The long-term performance of Kinross Gold (NYSE:KGC)stock has been, to put it bluntly, disappointing. Indeed, the KGC stock price today is nearly half of what it was in mid-2016, and it’s down 85% since the high it reached in 2011.
Tepid gold prices get the bulk of the blame for the poor performance of KGC stock. After peaking at just under $2000 per ounce in 2011, gold futures fell to a low of around $1100 in late 2015. Their current value of $1260 per ounce isn’t much better.
The outlook of KGC stock is clearly improving, though.
Most likely reflecting persistent, if not aggressive, inflation, gold prices and Kinross Gold stock are forging higher. More than that, however, for the first time in a long time, buyers are stepping up to the table in droves to purchase KGC stock. Bullish investors think they know something about KGC stock that other investors don’t.
Big-Time Buying of KGC Stock
KGC stock is certainly not the cleanest or most diversified way to play a rebound in gold prices, to be clear. That honor belongs to the SPDR Gold Trust (NYSEARCA:GLD), an ETF that performs the function of gold futures for investors who don’t have a futures-trading account. For investors looking for something more leveraged, there are instruments like the Direxion Daily Gold Miners Bull 3X ETF (NYSEARCA:NUGT) and the Direxion Daily Gold Miners Bear 3X ETF (NYSEARCA:DUST).
Yet right now, a great number of clues suggest that KGC stock has become a popular name and is en- route to higher highs, leaving it well-positioned to lead miners’ rebound.
One of those clues is the way that Kinross Gold stock made a decisive pivot out of a downtrend and into an uptrend in mid-November. Specifically, unusually high volume supported that rebound effort. While the chart below, which depicts the daily volume of KGC stock, makes that clear, the rising accumulation-distribution line and the Chaikin line’s cross back above the zero level confirm that KGC stock has attracted a mob of buyers.
The weekly chart of Kinross Gold stock puts the recent rebound effort in perspective. KGC stock was making its way to new 52-week lows, at least partially in response to the company’s poor third-quarter results. Then, things changed dramatically.
That dramatic change, for the record, was sparked by a combination of rebounding gold prices, the weakness of the U.S. dollar and the presumption that inflation in the United States hadn’t been tamed.
Gold is largely seen by investors as an effective hedge against inflation, and since it’s priced in dollars, what’s bad for the greenback is good for gold prices. Indeed, the pivot of KGC stock on Nov. 14 began on the very same day that investors learned that October’s price increases were the highest they’d been in nine months, and the same day that the U.S. dollar’s uptrend finally came to a halt.
But Kinross Gold stock isn’t the only gold-related name that’s moving higher on well-above-average volume. GLD and most other gold-related instruments are acting in the same manner. Traders are showing they believe that the coming year could be rougher than this one has been, necessitating defensive investments.
Nevertheless, Kinross shares’ recent strength is something of a standout.
The Bottom Line on KGC Stock
The question, of course, is one of longevity; is gold’s current rally sustainable? The performance of the U.S. dollar and U.S. inflation will likely be the keys to answering that question.
The November data on U.S. inflation posted just a few days ago says those trends likely will persist. Bolstering the odds of continued above-average inflation is the Federal Reserve’s new dovishness; the FOMC indicated that it would only raise interest rates twice in 2019,versus its previous plan of raising rates three times. Although the change will help the economy by easing the burden on consumers, it also raises the ceiling on how much prices will be allowed to rise for the foreseeable future.
The bullish growth in the trading volume of KGC stock seen since mid-November though — and really, since September — indicates that fans and followers of Kinross Gold stock were already making their bets that firm inflation is here to stay, and that KGC stock in particular will benefit from that trend. They may well be right.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
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