In a recent blog post, Imaru Casanova, portfolio manager at VanEck, highlighted the intense market volatility witnessed in August 2024. Casanova noted that the month began with a significant global sell-off, primarily triggered by an unexpected rate hike from Japanâs central bank, which abandoned decades of near-zero rates. She pointed out that this move led to a rapid unwinding of carry trades, sending shockwaves across global equity markets.
According to Casanova, the Tokyo Stock Price Index (TOPIX) experienced its largest one-day drop since 1987, plunging by 12%. She also highlighted that the U.S. markets were not immune, with the S&P 500 and Nasdaq Composite facing steep declines. Casanova attributed part of this turbulence to concerns over a potential end to U.S. economic expansion following a weaker-than-expected jobs report in July.
Casanova explained that although gold and gold equities were not entirely unaffected by the sell-off, they showed resilience as the panic subsided. According to her, the expectation of lower interest rates contributed to market stabilization toward the end of the month. Casanova referenced Federal Reserve Chairman Jerome Powellâs Jackson Hole speech, in which he reaffirmed the likelihood of a rate cut in September. She noted that this speech supported the rebound in gold prices, which hit new records in August, trading above $2,500 per ounce. By the end of the month, gold had closed at $2,503.39 per ounce, up by 2.28% for August, according to Casanova.
Casanova also pointed out that gold stocks mirrored the recovery in gold bullion, but their performance varied. Larger-cap gold companies fared better than smaller players. As Casanova reported, the NYSE Arca Gold Miners Index (GDMNTR) rose 2.44% in August, while the MVIS Global Juniors Gold Miners Index (MVGDXJTR) posted a smaller gain of 0.42%. This disparity, Casanova emphasized, was notable given goldâs strong performance.
Surprisingly, as Casanova observed, gold stocks did not outperform gold bullion, despite favorable conditions for the sector. She highlighted that gold prices reached record highs, and gold companies saw improved cash flow and valuations. Casanova estimated an 8% increase in margins for the sector in August, with average all-in sustaining costs around $1,400 per ounce and spot gold prices averaging $2,470. Yet, as she explained, the market failed to fully reflect these record gold prices in the valuation of gold mining equities.
Casanova cited Scotiabankâs Gold Monthly Statistics, which revealed that gold mining equities are trading at an estimated 23% discount to the current spot price. She pointed out that valuations in the sector remain at historical lows. According to Casanova, the adjusted market capitalization of Scotiabankâs universe per ounce of gold reserves is at its lowest relative to the gold price.
In her blog, Casanova also discussed the difficulties gold mining companies face in replacing their reserves. She highlighted data from BofA Global Research and S&P Global Market Intelligence, showing a sharp decline in the number of new gold discoveries. Casanova pointed out that there were only five major gold discoveries between 2020 and 2023, down from 18 annual discoveries in the 1990s.
Looking ahead, Casanova speculated that gold prices could stay elevated, especially if Western investors return to the market. She noted that the World Gold Council reported positive fund flows into North American and European gold ETFs in recent months, a reversal of the outflows seen since mid-2022. Casanova suggested that increasing concerns about the U.S. economy and a potential recession could drive more investors toward the gold sector, which historically performs well during periods of uncertainty.
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