Gold notched a solid 8% in the first quarter of 2022 and ended the quarter at $1,942 an ounce. This marked the bullion's best quarterly run since the pandemic-induced performance in the second quarter of 2022. Rapidly rising inflation, higher interest rates and the Russia–Ukraine war acted as tailwinds for gold this year, placing it among the best performing assets. Amid the ongoing economic uncertainty, weakness in both equity and bond markets and increased volatility, gold stood out as an effective hedge.
Backed by the precious metal's solid run, we suggest keeping an eye on stocks like Franco-Nevada Corp FNV, Royal Gold RGLD and Sandstorm Gold SAND that are expected to have performed well in the quarter under discussion.
Gold ETF inflows were around 269 tons ($17 billion) in the first quarter — recording the highest level of quarterly net inflows since the third quarter of 2020. It outpaced the total net outflows of 174 tons in 2021. Inflows throughout the first quarter were mainly in North American and European funds. Meanwhile, Asian funds witnessed modest outflows led by Chinese and Indian funds. Total AUM in these products now stands at 3,836 tons (or $240 billion) — the highest tonnage level witnessed since November 2020. U.S gold coin sales totaled $1 billion in the first quarter at 518,000 ounces, recording the second-highest first-quarter sales total in volume terms since 1999.
Geopolitical Issues & Inflation Bode Well for Gold Prices
A prolonged conflict in Ukraine will continue to support investment demand for gold. Inflation and rising rates will also fuel gold prices. Annual inflation rate in the United States is likely to have accelerated from 7.9% in February to 8.4% in March of 2022 — the highest since January 1982. The post-COVID economic recovery and supply-side disruptions, which have been worsened by the Russia-Ukraine war, are likely to keep inflation higher for longer. Historically, gold has performed well in high inflationary environments.
Demand for gold will be supported by growing jewelry and technology demand and central bank purchases. The requirement for physical gold is seasonally higher starting in the latter part of the year, aided by the festival and wedding season in India, followed by the Chinese Lunar Year and Valentine's Day. Demand in India will be supported by improving economic momentum and consumer confidence.
India and China, which roughly account for around 50% of consumer gold demand, will continue to sustain demand for gold. The use of gold across energy, healthcare and technology is on the rise. So, there will be an eventual demand-supply imbalance that is likely to drive gold prices, which bodes well for the industry.
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The Zacks Gold Mining industry has rallied 25.2% so far this year in tandem with gold prices, against the S&P 500's decline of 5.7%. The industry falls under the broader Basic Materials sector, which gained 12.3%.
Per the latest Earnings Trends, the Basic Materials sector is expected to witness growth of 44.2% in earnings in first-quarter 2022 on the back of a 23.2% rise in revenues.
3 Stocks Set to Deliver Improved Q1 Results
Franco-Nevada: The company's first-quarter 2022 results are likely to reflect higher gold and other metal prices. Franco-Nevada's incessant focus on cost management will drive margins. The company is well-poised to deliver strong earnings growth going forward, aided by its diversified portfolio of streaming and royalty agreements and contribution from buyouts. Backed by these prospects, the company's shares have appreciated 20% so far this year. It has a debt-free balance sheet and utilizes its free cash flow to expand the portfolio and pay out dividends.
The Zacks Consensus Estimate for first-quarter 2022 earnings is currently pegged at 93 cents, suggesting a 10.7% year-over-year growth. FNV has a trailing four-quarter earnings surprise of 2.1%, on average. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Royal Gold: Higher gold equivalent ounces (GEOs) production and rising gold prices and other metal prices are likely to get reflected in the company's results in the March-ended quarter. Ramping up new projects, focusing on acquiring new streams, especially the NX Gold mine and addition of the high-quality, long-life Khoemacau development project will drive growth. The company's strong balance sheet with no outstanding debt and healthy cash position enables it to invest in properties with exploration and production upside while returning value to shareholders. Shares of the company have surged 37% so far this year.
The Zacks Consensus Estimate for the company's March-ended quarter's earnings stands at $1.02, indicating a 21.4% year-over-year growth. RGLD has a trailing four-quarter earnings surprise of 9.4%, on average. The Zacks Ranked #3 company has an estimated long-term earnings growth of 10%.
Sandstorm Gold: The company recently announced preliminary record GEOs sold and revenues in the first quarter of 2022, contributing to the 44% gain in its share price so far this year. SAND sold nearly 18,700 attributable GEOs during the quarter, up 7% from first-quarter 2021. Preliminary revenues were $35.3 million in the quarter compared with the year-ago quarter's $31 million. The company has been active on the acquisition front, which will support its performance. Attributable gold equivalent ounces are expected to be between 65,000 and 70,000 for 2022. The company expects attributable gold equivalent production to be more than 100,000 ounces in 2025, subject to the conversion of the HodMaden interest into a gold stream.
The Zacks Consensus Estimate for the company's first-quarter 2022 earnings is currently pegged at 4 cents, suggesting a 33% year-over-year growth. The consensus mark for earnings for 2022 stands 18 cents, indicating year-on-year growth of 28.6%. SAND currently carries a Zacks Rank #3.
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