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2018 Leaders and Laggards in the Gold Stock Industry

- By Alberto Abaterusso

2018 is almost over, so we can already draw up the balance sheet for the best and worst performers of the year among the most-known U.S. publicly traded gold mining stocks. (Performance mentioned is for the period from Jan. 2, 2018, to Dec. 21, 2018.)

AngloGold Ashanti Limited (AU) is going to close 2018 being the best performer. The South African gold producer increased 29% and outperformed the VanEck Vectors Gold Miners ETF (GDX) by 43% so far this year.

2018 has been a tough year for investors of gold mining stocks since they have experienced losses between 9% and 58%. The least bad performers are Barrick Gold Corp. (ABX) and Harmony Gold Mining Co. Ltd. (HMY) with -9%, B2Gold Corp. (BTG) with -10% and Newmont Mining Corp. (NEM) with -11%. In addition, Agnico Eagle Mines Ltd. (AEM) decreased 14%.

Barrick Gold Corp. and Harmony Gold outperformed the VanEck Vectors Gold Miners ETF by 5%, while B2Gold Corp. and Newmont Mining Corp. outperformed the benchmark by 4% and 3%. Agnico Eagle Mines is on par with the VanEck Vectors Gold Miners ETF.

VanEck Vectors Gold Miners ETF, one of the most liquid vehicles for investors to gain exposure to the yellow metal through the mining industry, is 14% down so far this year.

All the stocks that follow underperformed the gold-backed fund. Randgold Resources Ltd. (GOLD) lost 17% while McEwen Mining Inc. (MUX) and Gold Fields Ltd. (GFI) both have seen a 21% depreciation.

But the list of laggards is long this year.

Yamana Gold Inc. (AUY) decreased 25%, Goldcorp Inc. (GG) and Kinross Gold Corp. (KGC) both fell 28%, and IAMGOLD Corp. (IAG) declined 38%.

With a loss of 58% so far this year, Eldorado Gold (EGO) is the worst performer for the second consecutive year since the Canadian mid-tier gold producer also lost more than 57% last year. Several issues at operations in Turkey, which forced the miner to lower guidance on production, weighed on its market value.

Tips for the coming weeks

Gold is trending up again on the tailwind of the U.S. Federal Reserve's decision Wednesday to add 25 basis points for a 2.25% to 2.5% range for the interest rate. Since the beginning of December, the bullion is 2.3% up to $1,258.15 per troy ounce on Dec. 21 on the London Market. The precious metal is going to average $1,225 per troy ounce in the last quarter of 2018.

For third-quarter operations when gold averaged $1,212.8 per troy ounce, Newmont Mining and Barrick Gold Corp. surprised the market and outperformed the industry with higher-than-predicted adjusted net earnings per share. The Canadian miner delivered 33.3% positive surprise and Newmont Mining impressed with a 65% beat.

This means that these two stocks are going to surprise the market once again since for this quarter the bullion is on its way to defeat the previous quarter by an average $12 per troy ounce. Therefore, I prefer Barrick Gold, Newmont Mining and in general any other large gold producer that can start mining the metal at profit from a low price per ounce. Barrick Gold Corp. already begins making profit from a gold price of $1,000 to $1,100 an ounce.

For full-year 2019, I am sticking with the world's largest producers of gold. Two additional interest rate hikes from the U.S. Central Bank and the beginning of a new trade war between U.S. and China may create some upside pressure on gold in 2019. But I hardly see the commodity averaging $1,300 an ounce next year.

There is a possibility that the average price will really pass the $1,350 resistance level test in 2019, which is 7.3% growth from current levels. In that case, it may make sense to significantly increase holdings in mid-tier and small gold producers to take advantage of their high operating cost leverage structure.

Disclosure: I have no positions in any stock mentioned.

This article first appeared on GuruFocus.