How and Why Janet Yellen Is Driving the Gold Train Much Higher

Commodities & Metals

Published: March 29, 2016 2:19 pm

Last Updated: January 13, 2020 11:23 am

If you ever wanted to know if lower and lower interest rates for longer and longer helps to prop up the value of gold, look no further than Federal Reserve Chair Janet Yellen’s speech on Tuesday, March 29, 2016. Many Fed presidents have spoken more hawkishly of late. The mood was building that the Fed is gearing up for rate hikes again. It was assumed that Yellen might sound at least a tad more hawkish.

Yellen’s references were that the FOMC has few tools to be more accommodative, rate hikes would be more gradual, that inflation was less present than hoped and that economic uncertainties remained. It honestly sounded like she was telegraphing that interest rates will never be high again.

So, back to gold. The reality is that gold loves a zero-rate or very low-rate interest rate environment. It creates an environment in which gold acts like a savings bank — because neither one will pay you anything for holding it, but there is no recessionary risk of what happens to gold (the metal, not the price). If investors can earn money leaving money in a bank account, then they may be less inclined to hold gold.

24/7 Wall St. could not ignore the move seen in the key gold miners and gold producing stocks. Yellen’s speech caused a rally, but now some gold stocks are within striking distance of their 52-week highs. What stands out even more is that many of the top gold stocks are now at or above their consensus analyst price targets. Gold was last seen up over $18.00 (1.5%) at $1,240 per ounce.

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Barrick Gold Corp. (NYSE: ABX) was last seen up 3.1% at $14.03, with a $16.3 billion market cap. Barrick’s consensus analyst price target is $13.52 and it has a 52-week trading range of $5.91 to $15.52.

Goldcorp Inc. (NYSE: GG) was last seen up 3.8% at $16.34 with a market cap of $13.6 billion. It has a consensus price target of $16.63 and a 52-week range of $9.46 to $20.30.

Newmont Mining Corp. (NYSE: NEM) was up 3.8% at $26.67 with a market cap of $14 billion. The consensus price target is $26.97, and the 52-week range is $15.39 to $28.39.

Yamana Gold Inc. (NYSE: AUY) was last seen up 6.7% at $3.09, with a market cap of $2.9 billion. Yamana’s consensus price target is $3.37 and it has a 52-week range of $1.38 to $4.12.

Silver Wheaton Corp. (NYSE: SLW), which was trying to move more into gold before the gold drop of recent years, ran with the gold sector. Silver Wheaton has a consensus price target of $20.62 and a 52-week range of $10.04 to $21.12.

Yellen discussed additional economic uncertainty stemming from China and the slowdown in oil spending hurting business.

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