amongst its peers.

The newly revealed post-merger board and management team reflects a true merging of the two companies, with individuals from both teams holding high-level positions.

In an open letter to shareholders, executive chairman John L. Thornton and president and CEO Mark Bristow said Barrick is “well placed to be the world’s most valued gold mining business” and that it would do so by “optimizing our existing operations, pursuing new opportunities that meet strict investment criteria and developing them with disciplined efficiency.”