The search for hedges in today’s market is picking up. Investors are looking at a range of options as ways of managing through what’s been a volatile market. Thus, while stocks are broadly in the red today, a whole host of gold stocks are seeing significant upside in today’s session.
Of course, the rising price of gold and other precious metals plays into this price action. Today, the price of gold is hovering around the $2,000 per ounce mark. This is nearing the precious metal’s all-time high of $2,074.88, seen in August 2020.
Times are different now, but uncertainty remains very high. Investors appear to want exposure to gold in its various forms.
Let’s dive into why these gold stocks are seeing outsized interest right now.
Why Are Gold Stocks Surging Today?
There’s nothing stopping investors from biting into a freshly-minted gold coin. Buying gold bouillon, or other precious metals for that manner, is a strategy many long-term investors take. These assets, which tend to be negatively correlated to currency strength, are often seen as currency and asset hedges in times of turmoil.
Thus, given the ongoing banking crisis, and the relative weakness of certain pockets of the equity markets, investors are looking for a way to hedge their risk. Buying gold is excellent for this, but other factors must be considered. Storage and insurance costs can be high, and if you lose your coins, that’s it. There’s little recourse to get them back, and they’re less liquid to buy and sell.
Thus, gold stocks (typically gold miners) provide investors with similar exposure to the underlying commodity but with greater liquidity. Additionally, many of these gold miners benefit from operational leverage. Given their dollar-denominated debt and revenues (which depend on gold prices), if gold prices rise by 1%, gold miners often see increases far in excess of gold. That means that in bull market runs like this for precious metals, and investors gain more upside.
This recent move in precious metals may have more to run. Thus, this momentum trade in gold stocks appears to be one many retail and institutional investors are jumping on.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.