Gold Miners Shine

Gold Miners Shine

over 3 years ago2 mins

Mentioned in story

The price of gold may be on track to hit its highest in history – but the share prices of gold miners are shining even brighter in 2020. There’s dividends in them thar hills… 🤠

What does this mean?

With central banks’ interest rate cuts leading to poor returns from income-paying investments like government bonds, gold has proved increasingly popular in 2020. Despite suffering a slump as investors rushed to raise cash in March, the metal's price is now up 18% this year.

That takes it to near a nine-year high; just another 5% rise, and gold will be its most expensive ever. That’s something the likes of investment bank Goldman Sachs deem eminently possible, should investors get even more spooked about economic growth (and therefore stock prices and bond yields) declining due to a combination of coronavirus and renewed trade wars.

Gold’s dollar-per-ounce price is closing on a new record (Source: Markets Insider)
Gold’s dollar-per-ounce price is closing on a new record (Source: Markets Insider)

As gold’s price grows, it makes sense that the share prices of companies that mine it rise in tandem. In fact, they’ve done even better: the NYSE Arca Gold Minersindex, which tracks the value of 51 such miners, has risen over 25% in 2020 – while acquisition-hungry Barrick Gold’s shares are up almost 50% 🤩

Why should I care?

Gold miners were frantically merging last year as extraction costs spiraled. Now that (gold) dust has settled, however, the resultant operational efficiencies are combining with the rising gold price to produce bigger profits.

According to a study released this week, more than a quarter of the UK’s biggest listed companies and over a third of the US S&P 500spent more on profit-sharing dividends and share buybacks in 2019 than they actually generated in final earnings. But while many firms around the world are now scrambling to slash dividends – perhaps to the tune of $500 billion – gold miners could grow theirs.

Dividend growth may be much harder to find this year (Source: Janus Henderson)
Dividend growth may be much harder to find this year (Source: Janus Henderson)

The combined per-share dividend of the five biggest miners rose from $1.50 in 2015 to $3.20 last year. And with investment bank RBC Capital Markets predicting profit margins will double to 20% in 2020 even as the likes of Barrick cut debt levels in half, an investment tracking miners’ fortunes could prove at least as good as gold...🏆

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