After making the most of market panic post Brexit, gold seems to be losing its tempo once again. Gold prices fell on Tuesday, declining for the first time in three sessions, as stock markets steadied following a marked improvement in investor sentiment.
Gold for August delivery on the Comex division of the New York Mercantile Exchange dipped 0.66% to trade at $1,316.00 a troy ounce. Global stock markets, pound, and most risk-sensitive commodities were all higher on Tuesday as traders accumulated cheap assets following a two days equity rout triggered by Brexit.
The historic referendum, with Britain opting to leave the EU, was instrumental in gold prices crossing the $1,300 threshold on Jun 24, trading at levels last seen in Jul 2014. In fact, the 8% surge in a day was the biggest one-day gain for the bullion since Jan 2009. Uncertainty over the unprecedented event triggered panic in the markets. Investors’ apprehension that it would bring political and financial instability made them flock to gold.
How Are Gold Miners Faring?
The largest gold mining ETF – VanEck Vectors Gold Miners ETF GDX that tries to replicate the price and yield performance of the NYSE Arca Gold Miners Index – is currently trading at $27.15, close to its 52-week high of $27.71. The Index provides exposure to publicly traded companies worldwide that are involved primarily in gold mining, representing a diversified blend of small, mid and large-capitalization stocks.
GDX has gained 6.5% since the Brexit decision, yielding a year-to-date return of 64.58%. A few top mining names in its basket include Barrick Gold Corp. ABX, Newmont Mining Corp. NEM, Goldcorp Inc. GG and Agnico Eagle Mines Ltd. AEM with asset allocation of 9.33%, 8.19%, 6.62% and 5.56%, respectively.
What Next?
Brexit seems to have taken a rate hike off the table for now. A recent report revealed that the U.S. economy expanded a meager 1.1%, more than the previous estimate of 0.8%, one of the weakest performances in the past several years. This will also likely keep the Federal Reserve off the interest-rate trigger for now.
A delay in raising interest rates elevates demand for gold, which produces no income but relies on price appreciation to attract investors. The European Central Bank, the Bank of England, the Bank of Japan, the People’s Bank of China, and other central banks will likewise resort to further monetary policy easing.
With negotiation for the exit still not started and EU claiming to take a hard-line, clearly there is a lot of uncertainty in the market. The rise in gold prices is not a knee jerk reaction, and we expect it to remain high for some time.
Moreover, gold prices are generally supported by retail demand in countries like India and China with the wedding and festival seasons held in the second half of the year. India will be a major driver with demand having pent up due to the shutdown of jewelry stores earlier in the year. A good monsoon also bodes well for gold.
Another factor that will eventually be a tailwind for gold is that the supply of the precious metal has already attained peak levels as per reports. Global production of gold is likely to decline by 3% in 2016, thus ending a 7-year stint of rising output. Lower mined gold supply could help prices navigate north.
Gold Stocks to Buy
As the conditions for bullion’s recent gains remain in place, it would be a good idea to add some top-quality gold mining stocks to your portfolio that are well-placed to leverage the recent upward momentum in the gold market. Our selection is backed by a good Zacks Rank and strong estimate revisions.
B2Gold Corp. BTG
Vancouver, Canada-based B2Gold explores and develops mineral properties in Nicaragua, the Philippines, Namibia, Burkina Faso and Chile. The company primarily explores for gold, silver and copper.
The stock holds a Zacks Rank #1 (Strong Buy). Its shares have catapulted around 140% year to date. The Zacks Consensus Estimate for the current fiscal has moved up 100% over the last 60 days. The company has an expected impressive earnings growth of 733% for the current year. B2Gold also delivered a 100% positive earnings surprise in the last quarter.
Sandstorm Gold Ltd. SAND
Vancouver-based Sandstorm Gold concentrates on completing gold purchase agreements with gold mining companies that have advanced stage development projects or operating mines.
Sandstorm Gold carries a Zacks Rank #1 and has gained 65.78% year to date. The bottom-line estimate for the current year has recovered dramatically over the last 60 days from a loss of 3 cents to earnings of 3 cents. The company has an expected earnings growth of 115% for the current year and also delivered a whopping 500% positive earnings surprise last quarter.
IAMGOLD Corp. IAG
Toronto-based IAMGOLD is engaged in the exploration, development and operation of gold mining properties. The company holds interests in four operating gold mines, as well as exploration and development projects located in Africa, South America and Canada.
This Zacks Rank #2 stock has gained roughly 195.77% year to date. Its estimates have moved from a loss of 17 cents per share to loss of 15 cents per share over the last 60 days, a marked improvement from the year-ago loss of 43 cents. The company had delivered a 60% positive earnings surprise in the last quarter.
Gold Stocks to Shun
Just as we are going long on gold stocks, it’s also wise to incorporate a measure of prudence. For that we have screened the gold mining stocks that either have a Zacks Rank #4 (Sell) or a Zacks Rank #5 (Strong Sell) and have witnessed downward estimate revisions over the past few weeks.
Harmony Gold Mining Company Ltd. HMY
Based in Randfontein, South Africa., Harmony Gold Mining is engaged in the exploration and mining of gold in South Africa and Papua New Guinea. Harmony Gold currently carries a Zacks Rank #4 (Sell). The Zacks Consensus estimate for the company has suffered a 5% drop over the past 60 days.
Asanko Gold Inc. AKG
Headquartered in Vancouver, Canada, Asanko Gold engages in the exploration, development, and production of gold in Ghana. Asanko Gold currently carries a Zacks Rank #4. Its estimates for the current fiscal have plunged 100% over the past 60 days.
AngloGold Ashanti Ltd. AU
Headquartered in Johannesburg, South Africa, AngloGold Ashanti Limited operates as a gold mining and exploration company. AngloGold currently carries a Zacks Rank #5. Its estimates for the current fiscal have gone down 12% over the past 90 days.
To Conclude
It is good to ride the rally in gold prices by investing in the potential winners backed by our Zacks Rank. In case the gold market turns bearish, it will be wise to get rid of stocks suffering negative revisions.
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