Gold miners and funds shine, boosted by coronavirus safe-haven bid

London (Apr 24)  Shares of gold miners and funds dealing in the precious metal have rallied in recent weeks as the coronavirus crisis rocked global markets and investors raced to buy safe-haven assets.

Spot gold XAU= has climbed more than 10% this year, the most among major assets tracked by Reuters and significantly above gains in U.S. Treasury bonds and the dollar, while equities and industrial commodities have borne the brunt of the sell-off, with the MSCI World stocks index .MIWD00000PUS and copper prices both down 17%.

As investors debate whether the lasting effect of the virus, which has infected more than 2.6 million people and led to worldwide lockdowns, will be deflationary or inflationary, and as governments throw trillions of dollars at their shuttered economies, gold has emerged as the safe asset of choice.

Despite most gold-miners shuttering production under the lockdowns and curfews, their shares have outpaced broader stock indexes this year.

S&P/TSX’s Global Gold index .SPTTGD, which tracks producers of gold and related products, including companies that mine or process gold globally, has gained about 20% this year.

Ned Naylor-Leyland, who manages a gold and silver fund at Merian Global Investors in London, expects a boost to gold miners’ operating margins from a rise in the U.S. dollar and the fall in oil prices, which he says comprise 30-40% of miners’ costs.

“That is just a pure margin expansion benefit for the company,” he said.

Barrick Gold Corp (ABX.TO), the world’s largest gold mining company by market value reported an 8.5% drop in its first-quarter gold output due to lockdowns but said last week that it remained on track to meet its full-year production targets.

Barrick’s shares have gained about 46% this year, and another producer Polyus PAO (PLZL.MM) has risen more than 20%.

However, analysts have been cutting gold miners’ 2020 profit estimates, albeit marginally when compared with other sectors.

Reuters