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Gold Stocks in Focus on Dovish Fed, Geopolitical Tensions

Sapna Bagaria

Gold price was a beneficiary of the recent dovish Fed meeting as well as rising tensions from the U.S.-China trade war and recent attacks in the Persian Gulf.

The time-tested safe haven commodity gold took no time to drum up investor attention and quickly found its price soaring.

Gold prices on Thursday closed at $1392 per ounce, gaining 3.54%, with U.S.-listed mining companies benefiting from the rise.

Vista Gold Corp. VGZ jumped nearly 4% to $0.811 as it continues its successful year-to-date rally of more than 50%. Gold Fields Limited GFI was also a huge beneficiary from the rise in gold price, increasing 4% to $5.4. Other U.S. gold miners that rose on the back of gold price were AngloGold Ashanti Limited AU, up 6.92%, and Alamos Gold, Inc. AGI, up 6.94% to $6.01.

Year to date, the gold mining industry has gained 23% compared with the Zacks S&P 500 composite rise of 15.5%.

Weak Economic Data

The Philly Fed Manufacturing Index, which reflects the manufacturing activity in the United States, fell to just 0.3 in June from 16.6 in May. The same also missed the expectation of 12.0. This is close to the level of zero seen in February and reflects ongoing weakness in the manufacturing industry, with manufacturers facing falling orders and shipments.  

Also, nonfarm payroll grew 75,000 in May, falling below the consensus of job gains of 180,000 and decreasing from 224,000 new jobs added in April. This also points to the peaking of the employment in the United States.

The weakness in manufacturing activity and the likely peaking of employment will increase the odds of a rate cut. This is especially true as Fed in its June meeting said that it would keep the rates flat for now and only slash them if economic conditions worsen. This dovish stance from Fed also weakened dollar, leading to gains in gold prices.

U.S.-China Spat and Monetary Easing by Other Economies

The continuing trade war between the United States and China has started to have repercussions globally, with Australia, European Union, China and others facing decline in exports and slower GDP growth. To support economic growth, major central banks of the world are leaning on an easy monetary policy, which boosts commodities in general.

Meanwhile, the teams of both countries are preparing for talks between Trump and Xi-Jinping at the G20 summit in Japan to be held next week. Analysts caution that chances of a decisive breakthrough are low, since now the concerns have spread from trade barriers to other structural issues such as protection of intellectual property and technology.

A stalemate in this meeting will continue to keep global economic growth under check, thus favoring gold.

Rise in Tension in Persian Gulf

The already-fragile relations between Washington and Theran became more tensed after a U.S. military drone was shot down near the Strait of Hormuz on Thursday.

Oil prices jumped with futures climbing nearly 6%. This tension is likely to get worse before being resolved, which will escalate geopolitical uncertainty, therefore leading investors to seek safe assets.  

Among the stocks mentioned above AngloGold carries a Zacks Rank #1 (Strong Buy) and Vista Gold holds a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

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Alamos Gold Inc. (AGI) : Free Stock Analysis Report
Gold Fields Limited (GFI) : Free Stock Analysis Report
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AngloGold Ashanti Limited (AU) : Free Stock Analysis Report
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