Asset Classes

Free investment financial education

Language

Multilingual content from IBKR

Close Navigation
Learn more about IBKR accounts

The Contrarian Opportunity In Gold Stocks Today

Posted September 4, 2024 at 10:15 am
Frank Holmes
US Global Investors

As I write this, gold is trading just under $2,500 an ounce after surging past the psychologically important level for the first time ever in mid-August. For seasoned gold mining investors, this should be a moment of validation. After all, the yellow metal has long been seen as the ultimate hedge against economic uncertainty.

And yet, despite the bull run, gold stocks—those companies that mine, process and sell the metal—are trading at historically low valuations relative to the market.

Gold Stock Valuations Remain Cheap Even as the Metal Has Surged to Record High Prices

This apparent disconnect offers contrarian investors an extraordinary opportunity.

Rising Yields And The Gold Selloff Explained

But first, why is this happening? The primary culprit for this disparity, I believe, lies in the impact of interest rates and central banks’ gold-buying spree. The real, inflation-adjusted 10-year Treasury yield rose from a low of around -1.2% in August 2021 to nearly 2.5% in October 2023, and for many investors, particularly those in Western countries, rising yields are a signal to sell non-interest-bearing gold.

That’s exactly what happened. From the end of 2020 to May 2024, exchange-traded funds (ETFs) backed by physical gold shed approximately 30 million ounces, over a quarter of their total holdings, as yield-seeking investors pared back their positions.

Investors Unloaded 30 Million Ounces of Gold as Yields Climbed

What some investors may have overlooked, I’m afraid, is the long-term potential of the very assets they were letting go of. Gold stocks, unlike the physical metal, offer not just a hedge but also a means of participating in the upside of gold prices. Put another way, when gold prices have gone up, gold stocks have historically tended to rise even more.

Right now, I believe these stocks are offering an unprecedented combination of low valuations and high potential returns.

A Contrarian Take On Gold Stocks

As contrarians, we understand that the best time to invest is often when sentiment is at its lowest. And sentiment around gold equities is pretty low right now.

But history tells us that this could be the perfect time to buy. As you may be able to tell in the chart above, we’re seeing a reversal of the gold ETF selloff. Since mid-May, investors have added about 2.3 million ounces of gold, according to Bloomberg data; holdings now stand at their highest level since February of this year.

This could be just the beginning. If real interest fall substantially, the tide could turn in favor of gold and gold equities.

Gold By Mid-2025?

Historically, gold’s biggest gains have occurred when the Federal Reserve cuts interest rates amid economic uncertainty. Although there’s no obvious crisis on the horizon, markets are pricing in a 25-basis point cut at each of the next two Fed meetings in September and November, with a larger cut expected in December.

If the Fed follows through, we could see gold prices not only maintain their current levels but soar to new heights.

That’s not to say you should dump all your equities in favor of gold, especially as the Fed is on the verge of easing. Charles Schwab recently showed what stocks did in the past when rates fell, and investors may want to take note.

The stock market traded up 12 out of 14 times—or 86% of the time—a year after the Fed made its initial cut in a new easing cycle. Schwab points out that the two back-to-back negative periods were predicated on extraordinary circumstances: the dotcom bubble in 2001 and the housing crisis in 2007. Past performance is no guarantee of future results, but it’s worth considering.

S&P 500 Returns 12 Months After First Rate Cut

This is excellent news for general investors, including the record number of “401(k) millionaires”—investors who have $1 million or more in their retirement accounts. According to Fidelity, there are now almost half a million such millionaires… and growing!

Ranks of 401k Millionaires Hit an All-Time High

Similarly, our ABC Investment Plan allows investors to fund their retirement more affordably. The ABC Investment Plan is an automatic investment plan that uses the advantages of dollar-cost averaging—an investment technique that lets you invest a fixed amount in a specific investment at regular intervals—together with financial discipline to help you work towards your financial goals.

Originally Posted September 3, 2024 – The Contrarian Opportunity In Gold Stocks Today

Join The Conversation

If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.

One thought on “The Contrarian Opportunity In Gold Stocks Today”

  • Ray of Phila

    The Gold explorers have been making my life interesting lately
    The best of the bunch would be JAGGF

    Thanks for your daily input

Leave a Reply

Disclosure: US Global Investors

All opinions expressed and data provided are subject to change without notice. Holdings may change daily.

Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

About U.S. Global Investors, Inc. – U.S. Global Investors, Inc. is an investment adviser registered with the Securities and Exchange Commission (“SEC”). This does not mean that we are sponsored, recommended, or approved by the SEC, or that our abilities or qualifications in any respect have been passed upon by the SEC or any officer of the SEC.

This commentary should not be considered a solicitation or offering of any investment product.

Certain materials in this commentary may contain dated information. The information provided was current at the time of publication.

Some links above may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by clicking here or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from US Global Investors and is being posted with its permission. The views expressed in this material are solely those of the author and/or US Global Investors and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

IBKR Campus Newsletters

This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.