With the U.S. benchmark interest rate at virtually zero, gold's lustre has returned in earnest, bringing Canadian producers along for the ride.
The Standard & Poor's/TSX composite index soared 326 points Monday, led by resurgent gold stocks as investors continue to rally to the precious metal.
The two biggest contributors to the gain were the two biggest gold stocks - Barrick Gold Corp. rose 10% to $45.34, while Goldcorp Inc. was 11% higher at $38.50.
The spot price of gold rose more than 7% to US$878 an ounce, furthering a runup of 16% since the dismal November jobs report set the stage for the U.S. Federal Reserve cut its overnight rate to between zero and 0.25%.
The Fed move is good for the short-term needs of the U.S. economy, perhaps. But the historic cut "essentially sealed the fate of the U.S. dollar," said James Moore, analyst at London-based research firm The Bullion Desk.
With yields on U.S. federal bonds next to nil since the move, momentum into gold from investors still seeking shelter from erratic equity markets has been building, the analyst said.
"Investors are looking for the tried and tested safe-haven assets, and gold has performed," Mr. Moore said. "We've bounced back quite well from the lows we've seen."
Gold has risen 23% since Nov.12, when it was trading at its lowest level of the year, US$712.
At the time, panicked investors were fleeing from commodities across the board in exactly the sort of environment that should have lifted gold producers to new highs. The shift out of gold defied the precious metal's traditional position as the benchmark asset, holding value when everything around it melts.
Instead, investors dove into the perceived safety of the U.S. dollar as global conditions crumbled, sending the currency 18% higher against the euro between mid-September and Nov.12.
Since then, the dollar has sunk 11% versus the European currency as the U.S. jobless rate jumped to 6.7%, indicating the world's biggest economy is still heading downward.
The effect on gold has been the return of its status as the safest asset in town, and portfolio managers have taken notice.
Toronto-based Barrick, the world's biggest gold producer, has gained an astounding 100% since reaching its 2008-low in late October. Vancouver-based Goldcorp's share price has risen by more than 105% over the same two-month stretch.
In fact, the TSX's 15-member gold index has doubled in market value since late October, and now accounts for almost two-thirds of the $157-billion market cap for the exchange's broad materials group.
"We've started to put gold back into our clients' portfolios again," said Terry Shaunessy, president of Calgary-based Shaunessy Investment Counsel.
"The stocks just got caught in the whole downdraft. They were grossly oversold."
With the U.S. key rate not going anywhere soon and a global recession expected to last at least another two quarters, analysts say gold's recent bull run will continue.
"I think next year we're going to see gold again move to the upside," said The Bullion Desk's Mr. Moore.
Analysts at National Bank Financial placed a US$950 price target on gold in a recent note to clients.
"Maybe some fingers have been burnt by [last summer's] correction, but again it's moved back to US$870," said Mr. Moore. "The fundamentals remain very supportive."
