By Geoffrey Caveney
- The Brexit vote sparked a sharp rise in the gold price and precious metals, but other commodity prices fell.
- Both trends are in line with expectations of a stagnant global economy or a recession.
- Very long-term charts show that in fact the trend of gold outperforming other commodities is consistent, long-lasting, and strong.
- This trend will be even more bullish for gold miners than previous gold bull markets.
- They will get the benefits of both a rising gold price, and of flat or lower operating costs for energy, materials, equipment, and other inputs.
The Brexit vote was obviously a decisive turning point for global financial markets in all respects, but one particular consequence worth noting is the divergence between gold and other commodities.
In the post-Brexit world, the gold bull market is set to continue upward, but the recovery of industrial and other commodities since February is now in jeopardy. Expectations of a stagnant global economy or an outright recession have dramatically increased.
This divergence is especially good news for gold mining companies such as those in the Market Vectors Gold Miners ETF (NYSEARCA:GDX) and the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ): Their revenues will increase with rising gold prices, and their operating costs for energy, materials, equipment, and other inputs will not increase so much. Moreover, they will face less competition from other mining sectors for equipment, labor, services, and finance capital.
The gold bull markets of the 1970s and the 2000s went hand in hand with simultaneous bull markets for just about all commodities. This cut into the earnings of gold miners, as rising costs offset some of their rising revenues. If the new gold bull market coincides with commodity prices staying...