The Saracen Mineral Holdings Limited (ASX: SAR) share price is having a pretty good day today. Saracen shares closed at $6.24, after making a new all-time high of $6.31 earlier in the day. The Saracen share price is now more than 87% higher since the start of the year and up an astonishing 1,318% since July 2015.
Why has the Saracen share price taken off in 2020?
Saracen is a mid-tier ASX gold miner and has been caught in a powerful tailwind in 2020. At its core, Saracen’s profitability is influenced by 3 factors: how much gold it can mine, the price it can sell said gold for, and how much it costs the company to extract the gold.
The powerful tailwind I referenced earlier is the gold price. Since the start of 2020, the yellow metal has gone from being priced at around US$1,400 an ounce to today’s price of $1,815 an ounce. As my Fool colleague Brendan Lau reported earlier today, gold has appreciated more than 30% in value over the past 12 months, which outpaces the gains that the S&P/ASX 200 Index (ASX: XJO) has seen over the same period, as well as the US Dow Jones and Nasdaq indices. Gold is now getting very close to the all-time high of US$1,920 we saw back in 2011. I wouldn’t be surprised if we saw this record broken over the coming months.
In addition to this gold price tailwind, Saracen is also expanding gold production. Just yesterday, the company told the ASX that its gold production for FY20 came in at 520,414 ounces, which exceeded the company’s guidance of 500,000 ounces. Saracen expects to produce more than 600,000 ounces in FY21.
It’s this ‘double-whammy’ of a rising gold price in conjunction with rising gold production from Saracen that is pushing the Saracen share price into the stratosphere.
Will gold prices stay at record highs?
Saracen shareholders will be pleased to know that I think record-high gold prices are here to stay, at least in the short to medium-term. Gold is viewed by many investors as the ultimate ‘safe haven’ asset and an effective portfolio hedge against economic uncertainty, geopolitical risk, and currency debasement.
There’s no doubt that 2020 has brought global economic uncertainty in spades, for obvious reasons. Geopolitical risks, especially those between China and the rest of the world, have also been climbing in recent months. On top of this, there are growing fears over inflation as central banks around the world increase their balance sheets at unprecedented rates.
The convergence of the above trends leads me to believe we are witnessing a massive bull run in the gold market, one that I see playing out over many more months, if not years. As such, I wouldn’t be surprised to see the Saracen share price climb even further from where we see it today, despite its already substantial gains.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.