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Will Gold Mining ETFs Keep Sizzling Despite Mixed Earnings?

Sanghamitra Saha

The fundamentals suddenly strengthened for the gold mining space, thanks to heightened market volatility, which led the Fed to be dovish. The Fed has taken a patient stance toward future rate hikes. Minutes to the Fed’s latest policy meeting in January revealed that almost all the participants are in favor of ending the reduction of asset holdings “later this year”. Many are of the view that there will probably be no rate hikes in 2019, thanks to the slowdown in growth.

Such statements and views have kept bond yields at check and the greenback at subdued levels, which in turn is favoring gold prices and mining stocks and ETFs. The gold mining stocks come from a top-ranked Zacks industry (top 13%). In fact, the $11 billion VanEck Vectors Gold Miners ETF GDX saw trading volume jump to its highest in two months on Feb 19. The fund is up 9% this year (read: Gold Mining Crushing the Market: Best ETFs & Stocks of Q4).

Against this backdrop, it will be prudent to take a look at gold mining companies’ earnings reports.

Inside Earnings Releases

On Feb 21, Newmont Mining Corporation NEM came up with a decent earnings performance and gained 0.1% in the key trading session. The company reported net loss from continuing operations of $3 million or breakeven per share in fourth-quarter 2018, narrower than net loss of $549 million or $1.02 per share in the year-ago quarter (read: Newmont-Goldcorp Deal Puts Gold Mining ETFs in Focus). 

Barring one-time items, adjusted earnings were 40 cents per share, which beat the Zacks Consensus Estimate of 23 cents. Newmont reported revenues of $2,048 million, up around 6% year over year. The figure surpassed the Zacks Consensus Estimate of $1,855.8 million. The stock has a Zacks Rank #2 (Buy).

In mid-February, Goldcorp Inc. GG came up with mixed earnings. It reported net loss of $3,984 million or $4.58 per share in fourth-quarter 2018 against net earnings of $242 million or 28 cents in the prior-year quarter.

Barring one-time items, adjusted earnings came in at 7 cents per share, which beat the Zacks Consensus Estimate of 2 cents. Goldcorp recorded revenues of $772 million in the quarter, down roughly 9.5% year over year. The figure missed the consensus mark of $853.4 million. The stock has a Zacks Rank #3 (Hold).

Barrick Gold Corporation GOLD reported net loss (attributable to equity holders) of $1,197 million or $1.02 per share for fourth-quarter 2018, wider than net loss of $314 million or 27 cents in the year-ago quarter. The bottom line in the reported quarter was hurt by impairment charges. Barring one-time items, adjusted earnings came in at 6 cents per share that were in line with the Zacks Consensus Estimate. Barrick recorded revenues of $1,904 million, down roughly 14.5% year over year. The figure trailed the Zacks Consensus Estimate of $1,937.9 million. It has a Zacks Rank #3.

ETF Impact

The aforementioned companies have considerable exposure in large-cap funds like GDXiShares MSCI Global Gold Miners ETF RING and Invesco Global Gold & Precious Metals ETF PSAU. All the funds have rallied in the past five days (as of Feb 21, 2019). (see all Materials ETFs here).

Will the Rally Last Given Trade Hopes?

The rally in gold mining ETFs suddenly took a dive on Feb 21 as long-term treasury yields jumped on trade hopes and higher growth prospect. The uptick in risk-loving sentiments does not go well with bullion investing.

But then, China is buying gold heavily. PBOC added about 11.8 tons to its reserves In January. The latest addition comes after the December purchase of just under 10 tonnes of gold, the first time the central bank increased its reserves since October 2016. Analysts at Commerzbank believe that the past trends back the case for further buying this year.

Not only PBOC and traders, Chinese consumers also bought gold heavily this lunar new year. If there is no concrete solution to trade war, then heightened volatility and global growth worries will continue to benefit the gold mining segment in the coming days (read: Celebrate Chinese New Year With These ETFs).

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VanEck Vectors Gold Miners ETF (GDX): ETF Research Reports
 
iShares MSCI Global Gold Miners ETF (RING): ETF Research Reports
 
Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
 
Newmont Mining Corporation (NEM) : Free Stock Analysis Report
 
Goldcorp Inc. (GG) : Free Stock Analysis Report
 
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