Precious metals like gold have held steady in the last one month thanks to geopolitical tensions and increasing inflationary expectations. In the last one month (as of Apr 11, 2018), which has been fraught with trade and tech risks, gold bullion ETF SPDR Gold Shares GLD is up 0.6% compared with 2.7% losses in SPDR S&P 500 ETF SPY.
The strength in precious metals appeared to have enhanced further lately with GLD adding about 0.8% on Apr 11 and VanEck Vectors Gold Miners ETF GDX gaining about 2.2%. Let’s take a look what’s causing this rally.
Geopolitics – Trade & Russia
Trade relations between the United States and China have soured since March. There has been a chain of retaliations in import tariff announcements by both countries. President Donald Trump intended to “protect the technology and intellectual property of American companies and American people” and engrossed itself in a trade war with China.
Though tensions are easing now and no one knows the extent to which import tariffs will be levied or if these will be levied at all, fears do prevail. Added to this, Russia has been condemned internationally over the weekend for supporting the Syrian government, which is allegedly responsible for a chemical weapons attack. The United States has already imposed its harshest sanctions to date against Russian oligarchs, officials, businesses and agencies.
Needless to say, these factors are sure to keep markets volatile in the near term. Since precious metals, mainly gold, are considered safe haven assets and hedges against market turmoil, geopolitics should fan the rally in the days to come.
Higher Inflationary Expectations
While Trump imposed tariffs on aluminum, mainly on China, he slapped sanctions against Russian aluminum giant Rusal. The United States accounts for about 15% of Rusal’s revenues, which makes itself the company’s second-largest market after Russia.
So, if the tariffs are enacted and sanctions against Rusal remain in place, raw material costs should be higher in the coming days. Manufacturers will then might try to pass on a certain portion of higher material prices to consumers. Overall, this in turn will add on to inflationary pressures.
The latest Fed minutes also suggested that inflation on a 12-month basis would rise in the coming months. If these were not enough, U.S. inflation increased at the fastest clip in a year in March. Now, investing in precious metals is viewed as a hedge against inflation. This clearly explains the reasons for a precious metal rally.
Against this backdrop we highlight a few good stocks that have a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy).
Asanko Gold Inc. AKG
This is a gold producer with a Zacks Rank #1.
Timmons Gold Corp ALO
The company is engaged in exploration, development and production of gold primarily in Mexico. It has a Zacls Rank #2.
Harmony Gold Mining Company Limited HMY
This Zacks Rank #2 mining company produces gold from its operations in the district of Virginia, Orange Free State.
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GOLD (LONDON P (GLD): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
VANECK-GOLD MNR (GDX): ETF Research Reports
Harmony Gold Mining Company Limited (HMY) : Free Stock Analysis Report
Asanko Gold Inc. (AKG) : Free Stock Analysis Report
Timmons Gold Corp (ALO) : Free Stock Analysis Report
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