Climbing real yields continue to test the mettle of gold mining insiders

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While gold stocks made up some lost ground last week with the S&P/TSX Gold Index rising 1.6%, it lagged both the INK Canadian Insider Index (+2.2%) and the broad S&P/TSX Composite (+2.1%). As we explain in our November INK Top 20 Gold stock report Will Trump times be tough times for gold miners (also vailable in our PDF store) following the Trump win we believe the direction of real yields in the United States may well determine the fortunes of gold miners over the next few months.

With that in mind, it is not surprising to see investors remaining cautious on the sector as real yields in the United States remain firm. Based on our read of data provided by the US Treasury, very long-term yields, 20 years and out, may be showing signs of stabilizing. In particular, 30-year real yields hit 0.96% last week but ended off their highs at 0.94%. On November 8th, they stood at 0.73%. Should the 30-year real yield break above 1%, a level last seen in March, it could deal gold another psychological blow.

 

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Meanwhile, the behaviour of short-term real yields remains mixed for gold. 5-year real yields became a headwind after they turned positive last week and ended on their weekly high of 0.06%, a level not seen since March 15th. In contrast, an uptick in Consumer Price Inflation in October to 1.6% helped to push 1-year real rates based on reported CPI a bit deeper into negative territory, a gold positive.

Insiders continue to see the current environment as a buying opportunity. Our Gold Indicator, which is a sub-indicator of the Basic Materials sector, jumped to 200% on Friday, up from 148% last week. Insiders seem to be betting that if nominal interest rates remain elevated, it will be inflation premiums as opposed to real-growth driven real yields leading the charge. 

This post is an excerpt from our weekly Market INK report distributed each Monday to INK Research subscribers and Canadian Insider Club members.

 

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