Gold Shines Bright, but VanEck Portfolio Manager Sees Potential in Undervalued Gold Stocks

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As a seasoned researcher with over two decades of experience observing global financial markets, I find Imaru Casanova’s analysis both insightful and compelling. Her ability to decipher complex market movements and trends is truly remarkable. The recent market volatility, as she described it, was indeed a rollercoaster ride for many investors, myself included.

As a researcher, I recently found myself reflecting on the market turmoil experienced in August 2024. Imaru Casanova, a portfolio manager at VanEck, brought attention to this intense volatility in a blog post. She noted that the month started with a massive global sell-off, instigated primarily by an unanticipated interest rate increase from Japan’s central bank. This unexpected shift marked a departure from decades of virtually zero rates. Casanova emphasized that this decision precipitated a swift unwinding of carry trades, creating seismic ripples throughout the global equity markets.

As reported by Casanova, the Tokyo Stock Price Index (TOPIX) suffered its most significant single-day decrease since 1987, falling by 12%. Additionally, she pointed out that both the U.S. markets were affected, with the S&P 500 and Nasdaq Composite experiencing substantial declines. Casanova suggested that a portion of this volatility stemmed from worries about the possibility of an end to U.S. economic growth following a disappointing jobs report in July.

Casanova pointed out that even though gold and gold stocks experienced some turbulence due to the sell-off, they demonstrated strength as fear eased. She suggested that anticipation of lower interest rates played a significant role in market recovery during the last days of the month. Referencing Federal Reserve Chairman Jerome Powell’s speech at Jackson Hole, she highlighted his confirmation of a potential rate cut in September. This announcement supported gold prices reaching new highs in August, surpassing $2,500 per ounce on the trading market. By the end of the month, gold was trading at $2,503.39 per ounce, marking a 2.28% increase for August, as Casanova noted.

Casanova mentioned that the progression of gold stocks followed the revival of gold bullion; however, their results differed significantly. It turned out that bigger gold corporations performed better compared to smaller ones. According to Casanova’s findings, the NYSE Arca Gold Miners Index (GDMNTR) experienced a 2.44% growth in August, whereas the MVIS Global Juniors Gold Miners Index (MVGDXJTR) registered a more modest increase of 0.42%. Casanova highlighted that this gap was significant given gold’s impressive performance.

It might surprise you that, similar to Casanova’s observation, gold stocks didn’t surpass gold bullion, even though the sector experienced favorable conditions. She pointed out that gold prices peaked at unprecedented levels, and gold companies enjoyed better cash flow and valuations. Casanova predicted a 8% margin boost for the sector in August, with average all-in sustaining costs per ounce at around $1,400 and spot gold prices averaging $2,470. However, as she put it, the market didn’t fully account for these record gold prices when valuing gold mining stocks.

Casanova referenced Scotiabank’s Gold Monthly Statistics, showing that gold mining stocks are currently trading approximately 23% cheaper than the current spot price. She emphasized that valuations within this sector have reached record lows. As Casanova noted, the market capitalization of Scotiabank’s universe per ounce of gold reserves is at a historically low level compared to the current gold price.

In her blog post, Casanova talked about the challenges gold mining firms encounter when trying to replenish their reserves. She emphasized a significant drop in new gold finds, as shown by BofA Global Research and S&P Global Market Intelligence. Specifically, she mentioned that there were only five major gold discoveries between 2020 and 2023, which is significantly lower than the 18 annual discoveries made during the 1990s.

Moving forward, Casanova anticipates that gold prices might remain high, particularly if Western investors re-enter the market. She pointed out that the World Gold Council has reported an increase in fund investments into North American and European gold ETFs over the past few months, marking a shift from the outflows observed since mid-2022. Casanova hypothesized that growing apprehensions about the U.S. economy and the possibility of a recession could lead more investors to the gold market, as it typically thrives during uncertain times.

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2024-09-25 23:20