What happened
Shares of precious-metals miner Yamana Gold (AUY) rose just shy of 10% in early trading on July 27. Although that's a pretty notable gain for the start of a trading day, it was actually low relative to some peers, with a number of fellow miners experiencing more material advances. Compania de Minas Buenaventura (NYSE: BVN), for example, was up a full 10% in early trading, McEwen Mining (MUX 9.34%) was a touch over that, and AngloGold Ashanti (AU 3.92%) rose 11%. Gold Fields (GFI 2.59%), Sibanye Stillwater (SBSW -0.61%), and Galiano Gold (GAU 5.59%) were all up roughly 13% at the start of the day. And, finally, Golden Star Resources (GSS) advanced nearly 15%. All of these miners had given back some of their initial gains by roughly 11:30 a.m. EDT, but were still up materially, ranging between roughly 7% and 12%.
So what
The big news here is gold, which was up solidly in early trading. The interesting thing is that this list spans a very broad spectrum of miners, from small cap to large cap. Often, smaller miners react more dramatically to the yellow metal's price moves than larger ones. However, these are not normal times.
Image source: Getty Images.
For starters, gold has rallied strongly since hitting a low in early 2020. Using SPDR Gold Shares, which is an exchange-traded fund that buys physical gold, as a proxy, gold has advanced roughly 33% since hitting a low point in mid- to late March. So, in roughly four months or so, the barbarous metal has risen by a third -- that's a very swift move. It suggests that investors are worried about the stock market. Gold is often viewed as a safe-haven asset into which investors shift when Wall Street is falling. However, the stock market itself is trading near all-time highs.
Gold, meanwhile, hasn't traded at the prices it has hit recently since 2011. That was the last time commodities prices in general were in a massive rally. That advance was driven by the story that Chinese demand would keep increasing and outstrip supply. Notably, that story didn't pan out (pun intended) over the longer term, as commodity production ramped up and China's growth eventually slowed. That little piece of background is important right now because there's a story today, too. Basically, the story is that the market is precariously high and when it falls investors will flock to gold, continuing to push the shares of miners higher.
But with gold up by a third, the miners here are up even more. That's normal, since miners are generally leveraged to the price of the metals they mine. But the numbers are worth looking at. The "worst" performers are Golden Star Resources and Compania de Minas Buenaventura, up 50% and 60%, respectively. A good portion of that gain, meanwhile, has occurred in the last month or so. All of the other miners here have more than doubled in value, with Gold Fields and Sibanye Stillwater both up more than 200%. Again, a material portion of the advance has come over the past month.
How much higher can investors realistically expect gold, and the companies that mine for it (among other metals), to go? If there's a bear market it is entirely possible that investors will flock to gold and push the prices of miners even higher. However, there's also a possibility that investors are trading in anticipation of this (buying the rumor) and that, when a bear finally comes, gold will fall as investors who have increasingly jumped on the safe-haven story take profits (sell the news). Meanwhile, if the market doesn't start to decline, or keeps rising, investors might tire of the gold story and move onto a new trading theme. In that scenario gold and the miners who dig it up will likely fall. There are no crystal balls on Wall Street, but after such a rapid and dramatic price run, you need to consider a broader set of facts before jumping on the bandwagon here.
In fairness to today's specific action, there were a few news items of note in this group. For example, AngloGold Ashanti announced that it expects to see a material increase in earnings when it eventually reports on Aug. 7. That kind of news is clearly pleasing to most investors. Sibanye Stillwater notified regulators that a large shareholder has increased its stake in the company from roughly 10% to 15%. This is likely leading to takeover speculation among investors. And GoldenStar announced that it has agreed to sell a mine for $55 million, with the ability to earn an additional $40 million based on the price of gold and further development of the asset by the buyer. These specific items, however, don't really alter the longer-term story that has been driving gold miners shares higher of late.
Now what
It's not really a great idea to buy gold miners just because they are rising, especially now given how far the shares have advanced. A better way to look at this sector, and gold in general, is as a diversifying asset. Putting a little bit of your portfolio into a gold-linked investment, like a miner, can help to smooth out returns over time. Right now, however, it looks like it may be too late to add a gold investment to your portfolio for that purpose. In fact, the only thing that looks probable here is that volatility will continue to be high for precious-metals miners. But that could just as easily be to the downside as it has recently been to the upside.
