Gold is having its worst week in 6 years. Are there any prospects left for investing in the sector's shares?

The energy shock triggered by the conflict in the Middle East led to the largest weekly drop in gold prices since 2020. Following the precious metal, shares of gold mining companies, which were under pressure from the risks of declining revenues and rising energy costs, went into deep negative territory. Despite the sell-offs, long-term investment potential in the sector remains, but now it is limited to securities of large gold miners, the analyst believes.

Gold prices end the week with a decline of almost 7% - the largest collapse for the precious metal since March 2020, writes Bloomberg. On March 19, its spot price fell to $4650 per troy ounce, recording a decline at the end of seven consecutive trading sessions - the worst dynamics since October 2023. The sharp reversal from January's historic highs, when the ounce traded near $5600, copies the pattern of 2022: then a similar shock in the energy markets, caused by the start of the military conflict in Ukraine, turned into a record seven-month series of declines for gold. Now, the jump in oil prices has once again amplified inflation risks, forcing leading Western central banks to refrain from cutting interest rates this week - putting pressure on gold, which does not earn interest income.

Falling prices for precious metal have collapsed quotations of gold miners - shares completely lost the growth accumulated since the beginning of the year and went into negative, states Bloomberg. Sectoral index of the New York Stock Exchange Arca Gold Miners on March 19 fell to its lowest level since December. At the Toronto Stock Exchange, the sector's securities became the main outsiders: their capitalization fell by 6% on average, and shares of small gold mining companies collapsed by 8-12%, Reuters reports. The industry risks to face the effect of "double blow", when the margin sharply shrinks due to a simultaneous decline in prices for the final product and rising operating costs - for energy and consumables, Bloomberg quotes the words of Jefferies analyst Christopher Lafemina.

The sharp change in the gold market requires a reassessment of strategies: trying to buy back the drawdown carries high risks, warned Robert Gottlieb, a former precious metals trader at JPMorgan Chase and now an independent market commentator. "Until volatility subsides and prices consolidate," more sell-offs could follow, he added.

But despite the panic, the gold mining sector is forming a margin for long-term investors. The departure of speculators creates an opportunity to buy shares of industry giants with low costs. Thanks to the expensive metal, these companies have accumulated impressive reserves of free funds in the past years. Once oil prices stabilize, the securities of large and financially stable gold producers - such as Newmont and Agnico Eagle Mines - could recover, Tuttle Capital Management head Matthew Tuttle wrote to clients.

This article was AI-translated and verified by a human editor