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Gold Slips on Prospects of US-China Trade War Truce

Madhurima Das

Gold prices have declined from the threshold level of $1,400 an ounce owing to the prospect of renewed talks to end the prolonged trade dispute between the world's two largest economies, the United States and China. The development has dented the safe-haven appeal of the yellow metal.

President Donald Trump and Xi Jinping agreed to resume trade talks after Trump said he would refrain from imposing additional tariffs on Chinese imports. Trump also talked of easing restrictions against Huawei Technologies and let U.S. companies resume business with China’s largest telecommunications equipment maker. China, in turn, has agreed to purchase U.S. farm products.

Prospects of a ceasefire as well as a surprise meeting between Trump and North Korea’s leader Kim Jong Un to resume stalled nuclear talks led to a stronger dollar. Consequently, gold prices dropped 1.4% in a day to $1,390.43 an ounce.

Gold has had a stellar run so far this year, hitting a six-year high of $1,439.21 on Jun 25. The current dip notwithstanding, price of the yellow metal is up roughly 10.3% year to date. Safe haven demand triggered by uncertainty over the U.S.-China standoff and ongoing US-Iran tension has fueled the safe haven demand for gold so far this year. The yellow metal also benefited as the Federal Reserve signaled possible rate cuts of as much as half a percentage point later this year.

We have now entered the second half of the year, which is seasonally stronger in India due to wedding and festive seasons. Going forward, demand will remain strong with India and China acting as the major drivers. The expanding middle class combined with broader economic growth will have a significant impact on gold demand. The combination of lower mined gold supply and higher demand and geopolitical tensions could eventually drive the prices north, which bodes well for gold-miners.

Gold Industry Performance


The Gold Mining industry has rallied 28.6% so far this year compared with the S&P 500’s growth of 16.4%. Going by the EV/EBITDA multiple (a preferred valuation metric for mining companies that have high capital expenditures), the gold mining industry has a trailing 12-month EV/EBITDA multiple of 9.9, much lower than the S&P 500’s EV/EBITDA multiple of 11.3.

We suggest four gold-mining stocks that have a Zacks Rank of #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Agnico Eagle Mines Limited AEM: This Toronto, Canada-based company sports a Zacks Rank #1. The Zacks Consensus Estimate for earnings per share for fiscal 2019 suggests year-over-year growth of 136.43%. The estimate moved up 13% over the past 90 days. The company has a long-term estimated earnings growth rate of 1%. The company has an average positive earnings surprise history of 144.79%. Shares of this company have gone up 26.8% year to date.

Vista Gold Corporation VGZ: Shares of this Littleton, CO-based company have gained 44.7% year to date. The stock currently carries a Zacks Rank #2. The Zacks Consensus Estimate for earnings for fiscal 2019 has gone up 10% over the past 90 days.

Franco-Nevada Corporation FNV: The Zacks Consensus Estimate for earnings for this Toronto, Canada-based company suggests year-over-year growth of 11.97%. Further, the estimate has moved north 8% over the past 90 days.  The company has an average positive earnings surprise history of 6.38% over the trailing four quarters.  The company has a long-term estimated earnings growth rate of 4% and a Zacks Rank #2. Shares of this company have gone up 20.9% year to date.

Gold Fields Limited GFI: This Sandton, South Africa-based company currently carries a Zacks Rank #2. The Zacks Consensus Estimate for fiscal 2019 has gone up 200% over the past 90 days. The stock has surged 53.6% year to date.

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Agnico Eagle Mines Limited (AEM) : Free Stock Analysis Report
 
Gold Fields Limited (GFI) : Free Stock Analysis Report
 
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