3 Reasons Why Gold Is Surging

Why are prospects so bright for Barrick Gold Corp. (TSX:ABX)(NYSE:ABX), Yamana Gold Inc. (TSX:YRI)(NYSE:AUY), and Kinross Gold Corporation (TSX:K)(NYSE:KGC)?

The Motley Fool

After years of frustration, gold investors finally have something to celebrate. The yellow metal is up more than 10% in February and is set for its biggest monthly gain since 2012. This comes after the gold price surged in January.

As a result, the stock prices of Canada’s largest gold companies have taken off. So far in 2016, Yamana Gold Inc. (TSX:YRI)(NYSE:AUY) is up by nearly 50%, Kinross Gold Corporation (TSX:K)(NYSE:KGC) is up by roughly 60%, and Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) shares have skyrocketed by more than 80%.

So what exactly has caused the surge in gold shares? We look at the top three reasons below.

1. Concerns about China

It’s no secret that China’s growth is slowing, and the country has a host of other problems as well. The country’s total debts, which includes everything owned by the government, households, corporations, and financial firms, has climbed to US$31.9 trillion, according to McKinsey. That’s equivalent to nearly three times the country’s GDP, an astronomical figure for a developing nation. Worse still, the Chinese stock market has been plunging, and government officials have been eerily silent.

Of course, if China stumbles (more than it already has), then this could have severe repercussions for the global economy. We’ve seen plenty of evidence of that already.

Consequently, we’ve seen investors flock in greater numbers to safe havens such as gold, even as the S&P 500 came off its lows. This is a trend that could certainly continue.

2. The weakness in the U.S. dollar

In recent years, the biggest economic concerns have occurred outside the United States. And at the same time, the Federal Reserve was preparing to raise interest rates. Both of those trends were positives for the U.S. dollar, which in turn is a negative for all commodities, including gold.

But in the past two to three months, we’ve seen those trends reverse. The U.S. economy is looking more fragile, and as a result the Federal Reserve is looking much more hesitant to raise rates. That in turn is weakening the U.S. dollar and strengthening gold prices.

3. Negative interest rates

While the Federal Reserve is keeping interest rates low, other central banks, including the Bank of Japan and the European Central Bank, have ventured into the world of negative interest rates. It’s a sign of just how far authorities are willing to go to spur growth. Of course, such policies make gold a far more attractive investment.

The question now is if gold will continue to rally. And if you look at the three trends identified above, none of them are going away any time soon. So, even though stocks like Barrick and Kinross have appreciated thus far, it may not be too late to jump in.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Metals and Mining Stocks

todder holds a gold bar
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell or Hold?

Investing in quality gold mining stocks that trade at a reasonable valuation could help you beat the TSX index over…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Buy?

Let's dive into whether First Quantum Minerals (TSX:FM) is worth buying at current levels, or if investors should sit this…

Read more »

nugget gold
Metals and Mining Stocks

Competitive? Beat the Market With These 2 Dividend-Paying Growth Gems

Investors looking to beat the market buying dividend stocks right now need to focus on this right sectors. Here are…

Read more »

nugget gold
Metals and Mining Stocks

A Canadian Billionaire Investor Sold Micron Stock and Bought This TSX Company Instead

Prem Watsa focuses on value over short-term growth.

Read more »

Concept of multiple streams of income
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for Its 1.2% Dividend Yield?

Gold royalty stocks represent a niche in the precious metals industry. They have different dynamics from mining stocks.

Read more »

todder holds a gold bar
Metals and Mining Stocks

The 1 Mining Stock Canadians Should Buy and Hold Forever

Newmont is a gold mining stock that trades at a cheap valuation, making it a top investment choice for those…

Read more »

Metals and Mining Stocks

Top Canadian Gold Stocks to Buy Now

Canadian gold mining stocks such as Barrick Gold and Kinross Gold are two top investments in October 2024.

Read more »

todder holds a gold bar
Stocks for Beginners

Is the Worst Over for SSR Mining Stock?

SRR Mining stock has been rising higher after recent earnings performance that made a bit of a comeback. So is…

Read more »