Gold hit a record price of $1,923 per ounce in September 2011. A new analyst report predicts the precious metal will blow past that, reaching $3,000 per ounce by the end of 2021. Investors have wasted little time taking the bullish estimate into account.
Shares of Harmony Gold (NYSE:HMY) rose as much as 16.5%, followed by a 16.3% jump for Gold Fields (NYSE:GFI) and a 12.5% leap for New Gold (NYSEMKT:NGD) in trading today. Are investors getting a little carried away, or could these price gains be just the beginning for gold stocks?
Earlier this week, analysts at Bank of America published a report predicting that gold would be trading at $3,000 per ounce within the next 18 months, according to Bloomberg. That was up from the institution's previous forecast of $2,000 per ounce and takes into account various new economic data points, such as massive stimulus programs expected to have large inflationary effects.
The new target would easily top the all-time record high for gold and represent a roughly 70% increase from current prices, which are 35% above levels from a year ago. Investors are hoping that translates into record levels of profitability for gold producers, but there's a catch: Many miners have temporarily suspended operations in at least one location to comply with local lockdowns instituted to mitigate the spread of the SARS-CoV-2 virus.
Harmony Gold owns assets in South Africa and Papua New Guinea. Its underground mines in South Africa have operated at 50% capacity to comply with a lockdown that began the last week of March and is scheduled to last to the end of April. Once it's lifted in early May -- assuming the government doesn't extend the order -- the company will begin to work with authorities to gradually increase production capacity. Shares have fallen about 1% since the beginning of 2020.
Gold Fields wields a more diverse portfolio than most peers, boasting operations in South America, Australia, South Africa, and Ghana. But most mines fall under the jurisdiction of a government that has implemented lockdowns to respond to the global health crisis. Investors will be watching South Africa the closest, as it's home to nearly two-thirds of the company's gold reserves. Shares have gained 22% since the beginning of 2020.
New Gold operates two mines in Canada, which were affected by the country's lockdown order during the last two weeks of March. But the miner's largest asset, Rainy River, resumed operations in early April. The company also closed a strategic transaction that added $300 million to its balance sheet, which could help insulate the business during the current market uncertainty. Shares have lost 3% since the beginning of 2020.
Gold prices might have positive momentum, but investors need to evaluate gold miners on a case-by-case basis. The impact of the coronavirus pandemic will be determined by the geographic distribution of operations. If a miner has to curtail production for weeks at a time, that could more than offset increases in the price of gold, especially if the historic $3,000 per ounce projection never becomes reality.