Gold’s Dominance over the Broader Market
Gold has consistently outperformed the broader market over the past 25 years. Its value dates back to ancient times and it is still considered a safe-haven asset today.
Amid heightened stock market uncertainty, there has been a significant increase in the demand for gold. Over the past year, gold, priced in U.S. dollars, has surged nearly 24%. Since 2000, gold has increased by over 900%, significantly outpacing the S&P 500 index’s 489% rise in the same period. Newmont Corporation, the largest gold mining company globally, has seen its stock increase by over 40% year-to-date.
There is ongoing debate about whether investing in Newmont Corporation remains a viable option or if the opportunity has already passed. Understanding the implications of buying gold mining stocks, such as those from Newmont Corporation, is crucial for potential investors.
Understanding Gold Mining Stocks
Gold, a precious metal extracted from the ground, can be owned through physical assets or gold-backed ETFs. Purchasing gold mining stocks grants ownership in gold reserves still underground. Newmont Corporation is the largest gold company, also dealing in copper, silver, zinc, and lead. The company’s operations cover direct ownership and management through joint ventures and partnerships. Its financial performance relies on the quantity of metals produced and their market prices.
Gold’s Historical Fluctuations
Gold investment is popular for its long-standing value and limited supply, often serving as a hedge against inflation. The value of gold tends to rise during uncertain times, such as following tariff announcements by the Trump Administration, which have affected market outlook. Historically, gold prices have experienced boom-and-bust cycles, evident from the late 1970s to the present. Although the general trend is upward, prices have not been consistently reliable over time. This historical pattern partly explains Newmont Corporation’s total return of just 240% since 1989.
Current Market Conditions
Gold prices have reached new all-time highs over the past year. Short-term price predictions are challenging, but there are indications that gold may be approaching a short-term peak. Factors such as the CBOE Volatility Index’s high levels and declining U.S. Consumer Sentiment contribute to this uncertainty. Increased search traffic for terms like "how to invest in gold" also signals heightened interest.
Gold’s value is driven by market forces rather than underlying business earnings, suggesting that peak fear could align with peak demand and prices. Despite appearing cheap with a price-to-earnings ratio of 15, Newmont Corporation’s earnings were boosted by higher gold prices, which may not sustain. Thus, purchasing cyclical stocks like Newmont during peak earnings can be risky.
In conclusion, while the timing remains uncertain, Newmont Corporation may be closer to its peak than its bottom, indicating that now might not be the best time to invest in the stock.
