Yesterday the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) rallied 0.7% led largely by strong gains in the banking sector after investors breathed a sigh of relief that David Murray's Financial System Inquiry was not more heavy handed in its recommendations.
The banks were led higher by the Commonwealth Bank of Australia (ASX: CBA) which gained 1.8%, however many other stocks joined in the rally including a number of gold stocks.
Amongst the largest gainers were Resolute Mining Limited (ASX: RSG), Evolution FPO (ASX: EVN) and Sandfire Resources NL (ASX: SFR) which added 13.3%, 4.7% and 4.1% respectively.
The gold sector seems to be moving in an odd way at the moment with little correlation between market fear and gold's usual medium as a safe haven asset.
Despite Monday's gains, the above three gold stocks plus a number of other producers of the precious metal remain significantly down over calendar year 2014. While ultimately movements in their share prices will largely be tied to movements in the gold price there are a number of reasons to be positive on the outlook for the gold price.
Firstly, the gold price is currently still trading around the US$1,200/oz level, a level not far from what is considered the minimal level at which marginal producers run at break even – this should provide downside protection to significant price falls.
Secondly, as investors turn their attention to 2015 and consider repositioning their portfolios they may begin to focus on the magnitude of problems facing the global economy particularly the potential consequences from the voracious printing of money by the USA. This may bring renewed concerns regarding future inflationary pressures and could rekindle investors' keenness for gold as a hedge against flat money.
