Research say that over the past 10 to 20 years, stocks of gold mining companies performed poorly compared to the price of gold. While prices rose by more than 250% since 2005, the HUI gold index has only risen by about 20%. This is because although prices were very high, the gold industry was not highly marginal, so stocks were not that profitable.
But now, this may change, as manufacturers are now faced with a friendlier environment, in which they could generate significantly higher profits than before.
You see, in the 2000s, gold rallied with other commodities, with which its own cost base caused margins to collapse. However, the current rally in gold is more coin-driven than commodity-driven, so even if gold is rising in the market, inflation is still limited.
In addition, at a time when other assets were hit by a massive collapse in demand and drop in prices due to the coronavirus, gold was a "refuge" from the unpleasant economic situation.
In other words, gold's impressive performance underscores its status as a safe haven asset, highlighting the fact that it is more of a monetary asset than just a commodity.
Moreover, gold was a leading asset in the 21st century, which is an outstanding achievement given that it is not profitable.
Indeed, some believe that since gold is not profitable, it cannot be valued. However, such a thought is erroneous.
If we model gold as a bond with the following characteristics: a zero coupon because it does not bring interest, has a long duration because it lasts forever, is related to inflation as shown by historical purchasing power and has zero credit risk as long as he is in good physical shape, we will clearly understand why the declining interest rates in the United States have been the main driver of gold's growth this century.
According to analysts' conclusions, gold is now trading at its fair value, and investors need not worry because "it will grow rather than unfold" since forces that lift it far outweigh the forces that hold it back.
Thus, if long-term inflation expectations rise along with the gold premium, and bond yields remain extremely low, gold could actually hit $ 7,000 in price.