Gold could test the level of US$2,000/ounce within the next 12 months as economic risks continue to grow, according to VanEck.
In recent weeks, gold had consolidated around US$1,700, growing further on macroeconomic concerns and the potential for a longer-than-anticipated recovery effort following the coronavirus pandemic. The precious metal ended April at $1,702 per ounce for a $126 (8%) gain, trading at its highest levels since 2011.
Joe Foster, VanEck active gold fund portfolio manager and gold strategist, said that gold would likely test US$2,000 over the next 12 months, extending its current rally, as it carried no counterparty risk, its supply was limited, it existed outside of the mainstream financial system, and was universally seen as a store of value.
“These attributes make it a unique safe-haven investment. Gold is also a portfolio diversifier – because of the low correlation with stocks and bonds, if you add a little bit of gold, or gold stocks to your portfolio, it can give your portfolio better risk adjusted returns over time,” Foster noted.
Also, historically, the gold price reacted strongly to negative real interest rates and no one currently expected rates to move higher any time soon and that should be a very good environment for gold. When real rates were negative, gold became competitive with interest-bearing assets, according to Foster.
“We believe a secular shift has begun, driven by four broad categories of systemic risk - Deflation, Debt, Inflation, and Loss of Confidence. This shock is helping to lift gold prices and gold miners, whose price typically rises more than gold itself,” he said.
As far as the corporates were concerned, Foster said he favoured the mid-tier gold miners such as Saracen, Northern Star and Evolution Mining which were all held in the VanEck Vectors Gold Miners ETF portfolio.
“We see the Australian gold miners sector as standing toe to toe with the international gold miners. Newcrest, Evolution Mining and Northern Star are all making acquisitions in North America over the past year and they are starting to use their clout to expand globally,” Foster added.
Across its whole portfolio, Canadian firms accounted for around half (55.8%) of GDX’s holdings, while the United States (20.2%) and Australia (12.8%) rounded off the top three at 30 April. GDX also held Australia’s largest gold miner Newcrest and the world’s largest miners Newmont and Barrick Gold.