Australia’s leading gold miners such as Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) will be on watch on Monday after the gold price raced to a record high on Friday evening.
According to CNBC, the precious metal’s August futures contract rose 0.4% to settle at US$1,897.50 per ounce. This was the sixth day in a row of gains and means the gold price has now also recorded a seven-week winning streak.
Since then, according to Bloomberg, the gold price has continued to rise and is now trading comfortably above US$1,900 an ounce at a lofty US$1,929.70.
Why is the gold price at a record high?
Traders have been buying gold this year due to the coronavirus pandemic, interest rate cuts, and, most recently, increasing tensions between the United States and China.
It was the latter that sent the gold price beyond the US$1,900 an ounce mark, much to the delight of shareholders of Evolution Mining Ltd (ASX: EVN), Resolute Mining Limited (ASX: RSG), and Saracen Mineral Holdings Limited (ASX: SAR).
Their shares could be on the rise today after the elevated gold price boosted profit margins even further.
Why are tensions rising between the United States and China?
CNBC reports that tensions between the two superpowers rose last week after China ordered the U.S. to close its Chengdu-based consulate. This was in response to the U.S. closing the Houston-based Chinese consulate earlier in the week.
UBS analyst Mark Haefele, commented: “US-China tensions continue to escalate, which prompted a risk-off move in markets on Thursday and Friday.”
But he doesn’t expect it to stop there and has suggested that the political uncertainty could take the gold price beyond US$2,000 an ounce this year.
This is likely to be supported by a weakening U.S. dollar, which fell 1% last week and has now recorded declines for five straight weeks.
“While we think gold will continue to be supported by rising geopolitical tensions, in our view the primary drivers of the gold price are its negative correlation to real interest rates and the dollar,” Haefele added.
Is it too late to buy gold miners?
I wouldn’t necessarily go piling into all of the gold miners as I feel a lot of the gold price strength is already priced in, however I still see value in some gold miners.
The one I would buy is Newcrest. I think it is the best in the industry and could still go higher from here.
UBS certainly believes this is the case. Last week it slapped a buy rating and $38.40 price target on its shares.
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Motley Fool contributor James Mickleboro 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.
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