While the majority of the stock market is surging higher, the precious metals and mining stocks joined the energy stocks in offering traders a lot of shorting opportunities. Bearing in mind the fundamentals, a similar scenario may repeat in 2020.
2019 precious metal performance
Despite the poor performance in April and May, Gold surged more than 18% higher in 2019, which marked the year of the biggest annual gains since 2010. At the end of 2019, Gold finished near the yearly highs above the $1500 mark. A trip north of $1557 will print a new 7-year high for the precious metal.
Similarly, Palladium recorded the best year in a decade as it surged more than 50% higher in 2019 and go to receive the best performing precious metal of the year award. Silver made similar gains to gold as its market value increased 17% while Platinum gained 22% for the year.
The surge in Gold prices can be explained by worries over global economic health and US-China trade tensions. On the other hand, supply shortages helped Palladium record the best year since 2009.
Stephen Innes, a market strategist at AxiTrader, believes investors are buying Gold as a hedge.
“An environment of low rates, persistent macro uncertainty, and elevated equities makes a case for holding gold as a hedge”
How did precious metals and mining stocks perform?
Contrary to the majority of the stock market and precious metals, shares of commodity producers and mining companies performed poorly in the previous decade. As seen in the graph below, the Vanguard Global Capital Cycles Fund index greatly underperformed when compared to the benchmark S&P 500 index.
The chart above also suggests that precious metals and mining stocks can be seen as a good hedge against the performance of the broader market, as they moved in the opposite direction. However, the losses are that big that they may be a bit too much to swallow for the investors.
Shares of certain giant companies, such as BHP Group and Rio Tinto – two biggest metals and mining companies in the world by market capitalization – have performed positively, however, still not as well as the S&P 500. On the other hand, the world’s third biggest metal and mining company – Vale SA – decreased in value in 2019.
If the market continues to follow the 2019 trend in January, including the rise of precious metals, we expect the metal and mining stocks to perform in a similar mixed fashion.
It is difficult to argue that the precious metals and mining stocks are a good investment opportunity given their past performance in correlation to precious metals prices and overall stock market. While some of the metal and mining stocks performed well, some others failed to deliver.
Hence, based on the performance in 2019 and the last decade, we don’t advise that you invest in shares of metal and mining companies as there are more profitable opportunities elsewhere in the market.