Underperforming Copper, Precious Metals Stocks to Recover Soon

Precious metals stocks such as gold and silver as well as copper are poised to recover after a notable period of poor performance; the recovery will be based on a confluence of positive factors. Spot gold prices went up by 13% through the year 2023 and have already gone up by 6% so far in 2024, putting the precious metal prices on a positive note.

The precious metal has exhibited especially strong performance over the last few weeks and closed Thursday, March 28, 2024, at $2,233 per ounce, despite facing significant headwinds. This includes positive real yields, a strengthening U.S. dollar, falling inflation levels from decades-long highs and an increase in investors offloading their gold ETFs (exchange-traded funds).

On a positive note, demand for gold has been primarily driven by a surge in purchases by central banks, especially in developing nations that are interested in building up their gold bullion reserves to protect their foreign currency reserves. Although the decision to freeze Russia’s foreign currency reserves was meant to cripple the Kremlin’s war economy, it showed other nations that they were also vulnerable to such actions and encouraged them to invest in gold bullion as a buffer.

Global geopolitical instability due to the ongoing conflicts in Ukraine, Gaza and the Red Sea where Houthi rebels are attacking commercial ships, as well as the Chinese government’s stance on Taiwan, have also contributed to the surge in gold prices.

Interestingly, despite historic trends, the surge in gold prices hasn’t been followed by an accompanying rise in gold stock prices. The VanEck Gold Miners ETF’s (GDX) large-cap gold mining stocks have fallen by around 2% over the last 12 months while junior gold miners’ stocks at the VanEck Junior Gold Miners ETF (GDXJ) have also gone down by 1.17% in the same period.

Resource investors are especially concerned about the fact that gold stocks across most markets are consistently behind gold prices. Sprott Asset Management senior portfolio manager John Hathaway says this anomaly represents the “greatest disconnect” he has seen in his two and a half decades of tracking gold, but posits that gold ETFs are largely to blame for this because they have essentially “cannibalized” gold mining equity demand.

As with gold, copper is also looking at a period of improved performance with a 4.1% increase in the metal’s prices in the first half of March. An unexpected drop in copper supply, coupled with a weak greenback and expectations of an interest rate cut by the U.S. Federal Reserve, could contribute to copper’s improved performance through the year.

As the disconnect between the price of gold and the price of gold stocks decreases, gold exploration companies such as Reunion Gold Corp. (TSX.V: RGD) (OTCQX: RGDFF) could see investor interest grow over the coming months and quarters.

NOTE TO INVESTORS: The latest news and updates relating to Reunion Gold Corp. (TSX.V: RGD) (OTCQX: RGDFF) are available in the company’s newsroom at https://ibn.fm/RGDFF

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