Gold miners have been getting excited about travelling to Denver since 1858 — and our colleague at the recent Denver Gold Forum reports they’re in a buoyant mood now.
But while mining companies are enjoying the increase in cashflows from a higher gold price (gold recently hit a six-year high, but has eased since), the word from Colorado is that they’re not getting carried away.
According to IAM portfolio manager George Cheveley, conference attendees have been at pains to emphasise that they are not changing their spending plans or long-term price assumptions (although some money is being added to exploration budgets to fill longer-term project pipelines).
That sheds useful light on what may come next for gold-related equities.
Gold stocks soared in the first eight months of this year, driven upwards by higher prices for the yellow metal as investors sought havens amid trade tensions, equity market volatility and concern over a global slowdown. However, since the start of this month the gold price has slipped back on indications of modest US expansion and hopes of a trade resolution.
So what next?
As George points out, any further indications of recovering economic growth or a trade agreement will see gold prices fall further. On the other hand, a slowdown or an unexpectedly large interest rate cut by the US Federal Reserve will have the opposite effect.
But either way, George reckons there is longer-term upside potential in gold-related equities. The miners gathering in Denver say they intend to use increased cashflows to reduce debt and pay higher dividends, which should be welcome news for investors. What’s more, the downside for gold prices should be limited as global growth continues to slow and equity market volatility remains elevated.
So the mood in Denver is generally upbeat among both gold miners and investors. But George reports that one group at the Forum isn’t sharing the feel-good vibe: the bankers. While gold-sector M&A talk continues to bubble away, actual deals have so far been fewer than many expected.
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