Gold mining companies and investors are excited, VanEck says.
Shares of mining companies have lagged behind the price of the metal.
Investors are experiencing a true frenzy for gold, motivated both by macroeconomic measures in great powers such as the United States, as well as by the geopolitical conflicts that are shaking the world.
Imaru Casanova, gold and precious metals portfolio manager at investment firm VanEck, has identified five reasons fundamental that—in his opinion— will continue to push up the value of this assetconsolidating its role as a refuge for those seeking to protect their capital.
The recent 0.50% interest rate cut by the United States Federal Reserve (Fed) was “definitely the center of attention” in the markets during September, according to Casanova.
This movement broke with the aggressive monetary policy that the Fed had maintained since March 2020and further cuts are expected in the near future, up to a total of 100 basis points, which could be announced at upcoming meetings in November and December.
With interest rates lower, investors find it more attractive to take out loans for put them in assets that offer higher returns, such as gold or bitcoin (BTC).
This policy favors investment in so-called risk assets, and gold has responded as expected.
As CriptoNoticias has reported, the ounce of gold has reached several historical highs this year. Today, October 18, it is marking a new one by trading above $2,700, as reflected in the chart of TradingView.
1. The gold sector remains optimistic
This bullish behavior has injected an optimistic air into key sector events, such as the Gold Forum Americas and the Precious Metals Summit, held in September.
Casanova highlights that Mining companies and gold stock investors have more than enough reasons for this enthusiasm.
The price records have had a direct impact on miners’ margins, resulting in increased cash flow, debt reduction, higher dividends for shareholders and share buybacks.
In addition, the high price of gold drives exploration, and companies have the financial capacity to finance new growth projects.
On the whole, These factors are contributing to a panorama of sustained optimism in the gold sectorwhich continues to attract investments and generate positive expectations as the precious metal consolidates itself as a safe and profitable haven for investors, highlights the directive.
2. Adaptation to market challenges
Although the sector has shown strength, it has not been without challenges. Inflationary pressures have been one of the biggest problems for mining companiesimpacting your costs and negatively affecting your performance.
However, Casanova highlights the rapid reaction of the sector, which has implemented cost reduction and optimization strategies, allowing companies to maintain operational balance.
What has generated greater enthusiasm in the markets is the recent rise in the price of gold. This increase has resulted in a significant expansion of profit marginspractically doubling those of the previous year.
This increase has been positive news for investors in the sector, who see how their profitability opportunities grow as the price of the precious metal continues to rise.
Although the gold sector faced difficulties due to the unexpected increase in costs, its ability to adapt and take advantage of the rise in the price of gold has generated renewed optimism among market participants.
3. Gold industry has a clear focus
Casanova highlighted his participation in the two important mining industry events mentioned previously in this article.
During these conferences, he met with more than 85 companies, hearing first-hand their strategies and perspectives.
According to the executive, the messages from producers have been consistent in recent years, maintaining a clear focus on creating value through four key pillars: cost control, improvements in operational efficiency, a disciplined use of capital allocated to growth and commitment to profitability for shareholders.
However, on this occasion, he noticed a significant difference: the management teams showed greater confidence in their ability to execute these strategies and talk about their growth plans.
This confidence appears to be driven, in large part, by the benefits derived from the increase in the price of gold, which has allowed companies to maintain their focus on quality over quantity and value over volumes. production.
“Companies continue to emphasize quality over quantity and value over volumes, which for us is a very positive sign.”
-Imaru Casanova, gold and precious metals portfolio manager at VanEck.
4. Mergers and acquisitions on the horizon
Another factor that could boost the sector is an increase in mergers and acquisitions, especially among emerging companies, says Casanova.
High gold prices have created a favorable environment for more mining projects to be considered viable.
However, the specialist warns that Smaller companies face difficulties due to long deadlines to obtain permits. This bureaucracy slows the development of new projects, which is problematic in a market eager to take advantage of current high prices.
Despite these challenges, the potential for consolidation in the sector is good news for investors, who could see an increase in investment opportunities as companies merge or acquire new projects.
Finally, while gold has shown outstanding performance in 2024, mining company stocks have not risen as strongly.
Even though gold rose in September, the NYSE Arca Gold Miners Index, which measures the performance of a group of companies dedicated to the exploration, extraction and processing of gold, only rose 3%, as seen in the graph of TradingView. Although mining stocks have grown 28% so far this year, This has not been enough to meet investors’ expectations.
This behavior has generated some confusion, since the strong performance of the precious metal has not boosted mining stocks with the strength that analysts anticipated, the report indicates.
Finally, VanEck leaves one question open and that is whether there is still room for these stocks to grow. Casanova believes that yes, Since as demand for gold as a safe asset increases, mining stocks will offer higher returnsleveraging on the price of the metal and with solid fundamentals in the industry.
In conclusion, the five reasons VanEck laid out, from the Fed’s policies to the potential for mergers and acquisitions, suggest that gold will continue to be an attractive investment. With an environment of macroeconomic uncertainty and geopolitical tensions, the precious metal will continue to shine as a safe haven for investors.
Clarification: This article is written for informational purposes. It does not constitute financial advice or investment recommendation. Each investor is responsible for conducting his or her own research.
