The price of gold has surged by more than 40% this year, and major gold mining companies have seen their stock prices rise by triple digits. This is because the sharp increase in gold prices has led to a significant boost in the profitability of mining companies.
On Wednesday, December 23, the price of gold futures for December delivery closed at a new record high of $3,795.90 per troy ounce on the COMEX division of the New York Mercantile Exchange. The price even rose to an intraday high of $3,824.60. Gold futures prices have increased by 42.22% since the beginning of the year.
This rise in gold prices is attributed to its growing appeal as a hedge against inflation amid the U.S. Federal Reserve’s interest rate cuts and a weakening dollar. The geopolitical uncertainties, such as the Russia-Ukraine war, have also prompted global central banks to increase their gold reserves, further driving up the price.
The stock price appreciation of gold mining companies has far outpaced the rise in gold prices. AngloGold Ashanti’s stock has soared by 200.78% this year. Newmont (127.49%), Barrick Mining (123.42%), and Agnico Eagle Mines (107.63%) have also recorded triple-digit gains. Wheaton Precious Metals (91.89%) and Franco-Nevada (82.36%) have also performed significantly better than the increase in the price of gold.
The reason for this outperformance is that mining companies’ costs are largely fixed, making them less volatile. When the price of gold rises, the profits of these companies increase at an even faster rate.
Exchange-traded funds (ETFs) that invest in mining companies have also delivered strong results. Domestically, the "HANARO Global Gold Mining" ETF has surged by 104.22% over the same period. In the U.S. market, the "VanEck Gold Miners ETF (GDX)" has risen by 119.81%, and the "VanEck Junior Gold Miners ETF (GDXJ)" has increased by 122.25%.
Meanwhile, some analysts are raising concerns that gold investment is entering an overheated phase. Kim Yu-min, a researcher at Hanwha Investment & Securities, noted, "The rise in gold prices relative to the money supply has entered a burdensome phase." He explained that while the M2 money supply has expanded by 7% since the end of 2023, the price of gold has increased by 77%. He further commented, "Due to the sharp short-term rise, the rate of return on gold is highly likely to slow down."
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