What Higher Gold Prices Mean for Investors

The price of gold has taken off recently thanks to global economic uncertainty and geopolitical tensions. The precious metal was trading below the $1,300 an ounce mark just a few days ago, but it is now on its way to $1,400 after gaining more than 7.6% in just the last month. In fact, gold is now trading at its highest level seen in the last six years.

That’s good news for gold miners, but it remains to be seen if the recent gold pricing momentum will continue or not.

Better Times Ahead for Gold?

According to a survey of 17 Wall Street analysts, 10 believe that gold prices will rise further.

Market watchers expect gold to keep rising higher thanks to a host of factors. As reported by Kitco:

“Gold is golden,” said Phil Flynn, senior market analyst with Price Group Futures. “Not only have we broken out from a year-long trading range to the upside, the path of lower rates around the [world] is going to keep the market strong. Add it a spattering of geopolitical risk factors and the yellow metal is poised to move higher.”

What’s more, according to a survey of 17 Wall Street analysts, 10 believe that gold prices will rise further. Meanwhile, in a survey of 591 respondents on Main Street, 54% said that gold prices will increase.

It is now believed that the price of gold can breach the $1,450 an ounce mark thanks to the global political conditions, the U.S.-China trade war, and the Federal Reserve’s decision to keep interest rates low.

What Should Investors Do?

The gold price rally opens up a lot of exciting scenarios in the end market. For one, it can stoke deal activity in the gold mining space once again. Earlier this year, we saw a couple of big transactions in the gold market and also witnessed a joint venture between two long-time rivals materialize.

In such a scenario, it makes sense to keep a lookout for gold plays with a potential for takeover. For instance, a company such as Wesdome Gold [stock_market_widget type="inline" template="generic" color="default" assets="WDO.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has the potential to be bought out by another big player thanks to high grades, a low cost profile, and stronger production.

But even if a company such as Wesdome isn’t bought out, there’s a good chance that it will do well on its own. The company’s earnings are already expected to double this year, and with the rise in gold prices, there’s a good chance that Wesdome will end up doing better.

Meanwhile, the likes of IAMGOLD [stock_market_widget type="inline" template="generic" color="default" assets="IMG.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] will be hoping that the price of gold keeps rising and help turn the company’s fortunes around. The company is not in good shape and is reportedly looking to be rescued by a takeover. Now that the pricing scenario is looking up, IAMGOLD has a better chance of finding a buyer.

As such, investors should keep an eye on potential takeover plays in the gold mining industry as the bigger players are increasingly looking at consolidation as a way of boosting output and reducing costs.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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