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Gold miners and funds shine, boosted by coronavirus safe-haven bid

Published 24/04/2020, 12:43
© Reuters. FILE PHOTO: The spread of the coronavirus disease (COVID-19) in Bangkok
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By Patturaja Murugaboopathy and Gaurav Dogra

(Reuters) - Shares of gold miners and funds dealing in the precious metal have rallied in recent weeks as the coronavirus crisis rocked global markets and investors raced to buy safe-haven assets.

Spot gold has climbed more than 10% this year, the most among major assets tracked by Reuters and significantly above gains in U.S. Treasury bonds and the dollar, while equities and industrial commodities have borne the brunt of the sell-off, with the MSCI World stocks index and copper prices both down 17%.

As investors debate whether the lasting effect of the virus, which has infected more than 2.6 million people and led to worldwide lockdowns, will be deflationary or inflationary, and as governments throw trillions of dollars at their shuttered economies, gold has emerged as the safe asset of choice.

(Graphic: Gold's performance against other assets link: https://fingfx.thomsonreuters.com/gfx/mkt/jbyvryowpeo/SP%20TSX%20Global%20Gold%20Index.jpg)

Despite most gold-miners shuttering production under the lockdowns and curfews, their shares have outpaced broader stock indexes this year.

S&P/TSX's Global Gold index, which tracks producers of gold and related products, including companies that mine or process gold globally, has gained about 20% this year.

Ned Naylor-Leyland, who manages a gold and silver fund at Merian Global Investors in London, expects a boost to gold miners' operating margins from a rise in the U.S. dollar and the fall in oil prices, which he says comprise 30-40% of miners' costs.

"That is just a pure margin expansion benefit for the company," he said.

Barrick Gold Corp, the world's largest gold mining company by market value reported an 8.5% drop in its first-quarter gold output due to lockdowns but said last week that it remained on track to meet its full-year production targets.

Barrick's shares have gained about 46% this year, and another producer Polyus PAO has risen more than 20%.

However, analysts have been cutting gold miners' 2020 profit estimates, albeit marginally when compared with other sectors.

(Graphic: Top gold producers change in 2020 profit estimates this year IMAGE link: https://fingfx.thomsonreuters.com/gfx/mkt/ygdvzxwwvwa/Top%20gold%20producers%20change%20in%202020%20profit%20estimates%20this%20year.jpg)

(Graphic: Gold companies vs countries' corporate profit estimates change link: https://fingfx.thomsonreuters.com/gfx/mkt/xklvywgevgd/Gold%20companies%20profit%20estimates%20change.jpg)

On the back of the rally in gold prices, gold ETFs (exchange-traded funds) saw about $7 billion worth of inflows in March, the highest in more than 8 years, data from Refinitiv Lipper showed. On the other hand, bond ETFs and equity ETFs experienced outflows.

(Graphic: Comparison of Gold ETFs with ETFs in other asset class IMAGE link: https://fingfx.thomsonreuters.com/gfx/mkt/jznpnwxdvlm/Comparision%20of%20Gold%20ETFs%20performance%20with%20other%20ETFs.jpg)

ZKB Gold ETF (NYSE:GLD) AA CHF and Swisscanto ETF Precious Metal Physical Gold USD A are among the top performers with gains of more than 13% each.

(Graphic: Top performing Gold ETFs this year IMAGE link: https://fingfx.thomsonreuters.com/gfx/mkt/yxmpjmolvrz/Top%20performing%20Gold%20ETFs%20this%20year.jpg)

Total holdings in gold-backed ETFs rose to a 7-year high of 1,975.2 tonnes this month, Refinitiv data showed.

(Graphic: ETFs' total gold physical holdings IMAGE link: https://fingfx.thomsonreuters.com/gfx/mkt/azgpogkypdx/ETF%20total%20gold%20physical%20holdings.jpg)

However, spot gold prices are expected to consolidate below recent highs as increased investor demand is offset by the dollar's strength and weak retail consumption, a Reuters poll showed.

"Only the investment side and ETF buying is supporting gold, which is offsetting the lower physical demand. But I don't know how long that can be sustained. People are putting money into the ETFs and if they run out, gold could go down," said Ronald Leung, chief dealer, Lee Cheong Gold Dealers in Hong Kong.

Dealers in China sold gold at massive discounts of up to $70 an ounce over benchmark prices last week.

© Reuters. FILE PHOTO: The spread of the coronavirus disease (COVID-19) in Bangkok

(Graphic: Change in gold prices compared with the VIX Index IMAGE link: https://fingfx.thomsonreuters.com/gfx/mkt/nmopaejepab/Change%20in%20gold%20prices%20compared%20with%20the%20VIX%20Index.jpg)

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