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Big US-listed gold miners have shed one-fifth of their market value this year as a strengthening dollar and a rise in bond yields from 2020 lows dented the price of the precious metal.
The New York Stock Exchange Gold Bugs index has tumbled 20 per cent since the end of last year to the lowest level since April 2020, badly lagging behind the 11 per cent gain for the broad MSCI All-World share market barometer.
Gold has fallen 14 per cent since it hit a record of more than $2,000 a troy ounce last August.
The metal’s appeal has been dulled by strength of the dollar, which makes the metal more expensive to international buyers, and elevated bond yields compared with this time last year. Gold, unlike bonds, offers no income streams. The rally in global stock markets has also darkened its allure.
“People are afraid of higher rates,” said Robert Minter, director of investment strategy at Aberdeen Standard Investments. “This is ‘sell everything, throw the baby out with the bathwater’. Gold is going to be a constant opportunity for us any time it drops like this.”
Lower gold prices have hit investor sentiment towards gold miners, despite the fact that the industry has increased dividends and pledged to reduce its environmental footprint, according to Joe Foster, fund manager at VanEck in New York.
“When gold is struggling, fundamentals don’t really matter for these gold companies,” Foster said.
Shares in the world’s largest gold miner, Newmont, have fallen 6 per cent this year, while Barrick Gold was down 16 per cent.
The “unprecedented” number of share buybacks this year also indicated that many miners viewed their shares as undervalued, according to BMO Capital Markets. Yamana Gold and fellow Canadian miner Kinross Gold announced that they would buy back their shares this year.
Shares in Yamana have dropped 27 per cent this year, while Kinross Gold was down 23 per cent.
Mark Bristow, the chief executive of Barrick Gold, the world’s second-largest gold miner, said this month that the gold industry needed to focus on growth rather than placating shareholders with cash returns.
“The gold mining industry’s chronic tendency to harvest the gold price instead of investing in the future has resulted in declining reserves and a shortage of high-quality development projects,” he said.
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