Gold futures for August delivery rose 0.6% to settle at $1,780.30 an ounce on Jun 26, after touching a high of $1,786.20 an ounce. On Jun 24, the yellow metal had hit a high of $1,796.10 — its highest level in almost eight years and close to the level of $1,800. Gold has outperformed all major asset classes so far this year, gaining 16.5% primarily driven by the global uncertainty triggered by the COVID-19 pandemic. Concerns over the economic recovery is impacting investor’s risk appetite and have sent them scurrying for safe haven assets like gold. Stimulus measures by the world’s central banks and apprehensions about a second wave of the coronavirus is supporting the bullion.
Global coronavirus cases have reached $10 million with a death toll of 499,699. In the United States, cases have surpassed the $2.5 million mark with record number of cases being reported daily. The country has witnessed more cases in the past week than in any week since the pandemic struck.
Further, the Federal Reserve imposed new restrictions on the US banking system for the first time since the financial crisis. For the third quarter, the board requires large banks to preserve capital by suspending share repurchases, capping dividend payments, and allowing dividends according to a formula based on recent income. Additionally, banks have been asked to re-evaluate their longer-term capital plans. This is also weighing on financial markets and favoring gold.
Per the International Monetary Fund (IMF), the COVID-19 pandemic has had a more negative impact on economic activity in the first half of 2020 than anticipated. Recovery is likely to be slow and the IMF now expects a contraction of 4.9% in global economy in 2020 — wider than the contraction of 3% estimated in April. The United States is expected to contract 8% this year — its worst contraction since 1946. With the pandemic showing no signs of dying down any time soon, the uncertainty regarding the impact on the global economy will continue to trigger safe haven demand for gold.
Miners had to suspend operations in accordance to government mandates to stem the spread of the virus, which has hindered gold production. Consequently, an impending demand-supply imbalance bodes well for gold prices.
Industry Performance
On the back of the gold-price rally, the Gold Mining industry has gained 24% year to date, against the S&P 500’s decline of 6.6%. The industry falls under the broader Basic Material sector, which fell 11.1%.
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The gold mining industry currently carries a Zacks Industry Rank #802, which places it at the top 32% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Our Picks
The processing of the gold ore is highly energy intensive. Mining companies are major consumers of energy with around 50% of their production costs closely linked to energy prices. Gold miners are set for a strong performance this year as higher gold prices will boost their top-line performance while lower oil prices will aid margins.
Thus, the time is right to invest in gold stocks and we suggest five gold stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and solid earnings growth estimates for this year.
AngloGold Ashanti Limited (AU) : Based in Johannesburg, South Africa, the company currently has a Zacks Rank #2. The company has a long-term estimated earnings growth rate of 22%. The Zacks Consensus Estimate for 2020 earnings indicates year-over-year improvement of 109.9%. The estimate has been revised upward by 4% over the past 90 days.
Barrick Gold Corporation (GOLD) : Based in Toronto, Canada, this company currently has a Zacks Rank #2. The Zacks Consensus Estimate for current-year earnings suggests year-over-year growth of 55%. The estimate has moved north by 10% in the past 90 days. The company has a trailing four-quarter positive earnings surprise of 15.4%, on average. The stock has a long-term anticipated earnings growth rate of 2%.
Harmony Gold Mining Company Limited (HMY) : This Randfontein, South Africa-based company currently has a Zacks Rank #2. The Zacks Consensus Estimate for current-year earnings suggests year-over-year improvement of 28.6%. The stock has a long-term expected earnings growth rate of 45.8%.
Galiano Gold Inc. (GAU) : The company, which was formerly known as Asanko Gold Inc., changed its name to Galiano Gold Inc. in May 2020. Headquartered in Vancouver, Canada, the company currently sports a Zacks Rank #1. The Zacks Consensus Estimate for current-year earnings indicates year-over-year growth of 1200%. The company has a trailing four-quarter positive earnings surprise of 75%, on average. The stock has a long-term anticipated earnings growth rate of 2%.
Agnico Eagle Mines Limited (AEM) : Toronto, Canada-based company currently carries a Zacks Rank #2. The Zacks Consensus Estimate for current-year earnings indicates year-over-year growth of 53.6%. The company has a trailing four-quarter positive earnings surprise of 117.6%, on average. The stock has a long-term anticipated earnings growth rate of 1%.
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