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Gold Stocks AKG & HMY Shining Amid Trade, Syria Tensions

Anindya Barman
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Gold prices have been volatile but range-bound so far this year. Prices of the metal are up more than 2% in 2018 after racking up a healthy 12% gain last year. Spot gold touched 2018 high of $1,366 an ounce on Jan 25 and the yellow metal is currently trending above the psychological level of $1,300 an ounce.

Prices of gold hit a 5-week high in March 2018 as a “less hawkish” Fed stance and threat of a fierce trade war between the United States and China weighed on the dollar and equities.

Moreover, gold prices reached their highest level since Jan 25 yesterday as concerns over a possible U.S. military action against Syria sparked demand for the safe-haven asset. The increasing geopolitical tensions add to the investors uncertainty while gold is sought as a store of value in these times. This provides a boost to gold prices.

Factors that Aid Gold’s Cause

The U.S. Federal Reserve raised the benchmark interest rate by 25 basis points to 1.50%-1.75% in its March meeting citing a brighter economic outlook. The Fed also maintained the number of expected rate hikes for 2018 at three, sticking to a gradual path of increases. The speculation of four hikes this year led to a plunge in dollar and provided a lift to gold prices. A slower pace of increases to interest rates augur well for gold prices.

Moreover, fears of an intense trade war between Washington and Beijing have gripped the equity market, weakened the dollar and worked in favor of gold in the process. Stock markets have been skittish in recent weeks over the prospects of a full-blown U.S.-China trade war.

China, earlier this month, declared plans of imposing tariffs of 25% on more than 100 American products with shipment values worth as much as $50 billion. The Trump administration responded with a proposed $100 billion in additional tariffs on China, further intensifying the trade tussle between the two countries. The U.S. had earlier announced sweeping tariffs on $50 billion of imports from China.

Nevertheless, Chinese President Xi Jinping recently said that Beijing would lower tariffs on imported cars, thereby easing trade tensions for now. However, the Chinese commerce ministry has reportedly said that China will not hesitate to fight back should the United States takes any action to escalate the situation.

Gold prices are also finding support of late from geopolitical tensions. President Donald Trump, yesterday, warned Russia of an imminent military action in Syria following a suspected chemical attack by the Assad Regime in the rebel-held suburb of Douma, east of Damascus, that claimed several lives. Concerns over escalating tensions in Syria lead to a spurt in gold prices.

What’s in the Cards for Bullion?

Uncertainties in the markets triggered by the developments over the past month are expected to continue to be supportive for gold prices as investors will shun risk assets such as equities and instead turn to gold.

The developments over the past month have led to a spike in shares of several gold miner including NovaGold Resources Inc. NG, Goldcorp Inc. GG, Barrick Gold Corporation ABX and Newmont Mining Corporation NEM that saw roughly 16%, 8%, 8% and 7% gains, respectively, over a month.

There are a number of reasons to be optimistic about gold’s performance in 2018. A number of new mines entered production in fourth-quarter 2017, which might support mine production till 2018. On the demand side, major markets, India and its neighbor China will continue to be growth drivers.

Last year, the Indian market had suffered a setback due to the impact of imposition of Good and Service Tax (“GST”) and anti-money laundering legislation (“AML”) around jewelry retail transactions. We expect it to bounce back as the market adapts to GST. Moreover, government measures like mandatory hallmarking in 2018, will be a positive move for the industry.

Further, the United States continues to be a strong market driven by economic growth, improving employment levels and growth in consumer confidence. Demand from central banks is also expected to remain strong.

Market-Beating Returns, Attractive Valuation

The Zacks Gold Mining industry has advanced roughly 5.5% compared with the S&P 500’s dip of 4.7% in a month’s time.


 

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 8, lower than the S&P 500 EV/EBITDA multiple of 11.4. The industry’s lower-than-market positioning calls for some more upside moving ahead.

2 Gold Stocks Worth a Look

Geopolitical tensions and lingering concerns over a trade war might reduce investors’ appetite for riskier assets and fuel demand for safe-haven gold. This may trigger more upside for the bullion in the near term.  

Below we have highlighted a couple of gold stocks that are good buys right now, backed by a strong Zacks Rank and upward estimate revisions.

Asanko Gold Inc. AKG

Vancouver, Canada-based Asanko Gold carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The company has a market capitalization of $203.5 million.

The company has an expected earnings growth of 33.3% for the current year. In the past 60 days, the Zacks Consensus Estimate for earnings for 2018 has moved up 300%. The company has also delivered a positive earnings surprise of 20.8% over the trailing four quarters. Moreover, Asanko Gold has gained around 42% year to date.

Harmony Gold Mining Company Limited HMY

South Africa-based Harmony Gold sports a Zacks Rank #2 (Buy). The company has a market capitalization of around $1 billion.

Harmony Gold has an expected earnings growth of 33.3% for 2018. Earnings estimates for the current fiscal year have been revised 27% upward over the last 60 days. The company has also gained around 24% year to date.

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Newmont Mining Corporation (NEM) : Free Stock Analysis Report
 
Barrick Gold Corporation (ABX) : Free Stock Analysis Report
 
Goldcorp Inc. (GG) : Free Stock Analysis Report
 
Novagold Resources Inc. (NG) : Free Stock Analysis Report
 
Harmony Gold Mining Company Limited (HMY) : Free Stock Analysis Report
 
Asanko Gold Inc. (AKG) : Free Stock Analysis Report
 
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