Gold has peaked to a five month high amid mounting geopolitical tensions. News of the U.S. airstrikes in Syria as well as the latest terrorist attack in Europe has continued to fuel the safe-haven demand of the yellow metal. Further, weaker-than-expected numbers from the highly anticipated non-farm payroll report also worked in favor of gold prices. Spot gold has shot up to $1,272.75 an ounce, clocking a year-to-date gain of 11%.
Safe-haven buying will remain strong ahead of the looming French presidential election as well as continuing geopolitical tensions. In the U.S., uncertainty runs rife despite positive expectations about the economic proposals of Trump. However, this will be a positive for gold. An upward inflationary trend is also likely to support demand for gold. The yellow metal is historically seen as an inflation hedge. Further, higher inflation will keep real interest rates low, which in turn makes gold more attractive. Moreover, inflation makes bonds and other fixed income assets less appealing to long-term investors.
Much hope is pinned on Asia, particularly India, to drive gold demand. In Asian economies, gold demand is generally closely correlated to increasing wealth. As Asian countries become richer, their demand for gold will increase in tandem. However, India’s gold industry suffered last year due to the imposition of excise duty that prompted a strike in early parts of the year and the demonetisation initiative in the fourth quarter that caused a liquidity squeeze that affected the entire economy.
This year a banking system flush with liquidity as well as expectations of bumper crop following a good monsoon will boost gold demand. The imposition of General Sales Tax in mid-2017 nonetheless poses a short-term challenge to household gold buying. Overall, the World Gold Council anticipates consumers to buy between 650 tons and 750 tons of gold during the year.
Year to date, the Mining-Gold subindustry has outperformed the S&P 500. The industry has gained 16.3% in contrast with the S&P 500’s increase of 5.8% in the same time frame.
Valuation looks attractive for the gold mining industry going by the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) multiple, a preferred valuation metric for cyclical industries. The mining-gold industry has a trailing 12-month EV/EBITDA multiple of 7.79, lower than the S&P 500 EV/EBITDA multiple of 10.82. The industry’s lower-than-market positioning calls for some more upside moving ahead.
Consequently, the mining-gold industry seems to be a lucrative space to invest in. We suggest investing in stocks like Alamos Gold Inc. AGI and Seabridge Gold, Inc. SA. Both of the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The Alamos Gold Stock has gained 22.6% year to date while Seabridge Gold has advanced 41.7%, both ahead of the Zacks Categorized Mining- Gold industry’s increase of 16.3%.
However, we suggest you to shun few gold-mining stocks that have not been able to capitalize on the rally in gold prices. Exiting certain underperformers at the right time helps maximize portfolio returns. We believe it will be a prudent move to get rid of these stocks at the moment and invest in potential winners instead.
Agnico Eagle Mines Limited AEM is a Canada-based gold producer and has exploration and development activities in Canada, Finland, Mexico and the U.S. Agnico Eagle Mines carries a Zacks Rank #5 (Strong Sell) and a VGM score of "F." Here V stands for Value, G for Growth and M for Momentum. Agnico Eagle’s score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners.
The company’s estimates for fiscal 2017 have plunged 65% to 41 cents per share in the past 30 days while for fiscal 2018 has gone down 48% to 74 cents. The estimate for fiscal 2017 reflects a 17% year-over-year decline. The stock has underperformed the Zacks categorized Mining Gold industry with a gain of 10.6%, falling behind the industry’s increase of 16.3%.
Eldorado Gold Corp. EGO a gold producing and exploration company with gold assets in Brazil and Turkey, carries a Zacks Rank #5 and a VGM Score of “D.” The company’s estimates for fiscal 2017 have gone down 29% to 12 cents per share in the past 90 days while for fiscal 2018 has gone down 45% to 18 cents. The stock has also underperformed the Zacks categorized Mining Gold industry’s gain of 11.2%.
Primero Mining Corp. PPP, a gold and silver exploration company, carries a Zacks Rank #5 and VGM Score of “C. Its estimates have gone down to a loss per share of 4 cents from earnings per share of 6 cents in the past 60 days. The estimate for fiscal 2018 has plunged 82% to 3 cents per share. The company has average negative earnings surprise of 124.08% in the trailing four quarters. The stock has declined 29% year to date while the Zacks categorized Mining Gold industry advanced 16.3%.
Acacia Mining plc ABGLF a London-based gold mining company, carries a Zacks Rank #4 (Sell). The stock has gained 12.3% year to date, falling behind the Zacks categorized Mining Gold industry’s gain of 16.3%. The company’s estimates for fiscal 2017 have gone down 4% to 27 cents per share in the past 90 days while for fiscal 2018 has gone down 42% to 30 cents.
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Agnico Eagle Mines Limited (AEM): Free Stock Analysis Report
Primero Mining Corp (PPP): Free Stock Analysis Report
Alamos Gold Inc. (AGI): Free Stock Analysis Report
Seabridge Gold, Inc. (SA): Free Stock Analysis Report
Eldorado Gold Corporation (EGO): Free Stock Analysis Report
Acacia Mining PLC (ABGLF): Free Stock Analysis Report
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