Gold has seen a surprise rally in 2016. Indeed, at the end of the last year, the precious metal had been written off. But gold has staged a remarkable comeback in 2016, driven by a range of factors. And in recent weeks, more analysts have turned bullish on the precious metal.
Earlier this week, Dennis Gartman of Gartman Letter said he expects gold to reach $1,500 an ounce. Analysts at Goldman Sachs have also raised their price target on the precious metal.
While gold has registered a strong performance in 2016, the performance of gold mining stocks has been even better. In fact, gold mining stocks have significantly outperformed gold. For example, the BMO Junior Gold Index (ETF) (TSX: ZJG), which invests in equity securities of gold mining companies, has gained more than 80% in 2016. Gold prices are up around 20% for the year.
If gold prices continue their upward trend, ZJG could post even better returns. The reason for this outperformance is simple. When gold prices slumped in 2014, miners began cutting costs. Miners now have all-in-sustaining costs averaging at around $800 an ounce. As prices have rebounded, miners are enjoying strong margins. More important, the trend will continue given the outlook for gold prices.
