Front-month gold futures jumped 4.8% this week to $4,242 an ounce, their largest one-week percentage gain since the week ending Feb. 6, as renewed worries about inflation and the Federal Reserve's credibility pull investors back into the metal. Gold miners' stocks, priced far below the S&P 500 on an earnings basis, are drawing fresh attention as a cheaper way to ride the rebound.
Front-month gold futures for August rose $192.90, or 4.8%, this week to settle at $4,242 an ounce on Thursday — the largest one-week percentage gain since the week ending Feb. 6, according to Dow Jones Market Data. Gold has risen during two of the past three weeks, a reversal after months of being dead money for investors.
The metal had reached a record above $5,600 in January following a parabolic run-up, then lost investor attention to hot semiconductor and artificial-intelligence stocks. It bottomed below $4,000 an ounce last month, a decline of about 30% from the January peak, before this month's turnaround.
Inflation worries revive demand
Concerns about inflation and the credibility of the Federal Reserve appear to be helping revive investor interest. Noah Weisberger, chief strategist at BCA Research, told MarketWatch the increase in gold and gold-miner shares made sense because it reflected investors' "concerns over the forward outlook for inflation and inflation-fighting".
Weisberger said investors seemed to become more worried following Fed Chair Kevin Warsh's July press conference, where Warsh discussed the Federal Open Market Committee's decision to leave its target rate range unchanged. He added that bond-market risks were part of the motivation to add gold or gold-miner exposure to a portfolio.
Gold miners trade at a discount
Investors can also gain exposure through gold-mining stocks rather than the metal itself. The VanEck Gold Miners ETF, the largest fund tracking the industry with $25.4 billion in assets under management, holds 59 stocks of miners based in nine countries.
On a weighted basis, the fund trades at a trailing price-to-earnings ratio of 14.1, versus 28.1 for the S&P 500, according to FactSet. Weisberger described the valuations as noteworthy, noting many of the companies have boosted profit margins and cleaned up their balance sheets.
Source: MarketWatch
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