Last month, gold prices reached unprecedented heights, culminating at US$2,214 per ounce by month-end, marking an 8.1% increase. Gold is now trading at record high above $2,300/oz. This surge wasn't confined to a specific currency but was mirrored across all major currencies tracked, largely due to the stabilization of the U.S. dollar. In this article, we will explore the factors driving the price of gold and highlight three stocks to capture the current rally.
Source: Tradingview
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Factors Driving the Gold Rally
Since last month, gold's volatility spiked, echoing previous surges seen in September 2022, March 2023, and October 2023. However, unlike before, this uptick wasn't matched by a rise in bonds' volatility, indicating a unique driver specific to gold. Moreover, COMEX futures net positions had their third strongest month since 2019, propelled by short covering and new long positions. Moreover, gold ETFs experienced heightened inflows across various regions around the world.
Geopolitical Factors and Macroeconomic Trends
Against a backdrop of rising global tensions, the Geopolitical Risk index surged, reflecting escalating conflicts worldwide. Despite strong market conditions and supportive policies from the Federal Reserve, unexpected data trends in the United States suggested potential stagflation risks, thereby boosting gold prices. Moreover, with the prospect of declining interest rates and considering gold ETFs fund flows, the market may have underestimated the ongoing rally, resulting in current under-allocation. This could potentially pave the way for further upside potential for gold.
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Gold’s Current Positioning and Speculative Trends
Contrary to expectations, gold ETFs make up only a small fraction of total U.S. ETF assets, at levels similar to those observed before significant price increases. Likewise, in futures markets, gold lags behind equities, bonds, and commodities. Despite its elevated price, gold appears to be less held than anticipated, lacking the overbought characteristics seen in previous rallies. This suggests that despite its high valuation, gold remains relatively less invested in compared to other assets, indicating potential for further appreciation as demand continues to grow. This underscores the possibility of a sustained uptrend in gold prices, as investors may seek to increase their exposure to the precious metal to diversify their portfolios amidst uncertain market conditions.
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Potential Turning Point?
While the current situation doesn't definitively signal a shift, available evidence suggests an abundance of potential buyers relative to sellers, implying ongoing strength and resilience in gold markets as we move ahead. This resilience underscores the enduring appeal and stability of gold as a valuable asset amidst changing economic conditions.
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Evolution Mining Ltd (ASX: EVN)
Evolution Mining Limited, is a prominent gold mining company with operations primarily in Australia. The company's focus lies in mining and exploration, with active gold and silver mines located in Queensland and Western Australia. Emphasizing delivery and predictability, Evolution Mining's strategy for 2024 prioritizes cash generation over acquisitions.
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As of now, the company’s share price stands at $3.92. With a market capitalization of $7,784 million and a price-to-earnings (P/E) ratio of 18.7, Evolution Mining has a track record of consistently rewarding its shareholders through dividends. The most recent dividend payment, fully franked at 100%, amounted to $0.02 per share on April 5, 2024. Despite experiencing fluctuations, the company's share price has seen a 52-week high of $4.14 and a low of $2.88. Operating in the relatively stable jurisdictions of Australia and Canada, Evolution Mining maintains a portfolio of up to eight assets to ensure operational focus and enhance shareholder value.
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We have been holding EVN shares since mid-January of this year. Since then, the value of EVN has appreciated by over 26%.
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Emerald Resources NL (ASX: EMR)
Emerald Resources NL (ASX: EMR) is an Australian-based company specializing in the exploration and development of mineral reserves, primarily located in Cambodia and Australia. Renowned for its potential growth and robust track record in the materials sector, Emerald actively pursues opportunities in Asia, driven by buoyant commodity prices and enhanced regional relations. The company prioritizes low-cost gold mining strategies, emphasizing cost efficiency over mere production volumes.
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Emerald Resources has showcased profitability in recent years, indicating promising future earnings growth. With a significant surge in earnings per share (EPS), climbing from $0.10 to $0.15 in the past year—an impressive 46% increase—the company demonstrates remarkable financial progress. Moreover, Emerald has improved its EBIT margins, elevating from 37% to 42%, while its revenue continues its upward trajectory, underscoring strong financial performance. Notably, insiders hold a substantial stake in the company, investing $320 million, equivalent to 18% of shares.
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We have been acquiring and holding EMR shares since mid-January. Since then, EMR has appreciated by over 13%, showcasing its resilience and potential for further growth.
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Ramelius Resources Ltd (ASX: RMS)
Ramelius Resources Ltd is an Australian gold mining and production company listed on the Australian Securities Exchange (ASX). It operates multiple gold mines in Western Australia, including Mt Magnet, Edna May, Vivien, Marda, Tampia, Penny, and the Rebecca Gold Project. With a market capitalization of $2.25 billion AUD and a share price of $1.94 in the latest trade, Ramelius Resources boasts a dividend yield of 1.02% and has consistently paid dividends since 2019. Notably, the company has experienced significant growth, with its share price climbing from $0.86 in December 2022 to over $1.26. Ramelius Resources maintains a robust asset base in Western Australia and continually explores new deposits to prolong its mine life.
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The primary focus of Ramelius Resources Ltd's production lies in the Mt Magnet gold mine, one of several owned and operated by the company in Western Australia. Alongside Mt Magnet, Ramelius also oversees operations at the Edna May, Vivien, Marda, Tampia, and Penny gold mines, as well as the recently acquired Rebecca Gold Project, all located in Western Australia. With production dating back to 2006, Ramelius Resources possesses a sturdy asset foundation in Western Australia, with a primary emphasis on gold mining and production.
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Since the beginning of the year, RMS shares have surged by over 15%.
