Gold prices leaped higher on Wednesday, with the price of an ounce of the shiny metal rising 3% through 12:15 p.m. ET -- an increase of more than $130 per ounce.
Gold stocks weren't slow in following the price of gold higher. Kinross Gold Corporation (KGC +0.59%) stock is up 10.7% on no news other than the rising cost of gold.
Image source: Getty Images.
Why gold is up today
Of course, knowing that Kinross stock is up because gold prices are up still leaves one obvious question: Why is gold up?
Luckily, The Wall Street Journal is ready with an answer: The U.S. dollar is falling in value, and this has a couple of knock-on effects. For one thing, it takes a few more dollars today to buy a given amount of gold -- which leads to gold being repriced at a higher dollar value. For another, a weakening U.S. dollar spurs fears of further devaluation. When investors fear that the dollar is losing value, they're more likely to invest in hard assets like gold, which gains (relative) value when the value of the dollar falls.
NYSE: KGC
Key Data Points
Why gold might not stay up
At the same time, the U.S. Treasury just announced it's accelerating its government bond repurchases. This will add liquidity to the market, probably accelerating inflation (and gold is a traditional hedge against inflation).
That said, adding liquidity to the market would also tend to push stock prices higher. Should that be the way things play out, investors may later decide to sell gold again and buy stocks instead.
Whether that's good or bad news for a gold stock like Kinross is kind of a toss-up, but I'd lean toward expecting Kinross stock to follow the price of gold -- up or down -- just as is happening today.
