One of London’s leading commodities investment funds, Baker Steel Resources Investment Trust (LON:BSRT), has said that gold is in its best shape since the early 2000s.
“Many economic trends and themes which were in place prior to the pandemic, such as falling real interest rates, rising debt and resurgent protectionist sentiments, have been amplified by the crisis,” Baker Steel said in commentary released mid-week.
“Drastic action by policymakers to implement unprecedented levels of economic stimulus and money printing have set the stage for a precious metals bull market in the months and years ahead. As momentum builds for gold, the stars are aligning for gold miners, which are already benefitting from margin expansion as the gold price rises, with low energy costs and improving investor sentiment. As one of the few industries where profitability and dividend yields are rising, and where many companies show attractive fundamental value, we consider the gold mining sector to be in its best shape since the early-2000s.”
Gold producers look set to re-rate, Baker Steel added, as margins increase significantly on the back of gold price rises. Most miners’ costs are fixed so any increase in the selling price of the commodity goes straight to the bottom line.
Prevailing low interest rates are also a factor.
“Real interest rates remain among the most important factors for the gold price,” Baker Steel said.
“Low real interest rates reduce the opportunity cost of holding gold, while negative real interest rates increase gold’s appeal as a real asset and a safe haven investment. Historically, periods of low real interest rates have proven highly supportive of rising gold prices and we consider the commitment by central banks around the world to maintain low interest rates to be one of the most significant factors for the development of the new gold bull market.”