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Why Gold Stocks Are Soaring as the Market Crashes Further

By Jason Hall - Updated Mar 16, 2020 at 7:48PM

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The perceived safety of precious metals during times of immense crisis has investors looking to gold and silver miners.

What happened?

While the major stock indices are crashing hard on March 16, shares of gold and silver miners and streamers are surging. As 1:43 PM EDT, stocks in the following nine precious metals companies had surged more than 10% at one point during today's trading:

Gold and silver miner Price change
Alamos Gold (AGI 6.34%) 14.7%
Anglogold Ashanti (AU 1.32%) 15.7%
First Majestic Silver (AG 2.51%) 9.4%
Fortuna Silver Mines (FSM 1.76%) 13.3%
Gold Fields Ltd (GFI 1.75%) 16.95%
Kinross Gold (KGC 2.23%) 12.4%
Kirkland Lake Gold (KL) 10.8%
Novagold Resources (NG 1.25%) 10.8%
Sandstorm Gold (SAND 2.77%) 13.4%

Data source: YCharts. 

So what

Today's market surge for gold stocks comes as stocks plummet on growing fears that coronavirus will cause much more substantial economic harm than expected. 

Over the weekend, the U.S. Federal Reserve abruptly announced several major moves to stimulate the economy and make sure markets remain liquid as the crisis worsens. The biggest headline move was the 100-basis-point reduction of the federal funds rate, essentially putting it at zero. But potentially the bigger move was the $700 billion the Fed planned to use to purchase a mix of Treasury securities and mortgage-backed securities. 

Hand holding a small gold brick.

Image source: Getty Images.

In short, the Fed's surprising move to make sure the financial system had necessary liquidity seems to have had an inverse effect on equities, sending fear through the markets that much worse economic news is around the corner.

As a result, many investors are flooding capital into the precious metals stocks above, with the underlying expectation that gold and silver prices will climb during this period of fear and uncertainty. 

Now what

Before you rush out to add a passel of gold stocks to your portfolio, a good place to start is this primer on investing in gold stocks. The reality is, uncertainty is likely to drive stock markets for some time to come and stocks could fall much, much lower from here. There's so much we just don't know that will drive investors' actions in the weeks and months to come. 

However, the group of stocks above haven't exactly been winners since the coronavirus sell-off started, and most have actually lost more of their value than the S&P 500 since late February: 

AGI Chart

AGI data by YCharts

A better plan than buying precious metals stocks in this period of uncertainty is to think like a business owner, and remember that stocks are excellent long-term investments. If you take that approach, now's an excellent time to buy great stocks to hold for years, not get caught up in chasing the perceived safety of precious metals in businesses of dubious quality. 

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Stocks Mentioned

First Majestic Silver Stock Quote
First Majestic Silver
$7.36 (2.51%) $0.18
Gold Fields Limited Stock Quote
Gold Fields Limited
$9.28 (1.75%) $0.16
AngloGold Ashanti Limited Stock Quote
AngloGold Ashanti Limited
$14.98 (1.32%) $0.20
Kinross Gold Corporation Stock Quote
Kinross Gold Corporation
$3.66 (2.23%) $0.08
NovaGold Resources Inc. Stock Quote
NovaGold Resources Inc.
$4.87 (1.25%) $0.06
Fortuna Silver Mines Inc. Stock Quote
Fortuna Silver Mines Inc.
$2.89 (1.76%) $0.05
Sandstorm Gold Ltd. Stock Quote
Sandstorm Gold Ltd.
$6.12 (2.77%) $0.17
Alamos Gold Inc. Stock Quote
Alamos Gold Inc.
$7.46 (6.34%) $0.45
Kirkland Lake Gold Ltd. Stock Quote
Kirkland Lake Gold Ltd.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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