Long touted as a safe investment, gold got off to a radiant rally at the start of 2014. Risk-averse investors looked to gold-mining shares to counter a sluggish economy in the States and turmoil in the Ukraine, raking in twice the return of manufactured gold. A recent Bloomberg article showed a 25 percent advance in the Market Vectors Gold Miners ETF compared to 12 percent for the SPDR Gold Trust.
2013 saw gold plummet 28 percent, the most crushing drop since 1981. A surge in U.S. equities coupled with lackluster inflation had many investors scrambling to rid themselves of gold. Big name gold producers in the Philadelphia Gold & Silver Index slashed spending and sold assets to mitigate the damage. Miners slowed production. A surge in U.S. equities coupled with lackluster inflation When 2014 rolled in, keen-eyed investors saw the opportunity and snatched up shares at bargain basement prices.
Thus, the rally began: 21 percent for the Philadelphia Gold & Silver Index and 13 percent for the price of gold futures in New York. Analysts predict the top nine gold producers to rake in $2.3 billion in free cash flow in 2014, a reversal of fortune from the $5.2 billion deficit just a year earlier. Gold futures in New York reached a six-month high in mid-March. However, unhappy laborers nudge many investors to choose physical gold over the company shares.
Meanwhile, miners continue to look for ways to cut gold mining costs and achieve leaner production. Companies like General Kinematics offer energy efficient mining equipment to help miners save money, streamline mining processes and improve worker safety.
The crisis in the Ukraine and looming labor strikes in South Africa make gold an investment to watch. Both the Market Vectors Gold Miners ETF and the SPDR Gold Trust saw impressive early-year inflows, with the ETF taking the lead and the SPDR maintaining a near 2-to-1 ratio overall. Analysts are optimistic, investors are wary and miners are playing it safe. The price of gold won’t rise forever.
[photo via Bloomberg]