If you’re an investor looking for income, you’re facing what I’d call a Yield Drought. And this is no temporary dry spell. Things on the income investing front look they’ll get worse before they get better. Unless a financial crisis intervenes in 2025 to make everything else much worse and the yield story much better. Because, you see, there are two parts to the current Yield Drought.
Gold will rally to a record next year on central-bank buying and U.S. interest rate cuts, according to Goldman Sachs. The investment bank listed the metal among top commodity trades for 2025. “Go for gold,” analysts said in a note, reiterating a target of $3,000 an ounce by December 2025.
Gold hit a new all-time high today of $2554 an ounce on the Comex for December delivery. Gold’s 20% or so gain in 2024 to date (as of August 26) is a result of strong central-bank buying plus Asian purchases plus anticipation that the Federal Reserve was about to cut interest rates. Now that Fed chair Jerome Powell has just about promised a cut at the Fed’s September 18 meeting it looks like gold will climb further in 2024 on the fundamentals. Bullish Wall Street targets say $2700 to $3,000 by the end of 2024. That’s a decent reason to hold gold. But the very scary geopolitical landscape over the next six months makes me anxious to add more gold even at the record nominal high for the metal.
Gold futures for June delivery closed down 2.92% on the Comex today. The metal closed at $2343.40 an ounce. The drop came on a lessening of fears that the exchange of attacks between Israel and Iran would quickly lead to a wider Middle East war. And on growing sentiment that the Federal Reserve isn’t likely to cut interest rates soon. The drop in the gold contract for June delivery was the largest since February 3, 2023 when it fell 2.8%.
Gold (for February 2024 delivery) was trading at $2087 an ounce on New York Comex today, December 1. That easily beats the old record high of $2051.50 an ounce back in August 2020. The shiny metal is up 12% from $1830 an ounce in early October. The SPDR Gold Shares ETF (GLD), which holds gold, is up 2.53% in the last month as of November 30. History, and the price action on the Gold Shares ETF, tells us that at this point in a strong gold rally, it doesn’t pay to chase gold itself, but it does pay to buy shares of gold miners.
Today’s Quick Pick is Newmont Corporation (NYSE: NEM). Newmont is the world’s largest gold miner but the stock hasn’t benefited very much from the recent rallies in gold. Unlike Barrick Gold, Newmont is not a low-cost miner, but it does have huge reserves as well as promising joint ventures–including one with Barrick in Nevada. The company is growing production and produced about 2.2 million ounces of gold in 2022, with production going up to a forecasted 2.7 million by 2027. Newmont likely hasn’t seen a huge rally yet because of the cost of energy. Mining gold takes a lot of energy and with recently higher gas/diesel prices, costs of mining and production have gone up and margins have been squeezed. However, looking forward to mid or late 2023, those margins will, in my opinion, start to look a lot better. If we hit a recession while inflation remains relatively high and energy prices come down, Newmont will benefit from lower costs and recession gold rallies. I would call Newmont my second choice gold stock to Barrick. Morningstar rates Newmont at 10% undervalued right now. This is a good time to buy and look for it to outperform in the second half of 2023.
