Gold is already in record territory in most currencies,” wrote analyst Matthew Murphy in a Thursday research report downgrading Newmont (NEM) and Barrick Gold (GOLD) to Hold from the equivalent of Buy. “Outside the realm of fiat, it is also in record territory versus oil and other commodities.”
(Fiat currencies are paper money, backed by nothing more than the promise of governments.)
It now takes more than 60 barrels of oil to purchase a single ounce of gold, compared with fewer than 30 barrels in early February. Gold has gotten pricey, relatively speaking, while oil has plunged.
“The fact that the gold story looks so good right now suggests to us that it probably can’t get much better. We see downside to gold prices as 2020 progresses,” Murphy wrote. “The outlook for industrial commodities looks fairly lackluster with supply cuts needed. However, here the story can get better.”
Better means, implicitly, that he sees the potential for the global economy to turn up. And a better economy is bad for gold. The yellow metal has few industrial uses, while producers of metals such as copper, lead, and zinc, struggling with reduced demand because of the coronavirus outbreak, stand to benefit from a recovery.
Gold’s gains have propelled gold-mining stocks higher. The VanEck Vectors Gold Miner ETF (GDX) is up about 6% year to date, while the S&P 500 and Dow Jones Industrial Average are down by double-digit percentages. Both the ETF and gold hit 52-week highs this week.