Yamana Gold Inc. [NYSE: AUY] was a big gainer yesterday, and closed the day with gains of 8.97%. This followed the increase in gold prices, which pushed past the $1400 mark. Gold rose in spite of the Fed’s announcement that it would be holding interest rates, and it’s open to reducing interest rates if the economy warrants it. This could be an indicator that investors are increasingly wary of the prospects of the global economy. These fears have given momentum to Yamana Gold and other gold stocks.
Looking at this stock’s price action, it appears strongly bullish in the short-term. It had been gaining momentum in recent days and after yesterdays surge it appears the bulls are very interested in the stock chart. It could possibly break out bullish, if it opens the day above Thursday’s high of $2.48. In pre-market trading, Yamana Gold is trading at $2.42 down by 0.41% at the time of writing. However, it is holding above yesterday’s support at $2.41, an indicator of the positive sentiment around it.
There are a number of fundamentals that support this value of this stock going forward. For starters, the number of risks in the global economy are elevated. One of the biggest ones is the ongoing trade war between the U.S and China. While there is progress in trade talks with China, there are no guarantees on the outcome, creating a cloud of uncertainty. It is also not easy to quantify what the long-term effects of this trade war will be on the world economy. The biggest risk is that it will dent global economic growth, and lead to a recession. If this happens, investors could turn to safe haven investments such as gold. The fact that gold is showing signs of bullish activity since 2013, is a positive indicator that things could be looking up for the better, and that’s a plus for companies like Yamana Gold.
The other factor that could support gold price, and by extension the value of companies like Yamana gold, is the political uncertainty in the Middle East. The threat of a war between the U. S and Iran could disrupt the global oil supply chain. Yesterday, oil prices shot up by 5% on news that Iran had shot down a U.S drone. An escalation could further add to the cost of production, further adding a layer of complexity in an already fragile global economy. This is a factor that is likely to drive up the value of precious metals, and stocks that are involved in precious metals, such as Yamana Gold.