A terrible round of five-day gold lows earlier this week saw most bullion prices plunge nearly $40 below the recent high. On Tuesday, bullion suddenly rebounded, gapping higher before quickly sliding lower again. Indeed, gold, measured by the SPDR Gold Shares ETF (NYSEARCA:GLD), fell $38.01 per ounce on the day, or almost 1.6%, to close at $1,227.17.
That amounted to a hefty monthly loss, with both the shiny metal and its ETF shares seeing their worst month since the end of 2017. But shortly after investors realized that gold was done with its decline and that prices were poised to move even higher, they immediately called up their favorite gambling operations on the prevailing craps table.
“Why can’t we go higher?” they bellowed as they puffed out their chests and furiously clapped their hands.
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GLD data by YCharts
Gold jumped more than $15 to $1,316, with bids at much higher levels, putting the metal at its highest settlement price in almost a month. On the New York Mercantile Exchange, COMEX gold futures prices were trading just under the contract’s $1,305 minimum cash settlement level, up $11.90 for the day, to settle at $1,318.20 per ounce.
The very next day gold delivered a gain of nearly $15.50 per ounce, allowing prices to close almost 5.2% higher at $1,326.80 per ounce. By then gold had returned to the levels seen at the beginning of the month when it slid 1.5% lower.
And gold is setting records, at least in terms of its price levels. The gold trade has closed at or around record highs since September of 2011.
The long-term outlook for gold prices is still positive, but for the time being the metal is still a volatile investment with a tendency to sputter and bloat when it seems to be on a sustainable move higher. The recent downward push in gold’s fortunes is simply a common occurrence in the market, with investors prone to make critical mistakes and over react when gold is suffering that short-term bad fortune.
But let’s not have the history of the recent volatility for a moment and consider the long-term views.
China is a vibrant market for gold miners and many have forecasted for some time that precious metals will trade at or around record high levels as the global economy grows ever stronger. Part of that growth will include China, which has for centuries cultivated their agrarian economies with a reliance on gold, silver, and copper. As China’s economy grows, so too will their demand for these commodities and thus gold.
To say that demand is rising for gold prices would be an understatement. Gold demand in the world’s largest producer, China, showed year-over-year growth of nearly 70% in April, according to the World Gold Council. In the first four months of this year, gold demand in China is up 70% compared to the same period in 2018.
And with gold prices inching toward record levels, can investors find gold stocks that will be able to profit from those strong prices, particularly when the economic fundamentals are usually weak?
As the chart indicates, the answer to that question is yes. As prices continue to rise in the sector, stocks, as measured by the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX), will be led higher.
Meanwhile, as the price of the precious metal strengthens, so too will the financial position of producers. U.S. miners will be more profitable than ever before as global supply and demand dynamics continue to head in the right direction. The overall outlook for gold stocks remains strong.
With strong fundamentals, a potential breakout to new all-time highs, and a stock market capable of mucking up just about any momentum a gold miner could have, this chart on the first week of June should make buying gold stocks sound smart indeed.